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Timothy Carney and Erin Dailey recently obtained a victory for the Life Insurance Company of North America (“LINA”) before the Tenth Circuit Court of Appeals.  The issue in Brimer v. Life Insurance Company of North America, No. 11-5032 (10th Cir. Feb. 10. 2012), was whether the wife and children of James Brimer were entitled to accidental death benefits after Mr. Brimer died of an overdose of prescription drugs.  Read the full decision.

Mr. Brimer was insured under the group accidental death and dismemberment policy issued by LINA to his former employer.  Following his death, his wife and children (“Plaintiffs”) made a claim for accidental death benefits.  LINA investigated and initially denied the claim on the basis of the policy’s Exclusion 7, which excluded benefits for loss “resulting from … [v]oluntary self-administration of any drug or chemical substance not prescribed by, and taken according to the directions of, a licensed physician.”  Plaintiffs appealed the denial, arguing that Exclusion 7 was ambiguous.  In response, LINA requested that Plaintiffs submit evidence to show that Mr. Brimer’s death was not foreseeable, or that “Mr. Brimer’s death was not the result of medical or surgical treatment or the result of a sickness, disease, or bodily infirmity,” language taken from the policy’s “medical treatment exclusion,” Exclusion 6.

Plaintiffs declined to submit additional information, and LINA affirmed its denial of the claim on the bases that: (1) Mr. Brimer’s death was not accidental, as it was the foreseeable result of his own voluntary actions; (2) the loss was excluded under the plan’s medical treatment exclusion [Exclusion 6]; and (3) the loss was excluded by Exclusion 7.

Plaintiffs then filed suit.  Because the terms of the plan did not give LINA discretion to determine whether benefits were payable, the de novo standard of review applied.  Plaintiffs argued that Exclusion 7 was ambiguous and should be construed against LINA, and that LINA could not rely upon Exclusion 6 because it was not raised in the initial denial letter. 

The district court initially upheld LINA’s decision on the basis that the death was foreseeable and therefore not an accident, and, in the alternative, that the medical treatment exclusion [Exclusion 6] excluded coverage for the loss.  Plaintiffs filed a “Motion for New Trial.”  In their Reply in Support of their Motion for New Trial, Plaintiffs argued for the first time that Exclusion 6 conflicted with Exclusion 7, creating an ambiguity such that Exclusion 6 should also be construed against LINA.  The district court entered an amended order, this time finding that the death was not foreseeable and was thus an accident, but upholding LINA’s denial of accidental death benefits on the basis of Exclusion 6.  In the amended order, the district court also found that Exclusion 7 was ambiguous and should be construed against LINA.  The district court did not address Plaintiffs’ argument regarding an alleged ambiguity between Exclusions 6 and 7 because the argument was not timely raised.

Plaintiffs appealed.  The Tenth Circuit held that LINA committed a procedural error when it did not rely upon Exclusion 6 until the decision on Plaintiffs’ administrative appeal.  However, the Court determined that the district court properly applied Exclusion 6, because Plaintiffs were not prejudiced by the procedural error.  Specifically, the Court observed that it was undisputed that Mr. Brimer died of an overdose of prescribed drugs and Plaintiffs conceded that the policy itself was the only evidence relevant to determining whether Exclusion 6 barred their claim.  The Tenth Circuit also declined to address Plaintiff’s argument regarding an alleged ambiguity between Exclusions 6 and 7, agreeing with the district court that this argument was waived.

The take-away lessons from this decision include:

  1. If a claim is going to be denied, an ERISA claims administrator should identify and include in the initial denial letter all reasonable grounds for denying benefits that may apply, even if it may seem duplicative or unnecessary;
  2. If an ERISA claims administrator wishes to add a new basis for a claim denial during the administrative process, it should explicitly inform the claimant of the new basis that is being considered and allow the claimant to submit information relevant to the new basis or risk a court finding that a procedural error was committed;
  3. Even if a procedural error occurs in the claim decision process, a court may require the claimant to show prejudice in order to obtain a remedy for the error.