Ninth Circuit Discusses the $110/Day Penalty Under Section 502(c)(1)(B) of ERISA

INTRODUCTION

Under ERISA, a plan administrator who fails to provide a participant with certain plan information could face a penalty of up to $110 a day. Specifically, section 502(c)(1)(B) of ERISA (29 U.S. Code §1132(c)(1)(B)) provides that:

• Any [plan administrator] who fails or refuses to comply with a request for any information which such administrator is required by this subchapter [subchapter I of Chapter 18 of Title 29] to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator) by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court’s discretion be personally liable to such participant or beneficiary in the amount of up to [$110] a day from the date of such failure or refusal…

Some of the information a plan administrator must so furnish, or face the penalty, is described in section 104(b)(4) of ERISA (29 U.S. Code §1024(b)(4)), which provides that:

• The [plan administrator] shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.

Two questions which often arise are: (1) when has a request for information been made under section 104(b)(4) and (2) what failures to provide information can be subject to the section 502(c)(1)(B) penalty?

Both of these questions were addressed in the unpublished case of Lee v. ING GROEP, N.V., Nos. 14-15848,14-15936 (9th Cir. 2016) (“Lee”).

THE CASE

In Lee, Curtis Lee (“Lee”) was a former employee of ING Investment Management, LLC. Through his employment, Lee participated in a long term disability plan that is governed by ERISA (the “Plan”). ING North America Insurance Corporation (“ING”) was the plan administrator of the Plan. Lee applied for long term disability benefits under the Plan, which he received for a while, but then his benefits were terminated. Lee filed a lawsuit against ING, his employer and others, seeking, among other things, statutory penalties against ING under section 502(c)(1) of ERISA for failing to timely produce documents he had requested. The district court granted summary judgment to Lee on this claim and imposed a penalty of $27,475 on ING. Subsequently, ING appealed.

FACTS PERTAINING TO THE STATUTORY PENALTY

On January 20, 2010, ReliaStar Life Insurance Company, the claims administrator for the Plan, indicated that ReliaStar had insufficient evidence of Lee’s continuing disability to approve further disability benefits. In response, on February 5, 2010, Lee’s attorney wrote two letters requesting documents.

The first letter was sent to Yoon Kim, counsel for ING. This letter stated that Lee was entitled to a broad range of documents and requested “copies of all relevant communications … concerning Curtis Lee and his claims for disability benefits” and specifically referenced certain email communications. Kim interpreted this letter as a request for “all documents relevant to Curtis’ claim for benefits.” The second letter was sent to James Kochinski, counsel for ReliaStar, the claims administrator. This letter explicitly requested all documents relevant to Lee’s claim. Kochinski informed Kim about this letter. On November 9, 2011, ING produced the requested emails. On March 11, 2013, ING produced a copy of the official plan document for the Plan (the “Plan Document”).

The district court imposed the penalty under section 502(c)(1) on ING, since the requested emails and the Plan Document were produced more than 30 days after the day on which the request for information was made by Lee’s attorney.

PENALTY FOR FAILURE TO PRODUCE THE PLAN DOCUMENT

In deciding whether this penalty is valid, the Court noted that there is no dispute that section 502(c)(1) authorizes penalties for failing to produce the Plan Document. It is clear, on the face of section 104(b)(4) of ERISA, that a copy of the Plan Document may be requested under that section. However, said the Court, ING argues that Lee never actually requested the Plan Document in his February 5, 2010, letter to Kim. Rather, the letter asked only for copies of email communications.

The Court responded to this argument by stating that no genuine issue of material fact exists as to whether Lee requested the Plan Document. Lee sent a document request to ING’s counsel on February 5, 2010. Regardless of the exact wording of this letter, ING’s counsel interpreted the letter as a request for all documents relevant to Lee’s claim. In addition, ING was aware of the letter sent to ReliaStar that explicitly requested all relevant documents. ING did not dispute that the Plan Document was a relevant document, or that it did not produce the Plan Document within 30 days of February 5, 2010. As such the Court affirmed the district court’s decision to impose a penalty on ING for its failure to timely produce the Plan Document.

Comment: In other words, the Court felt that no reasonable individual could doubt that a request for “all documents relevant to Lee’s claim,” of which ING was aware, included a request for the Plan Document under section 104(b)(4). The Plan Document is the official document for the plan, setting out the terms and conditions of the plan, all of which are potentially relevant to Lee’s claim. This decision is in accord with the factually similar case of Cultrona v. Nationwide Life Insurance Co., 748 F.3d 698 (6^th Cir. 2014). Despite adopting the “clear notice doctrine,” under which claimants seeking documents under section 104(b)(4) must provide clear notice as to what they are asking for, this court ruled that a request for “all documents comprising the administrative record and/or supporting Nationwide’s decision” constitutes a request for the insurance policy under section 104(b)(4), a key document pertaining to the benefit claim.

There are two points here, when a claim for medical, health or disability benefits is at issue. First, counsel for the party to whom a request for “all documents relevant to the claim for plan benefits” has been made should understand that the request includes, at the least, the official plan document, the summary plan description and any insurance contract funding the plan; these documents are central to the operation and administration of the plan. Second, and admittedly important despite the first point, counsel for the party claiming benefits should take a little time and specifically ask for: (1) the official plan document, the summary plan description, the insurance contract, (2) any specific materials relating to the claim of which counsel is aware, and which governs entitlement to or amount of the benefit, and (3) any rules, procedures or policies on which a benefit determination is based or which otherwise governs the operation or administration of the plan (see the discussion below of what must be furnished under section 104(b)(4)). The use of a phrase like “all materials relevant to the claim” itself might not produce any information or documents (other than those in (1)) due to the clear notice doctrine.

PENALTY FOR FAILURE TO PRODUCE THE REQUESTED EMAILS

The parties and the Court agreed that the emails—which contained information relating to Lee’s claim for benefits—were required to be produced under the ERISA claims regulations. Those regulations, specifically at 29 C.F.R. §2560.503-1(h)(2)(iii), require employee benefits plans to “[p]rovide that a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.”

However, the Court said that ING argued that the failure to produce materials required to be furnished under 29 C.F.R. §2560.503-1(h)(2)(iii) cannot give rise to a penalty under section 502(c)(1). This obtains because the ERISA claims regulations, specifically 29 C.F.R. §2560.503-1(h), imposes requirements on benefits plans, and not on plan administrators, and section 502(c)(1) only applies to documents that plan administrators are required to produce.

The Court noted that the First, Second, Third, Sixth, Seventh, Eighth, and Tenth Circuits, as well as several district courts in the Ninth Circuit, have all agreed with ING’s argument, and found that a failure to follow claims procedures imposed on benefits plans, as outlined in section 503 of ERISA (29 U.S.C. §1133) and the ERISA regulations thereunder at 29 C.F.R. §2560.503-1, cannot give rise to a penalty under section 502(c)(1). The Circuit Court cases cited are: Halo v. Yale Health Plan, Dir. of Benefits & Records Yale Univ., 819 F.3d 42, 58, 60-61 (2d. Cir. 2016); Medina v. Metro. Life Ins. Co., 588 F.3d 41, 48 (1st Cir. 2009); Brown v. J.B. Hunt Transport Servs., Inc., 586 F.3d 1079, 1089 (8th Cir. 2009); Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397, 405-07 (7th Cir. 1996); VanderKlok v. Provident Life and Accident Ins. Co., 956 F.2d 610, 618 (6th Cir. 1992); Walter v. Int’l Ass’n of Machinists Pension Fund, 949 F.2d 310, 315-16 (10th Cir. 1991); Groves v. Modified Ret. Plan for Hourly Paid Emps. of the Johns Manville Corp. and Subsidiaries, 803 F.2d 109, 116 (3d Cir. 1986).

The problem here, continued the Court, was that the district court agreed with the other circuits that ING’s reading of the penalty statute was the better reading, but found that it was bound by this Court’s precedent in Sgro v. Danone Waters of North America, Inc., 532 F.3d 940 (9th Cir. 2008) (“Sgro”), to side with Lee.

The Court solved this problem by declaring that the court in Sgro did not expressly rule on the matter, and any indication in that case that a section 502(c)(1) penalty could be imposed on the failure to provide information required by the ERISA claims regulations is non-binding dicta. As such, the Court decided to join its sister circuits and accept ING’s argument. It said that “plans” and “plan administrators” are separate entities with separate definitions under ERISA, citing sections 3(1), (2)(A), (3), and (16)(A) of ERISA (29 U.S.C. §1002(1), (2)(A), (3), and (16)(A)). Penalties under section 502(c)(1) can only be assessed against “plan administrators” for failing to produce documents that they are required to produce as plan administrators. The Court reiterated that 29 C.F.R. §2560.503-1(h)(2)(iii) does not impose any requirements on plan administrators, and so cannot form the basis for a penalty under section 502(c)(1).

As such the Court reversed the district court’s decision to impose a penalty based on ING’s failure to timely produce the emails. The Court therefore vacated the penalty award, and remanded the case back to the district court to assess a penalty based solely on the failure to timely produce the Plan Document.

Comment: Presumably, based on the language the Court used, the decision in Lee would apply to any materials or documents required to be provided upon request under the ERISA claims procedure regulations. For example, in addition to the requirement of 29 C.F.R. §2560.503-1(h)(2)(iii) referred to above, the claimant must, upon request, be furnished with any documents, records, and other information relevant to the claimant’s claim for benefits (29 C.F.R. §2560.503-1((j)(3)).

Despite the precedent in the other Circuits, the ruling by Lee that the 502(c)(1) penalty does not apply to the failure to furnish information required under the ERISA claims procedure is puzzling.

First, the plan can only function through the plan administrator. A command that the plan must provide certain information has to be interpreted to be as a command that the plan administrator furnish this information. The plan and the plan administrator should be one and the same for ERISA purposes. The ERISA claims procedure regulations itself requires the plan administrator to send to the claimant a notice that an initial benefit claim or subsequent appeal has been denied. 29 C.F.R. §2560.503-1(f)(1), (g)(1), (i)(1) and (j). Further, in the case of a rejection of an appeal, the regulations, at 29 C.F.R. §2560.503-1(i)(5), require the plan administrator to provide the claimant with access to, and copies of, certain documents, records, and other information described in the regulations. This indicates that the regulations require the plan administrator to act for the plan, and that the plan and plan administrator are one and the same for purposes of ERISA claims procedure.

At the very least, the section 501(c)(1) penalty should be imposed when the plan administrator fails to provide information or documents which the claims procedure regulations expressly require the plan administrator to provide.

Second, the ERISA Claims procedure—found in section 503 of ERISA (29 U.S. Code §1133)—is located in subchapter I of Chapter 18. That in itself makes the section 502(c)(1) penalty potentially applicable to any information required to be furnished by the claims procedure or the regulations thereunder. By its terms, section 502(c)(1) applies to information required to be provided under the same subchapter, again subchapter I of Chapter 18, like section 503. Information should include that required by regulation promulgated under the statute. Admittedly, the Third Circuit in Groves, cited in Lee, thinks otherwise, saying that the reference to the subchapter in section 502(c)(1) is to the statute, not the underlying regulations (p. 111 of that case). The Seventh Circuit, in Wilczynski, also cited in Lee, agrees with Groves on this point (p.406-407 of that case). However, the position taken by the Third and Seventh Circuit is very questionable.

Third, the emails requested—which contained information relevant to Lee’s claim—could have been deemed to have been requested as “other instruments under which the plan is established or operated” under section 104(b)(4) and therefore the section 502(c)(1) penalty would have been applicable. The majority of the Circuit Courts seem to take the position that an “other instrument” is a formal or legal document which establishes or governs a plan. See Murphy v. Verizon Communications, Inc., 587 Fed. Appx. 140 (5th Cir. October 14, 2014); Brown v. American Life Holdings, Inc., 190 F.3d 856 (8th Cir. 1999); Ames v. American National Can Co., 170 F.3d 751 (7th Cir. 1999); Doe v. Travelers Ins. Co., 167 F.3d 53 (1st Cir. 1999); Board of Trustees of the CWA/ITU Negotiated Pension Plan v. Weinstein, 107 F.3d 139 (2d Cir. 1997); Faircloth v. Lundy Packing Co., 91 F.3d 648 (4th Cir. 1996).

The less popular view is that information or documents must be provided if they will help the requesting participant to understand his or her rights to benefits under the plan (See Bartling v. Fruehauf Corp., 29 F. 3d 1062 (6th Cir. 1994), or that they must be provided to the extent they provide information about the plan and benefits (see Hughes Salaried Retirees Action Committee v. Administrator of the Hughes Non-Bargaining Retirement Plan, 72 F.3d 686 (9th Cir. 1995)).

The U.S. Department of Labor ( the “DOL”) has taken a view that is a bit more expansive than the majority view. It has noted that, under 29 CFR 2560.503-1(g)(1)(v)(A) and (j)(5)(i) in the ERISA claims procedure regulations, where a rule, guideline, protocol, or similar criterion (a “Rule”) serves as a basis for making a benefit determination during a claims review (either at the initial level or upon review), the Rule must be provided to the claimant upon request. The DOL has expressed the view that the request for a Rule is treated as a request for “other instruments” for purposes of section 104(b)(4). Admittedly, says the DOL, the underlying data or information used to develop any such Rule would not be treated as an “other instrument”. See the DOL’s FAQs About The Benefit Claims Procedure Regulation, C-17.

Following the majority rule and the DOL’s position, to the extent the emails included any rules, guidelines, procedures or policies on which a benefit determination is based, and thus govern plan operation or administration, the emails would have to be furnished under section 104(b)(4), and the section 502(c)(1) penalty would apply to the failure to so furnish them.

CONCLUSION

In sum, there are issues as to whether the section 502(c)(1) penalty applies to the failure by the plan or plan administrator to furnish information and documents as required by the ERISA claims procedures. There should be future developments by the federal courts on this matter.