In Ruderman v. Liberty Mut. Grp., Inc., No. 21-817, 2022 WL 244086 (2d Cir. Jan. 27, 2022), the U.S. Court of Appeals for the Second Circuit ruled that reclassification of a claimant’s disability from one that is physically-based to one that is psychiatrically-based does not constitute an “adverse benefit determination” within the meaning of 29 C.F.R. § 2560.503–1(m)(4)—even if the change in status results in a limitation of the maximum benefits available to a claimant.
The plaintiff in Ruderman filed a claim for long-term disability following a cycling accident in July 2011. Liberty accepted and paid the plaintiff’s claim through September 2017, at which time benefits terminated on the basis that the plaintiff failed to demonstrate that she remained disabled under terms and conditions of the governing policy. The plaintiff administratively appealed Liberty’s decision.
On September 10, 2018, Liberty sent the plaintiff a letter to inform her that it had reversed its decision to terminate her benefits. Then, on September 11, 2018, Liberty sent the plaintiff a second letter to inform her that her updated medical records did not support a finding of neurocognitive impairment (i.e., physical condition), but rather supported a finding of a mental health impairment (i.e., a mental/nervous condition) as of July 2018 forward. This reclassification of the plaintiff’s health status meant that her disability benefits would be capped at eighteen months from July 2018.
Liberty continued to pay disability benefits to the plaintiff through December 2019 (i.e., the maximum eighteen month period). On December 3, 2019, Liberty notified the plaintiff that her benefits would terminate on December 30, 2019, in accordance with the policy’s mental/nervous limitation, and that she had 180 days to administratively appeal the termination of her disability benefits. The plaintiff did not file an administrative appeal, and instead commenced a lawsuit against Liberty in August 2020.
Liberty moved to dismiss the plaintiff’s complaint for, among other things, failing to exhaust administrative remedies. In opposition to Liberty’s motion, the Plaintiff challenged that Liberty failed to comply with the ERISA claims procedures regulation, 29 C.F.R. § 2560.503–1, because its September 11, 2018 letter was “an adverse benefit determination,” id. § 2560.503–1(m)(4)(i), and did not contain “a statement of the claimant’s right to bring a civil action.” Id. § 2560.503–1(g)(1). According to the plaintiff, Liberty’s September 11, 2018 reclassification letter “unilaterally changed the scope of her benefits … as a subterfuge to avoid the consequences of the very appeal that she just won, literally the day before.” “[I]f an appeal was required,” the plaintiff argued, Liberty should have “apprised of her ERISA rights” on September 11, 2018, when her health status was reclassified in such a way as to limit the maximum benefits available to eighteen months.
Both the District Court and the Second Circuit rejected the plaintiff’s argument, ruling that the September 11, 2018 “letter ‘did not qualify as a denial, reduction, or termination of benefits’ requiring notice of the right to appeal” under the ERISA claims procedures regulation. Ruderman, 2022 WL 244086, at *3 (citing Ruderman v. Liberty Mut. Grp., Inc., No. 1:20-CV-945, 2021 WL 827693, at *4 (N.D.N.Y. Mar. 4, 2021)). See also 29 C.F.R. § 2560.503-1(m)(4) (“The term ‘adverse benefit determination’ means … [a] denial, reduction, or termination of … a benefit”).
According to the Second Circuit, the September 11, 2018 “letter announced [the plaintiff’s] new disability classification and provided a termination date for benefits based on that disability … follow[ing] [Liberty’s] initial termination of her long-term disability benefits and subsequent reversal of that decision. As a result, the letter did not mark a ‘reduction’ of her benefits but rather a continuation of her benefits under a different classification.” Ruderman, 2022 WL 244086, at *3.
Regulatory compliance challenges like that presented in Ruderman have are a common feature of ERISA litigation in the Second Circuit in light of its seminal ruling in Halo v. Yale Health Plan, Dir. of Benefits & Recs. Yale Univ., 819 F.3d 42 (2d Cir. 2016). Ruderman offers practical insight and analysis in one aspect of ERISA claims procedures litigation, by confirming that an administrator’s decision to reclassify a claimant’s health status while a claimant is receiving disability payments is not an “adverse benefit determination,” even when such a decision limits maximum benefits available to a claimant.