According to the US Court of Appeals for the Second Circuit, strict compliance with the US Department of Labor (DOL) claims and appeals regulations is necessary to preserve a deferential standard of review for a plan administrator's determination. Under the Second Circuit's recent ruling in Halo v. Yale Health Plan, except for inadvertent and harmless errors, a failure to be in strict compliance with the regulations will allow a court to conduct a de novo review of a claim.
Every ERISA plan must have "reasonable" administrative procedures for addressing benefit claims and appeals. If the plan administrator fails to establish reasonable claims and appeals procedures, or if it fails to follow those procedures, a claimant can bring a claim for benefits directly to court for de novo consideration without deference to any decision that may have been made during the plan's flawed claims and appeals procedure.
By contrast, if reasonable claims and appeals procedures are established and followed, the claimant must exhaust those procedures before heading to court, the court's review generally will be limited to the information developed during the administrative proceedings, and the court typically will give deference to the decisions made by the plan administrator during the claims and appeals process (if the plan has language conferring discretion on the administrator). This means that a decision reached through the claims and appeals procedures likely will be reversed only if the decision was "arbitrary and capricious."
The Second Circuit’s Decision in Halo
When considering a challenge to a denied claim, courts historically have analyzed whether the process and communications were in "substantial compliance" with the DOL regulations. In a sharp departure from this standard, the Second Circuit rejected the "substantial compliance" doctrine as "flatly inconsistent" with the current DOL claims and appeals regulations. Instead, the court held, "when denying a claim for benefits, a plan's failure to comply with the Department of Labor's claims-procedure regulation . . . will result in that claim being reviewed de novo" unless the plan administrator can show that (i) the plan has established procedures that comply with the regulations, and (ii) the failure to comply with those procedures was inadvertent and harmless.1