Unclear SPD Language Results in Lawsuit Against Employer

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Unclear SPD Language Results in Lawsuit Against Employer
February 24, 2003 Santa Rosa, CA
Once again, a court has been asked to interpret the adequacy of language used in a Summary Plan Description (SPD). And once again, the employer's SPD has been found lacking. This recent opinion from the U.S. Court of Appeals underscores the importance of making certain that SPDs conform to legal requirements. Under Department of Labor rules, SPDs must contain accurate and comprehensive information to inform participants and beneficiaries of their rights and obligations under their employer's benefits plan, including specific language to explain COBRA rights. The document must be clearly written so as to be easily understood by the average plan participant. Employee Can Sue in Court Despite Failure to Use Administrative Remedies First Courts generally require that employees exhaust all available remedies under administrative procedures before being permitted to bring a claim in a court of law. However, in this case, an appeals court ruled that Gloria Watts could sue Bellsouth Telecommunications, Inc. for wrongful denial of disability benefits even though she failed to file administrative appeals. Ms. Watts had relied on confusing language in Bellsouth's SPD that led her to reasonably believe she could choose either to sue in court or seek administrative remedies. The appeals court allowed her to sue, explaining: "But for a misunderstanding engendered by the summary plan description, Watts would have timely pursued those remedies before going to court." The appellate court overturned a lower court ruling that dismissed Ms. Watt's lawsuit. In doing so, the court reasoned that to allow Ms. Watt to bring her claim in court will help ensure that employers and plan administrators take steps to clarify language that may cause claimants to fail to exhaust their administrative remedies. More clarity leads to better informed claimants, according to the court. SPD Language Was Unclear and Misleading The court examined the portions of the SPD that discussed administrative appeals and lawsuits. Bellsouth's SPD tells participants that they "may use" the administrative appeal procedure if their claim is denied and they "wish to appeal," yet on the very next page, it states that claimants "may" file a suit in federal court if their claim is denied. Nowhere does the document explain that using the administrative appeal procedure is necessary before a lawsuit may be filed. The court concluded that by describing without limitation either route as one the participant "may" use to obtain relief from denial of her claim, the SPD clearly implied that neither one was a prerequisite to the other. "To attorneys and judges familiar with the law in general and with ERISA law in particular, it may seem obvious that administrative remedies must come before a lawsuit, but to the average plan participant there is nothing obvious about it," the court said. Description of COBRA Rights Must Be Included in SPD Although this court opinion involved a claim for denial of disability benefits, it could just as easily apply to denial of COBRA rights under ERISA. Department of Labor regulations require that SPDs be revised to include a detailed and easily understood description of COBRA rights, including information about qualifying events, qualified beneficiaries, premiums, notice and election requirements, procedures, and duration of coverage. In addition to such basic COBRA information, the SPD should include explanations of how COBRA rights and duties are affected by other laws, including the newly passed Trade Assistance Act, HIPAA, Medicare entitlement and the FMLA. The document must clearly identify circumstances in which COBRA and other benefits may be denied, reduced or lost. To learn more about SPDs from the DOL, click here: DOL SPD Information (Watts v. Bellsouth, U.S. Court of Appeals, Eleventh Circuit, Dkt. No. 02-13230, January 3, 20023) The Eleventh Circuit Court of Appeals covers the following states: Alabama, Florida and Georgia.

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