Petition for Writ of Certiorari — Gagliano v. Reliance Standard Life Insurance Co (No. 08-1068)

No. _

Supreme Co

ah pu. U.S.

081068 FEB 1 7 2009

——— OFFICE OF Fue ope.

In The

Supreme Court of the Anited States

JOANNE GAGLIANO, PETITIONER,

RELIANCE STANDARD LIFE INS. Co.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Fourth Circuit

PETITION FOR A WRIT OF CERTIORARI

RosBert FE. Lloskins

Foster Law Firm. LLP

601 E. McBee Ave.

Suite 104

Greenville, SC

(864) 242-6200

29602

KARL WILLIAM PILGER,

BorinG & PinGcer, P.C.

307 Maple Ave. W.; Ste. D

Vienna, VA 22180

(703) 281-2161

FEBRUARY 2009

Perer K. Srris

Counsel of Record

BRENDAN S. MAHER

STRIS & MAHER LLP

1920 Abrams Pkwy, #430

Dallas, Texas 75214

(214) 224-0091

SHAUN P. MARTIN

UNIVERSITY OF SAN DIEGO

SCHOOL OF LAW

5998 Alcala Park

San Diego, CA 92110

(619) 260-2347

\ leashed

QUESTION PRESENTED

In this case, the Fourth Circuit expressly split with

its sister circuits on an important question about reme-

dies available under the Employee Retirement Income

Security Act of 1974, 29 U.S.C. 1901, et seg. (ERISA).

The Question Presented is:

If employee welfare benefits are terminated in vi-

olation of the procedures required by 29 U.S.C. 1133

and regulations promulgated thereunder, does 29

U.S.C. 11382(a)(3) permit a court to reinstate those ben-

efits (or enjoin their termination) until they are termi-

nated in compliance with ERISA?

RULE 14.1(B) STATEMENT

A list of all parties to the proceeding in the court

whose judgmen*? is the subject of this petitior is as fol-

lows:

Joanne Gagliano, Plaintiff/Appellee and Petitioner

Reliance Standard Life Ins. Co., Defendant-

Appellant and Respondent

Mariam, Inc., trading as Darcars Automotive

Group, and Unnamed Long Term Disability Ins. Plan

for Employees of Darcars, Defendants

(1})

TABLE OF CONTENTS

Page

IIE FRI is ssctctiexsssceascecieins eencrsceraene ee i

DECIR TOs Bie NCI soos sssscssionssacsincs kone i]

Fy OI ois oiisiek ccc ners eee iil

Tee OF CO RAS oicisinscssssacsisisustenitoscenianens lv

RN gic oie rctcscccocnctsansassccssuiasaioe ce nea 1

INI as acctsssiccnsoene covcasetenumnusaveness gunn deka 1

Statutory Provisions Involved ..............0. leassnadbalaiceiastoes ]

CR CIE AE I Ci ese eo encdedls hs ee ee 1

Reasons for Granting the Wiit.................cccssccsssesevosesees 10

I. ASTHE FOURTH CIRCUIT ACKNOWLEDGED,

THE CIRCUITS ARE DIVIDED OVER THE

Qu CST TF RECTED incinickctcccrtincnmnncneen 10

ll. THE QUESTION IS EXTREMELY IMPORTANT. .......... 13

ITI. IMMEDIATE REVIEW Is NEEDED .......0.........2eceeeceeees 16

CRIN incense cea ibeene ee 20

TABLE OF CITED AUTHORITIES

Page(s)

Cases:

Abate v. Hartford, Equiva Services, LLC et ai,

471 F Supp. 2d 724 (E.D.Tex. 2006)... 17

Beck v. PACE Inti. Union, 127 S.Ct. 2310

2 7 RS ERUAED Be LOE SAREE ERIN rT NLR HT eee ORNS RN 15

Fort Halifax Packing Co., Inc. v. Coyne, 482

AB De EL: 7 EARNER eOC ONS Tee Ie LST NOR SNe Ey 16

Gayle v. United Parcel Service, 401 F.8d 222

ORI MIE ea tied een sua ovceshvceclcaLikerenadabonenccolaies 13-14

Gilbertson v. Allied Signal, Ine. et al., 328 i" .3d

ee ee ee ao ailei op econ nc chetcenceedvauancnsanowins 14

Great-West Life & Annuity Ins. Co. v. Knud-

SOE Te 9s I CI vine sniiecaxensusdeaxentonwccurabcansoaceernardc 4

Grossmuller v. Int’. Union et al, 716 F.2d 852

Re ED acacia sade scitrai siccicesa suds anne 11-12

LaRue v. DeWolff Boberg, & Assoc., Inc., 128

ie a PO MIE deriss ccuhdgsetiardcuscnehebe et ccceaaesesioacsianerss 4,15

Laucks v. Provident Cos., No. 16 V971507, 1999

WL die on at *9 (M.D. Pa., October 29,

PEPEIO FOUR vies caciay esvvasscanconoaceannbcccetactsoxsocecesans ld

Leahy v. Raytheon Co., 315 F.3d 11 (CA1 2002) .......... 14

Massachusetts Mutual Life Ins. Co. v. Russell,

ee ee a le a 3.4

Mertens v. Hewitt Associates, 508 U.S. 248

D5) RRS Cee ieee pe eRe NIG Io NR ENS eT NE Ea |

Met. Life Ins. Co. v. Glenn, 128 S.Ct. 2348

Mullin v. Whirlpo ol Corporation, ct al., 2007

US. Dist. LEXIS 12065 (N.D. Iowa 2007) ..............17

Pannebecker v. Liberty Life Assurance Co.,

BES FBG VEIS OAD DBD on veseccs essa cecicnacsescensecsnesnes 12,15

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41

Schneider v. Sentry Group Long Term Disabil-

ity Plan, 422 F.3d 621 (CAT 2005) ................cccc00. 11,17

Sereboff et ux. v. Mid Atlantic Med. Servs.,

BE, Se RA. FI Ce incin ss acsencaiicensaosecensetssne racine 4

Wenner v. Sun Life Assurance Co., 482 F.3

ee Ne NE Bogs ater ac sSeh cede uae beda dames 10-11, 18

Urso v. Prudential Ins. Co. of America, 2004

US. Dist. LEXIS 239380 (D.N.H. 2004)............... 16-17

Statutes and regulations:

iy os sioa ds 3 sos ccs hated nseavursecacarmrsnrs 2.9

SR ie Sica ones cicoereemnenummelnten 2

re ee EID vacccnneasaiisdecuicy savcacetcacnenepncevensessoudaconcn 4

BE RF eT? oii ions sdicoas acaslaeectadtcnaean 2

I . I rcepiinacersicsaneisinucnninticaneedonarsietpatsecens 4-5

x! Ge. TORE 6: See iideclianlaluetnaaeaeennea passim

Miscellaneous:

Brief of United States Sec’y of Labor as Anu

cus Curiae in Support of Qualchoice’s Peti

tion for F'n Bane Rehearing in Qualchoice,

Ine. v. Rowland, 367 F.3d 638 (CA6 2004)... 2

©. Gresenz et al, A Flood of Litigation? (1999),

http//www.rand.org/pubs/issuc_papers/200

6/IPIS4. pdf 2.3

vi

Maine Bureau of Insurance Press Release,

Landmark Multi-State Settlement Takes

iftect; National Remedy Grants Claims

Review for Thousands (Dee. 21, 2004)

available at

http://www.state.me.us.pfr/press/ins Unu

mProvident settlement. tim .............cccccccccccccccscss

November 5, 1999 Letter from Barbara D.

Bovbjerg, Associate Director, Education,

Workforce, and Income Security Issues for

the United States General Accounting Of-

fice, available at

http://archive.gao.gov/pdt/163015. pdf. eee

Susan M. Mangiero, HAISA Fiduciaries Be-

ware. Fisk Is More Than a Four-Letter

Word, American Bar Association, Probate

& Property, Volume 19, No.3, May/June

I aa elire chdacala ca necnousuuceseearaeauninevcolsasdesincedaiionvonsics

United States Department of Labor, Bureau of

Labor Statistics, National Compensation

Survey: Employee Benefits in Private In

dustry in the United States, March 2004 at

L. available at

http://www.bls.gov/nes/cbs/sp/cbsmU002. pdf...

United States Department of Labor, Office of

Disability Employment Policy Fact Sheet of

January 2009, available at

ERE WWW CIOL OV/OOCOY 6.0.10. sencéasercssaseccsceecsenscasavs

Joanne Gagliano (“petitioner”) respectfully peti-

tions for a writ of certiorarT to review the judgment of

the United States Court of Appeals for the Fourth Cir-

cuit (“Iourth Circuit”) in this case.

OPINIONS BELOW

The opinion of the Fourth Circuit (Pet. App. la

24a) is published at 547 F.3d 230. The order and opi-

nion of the district court granting petitioner’s motion

for summary judgment and entering judgment in peti-

tioner’s favor (Pet. App. 25a — 40a) is unpublished.

JURISDICTION

The Fourth Circuit’s decision reversing and re-

manding to the district court was entered on November

18, 2008. (Pet. App. la — 24a). 7m Court has jurisdic-

tion under 28 U.S.C. 1254(1).

STATUTORY PROVISIONS INVOLVED

‘The following provisions of the Employee Retire-

ment Income Security Act of 1974 (“ERISA”) are re

produced at Pet. App. 41a — 48a: 29 U.S.C. 1002(1);

1002(3); 11382(a)(1), 1182(a)(5), and 1133.

STATEMENT OF THE CASE

1. ERISA is a federal statute that regulates, snter

alia, “employee welfare benefit plans.” 29 U.S.C.

1002(3). The statutory definition of an “employee wel-

fare benefit plan” includes “any plan, fund or program”

that provides employees with “medical, surgical, or

hospital care or benefits, or benefits in the event of

sickness, accident, disability, death or unemployment.”

29 U.S.C. 1002(1). As of 2002, 1387 million workers, reti-

rees, and their families were covered by such plans.’

As this Court has noted, millions of Americans

have welfare benefit claims denied each year.” Under

ERISA, any denial may be challenged in federal court.°

Yet only a tiny fraction of denials actually results in the

commencement of litigation. “According to the Admin-

istrative Office of the U.S. Courts, new {[ ] ERISA eases

[numbered] 9,167 [ ]in 2000 [and] 11,499 [ } in 2004."

One reason that many welfare benefit denials do

not result in litigation is because of the availability of

administrative review.” The requirement of “full and

' Sce Brief of United States Sec’y of Labor as Amicus Curiae

in Support of Qualchoice’s Petition for Fin Banc Rehearing in Qual-

choice, Inc. v. Rowland, 367 F.3d 638 (CA6 2004).

“See Met. Life Ins. Co. v. Glenn, 128 §.Ct. 2343, 2353 (2008)

(noting that approximately ‘1.9 million beneficiaries of ERISA

plans have health care claims denied each year”) (citing C. Gresenz

et al, A Flood of Litigation? 8 (1999),

http//www.rand.org/pubs/issuc_ papers/2006/1P184.pdf). Health

care 1S one mportant type of welfare benefit. Disability payments

are another.

~ 29 U.S.C. 1132(a)(1)(B) (permitting a plan participant or be

neficiary to ‘‘recover benefits due to him under the terms of his

plan, to enforce his rights under the terms of the plan, or to clarify

his rights to future benefits under the terms of the plan”).

* Susan M. Mangiero, FARISA Frductaries Beware: Risk Is

More Than a Four-Letter Word, American Bar Association, Pro

bate & Property, Volume 19, No.8, May/June 2005.

Cf Gresenz et al, A Flood of Litigation? 8S (1999),

http//www.rand.org/pubs/issue_ papers/2006/1 P1S4.pdf) (noting

that in Minnesota's gpmevance system, “[a]bout two third of enrol

lees had their [administrative] complaint settled ‘to their satisfac

fair” administrative review is codified in ERISA. The

rclevant section provides:

In accordance with regulations of the Secre-

tary, every employee benefit plan shall -

(1) provide adequate notice in writing to any

participant. or beneficiary whose claim for bene-

fits under the plan has been denied, setting

forth the specific reasons for such denial, writ-

ten in a manner calculated to be understood by

the participant, and

(2) afford a reasonable opportunity to any

participant whose claim for benefits has been

denied for a full and fair review by the appro-

priate named fiduciary of the decision denying

the claim.

29 U.S.C. 1133 (entitled “Claims procedure”).” This pe

tition presents am important question regarding the

remedies available to a plaintiff who obtains a judicial

determination that section 1183 has been violated.

2. section 502(a) of ERISA, 29 U.S.C. 1132(a), is

entitled “Civil enforcement.” This section sets forth

the exclusive remedies that are available to a civil liti-

gant under the statute.’ Its importance can hardly be

tion’). Of course, there are other reasons why many such demals

do nov result in hitigation. Cf jd. (arguing “that approximately 75

percent of disputed denials [in the Medicare context} involve deci

sions unlikely to provide a strong basis for litigation.”).

he relevant regulations are found at 29 C.F.R. 2560.503 1.

See cy, Massachusetts Mutual Life Ins. Co. v. Russell, 473

US. 154, 146(¢1985) (The [ | carefully integrated civil enforcement

Provisions founa in section 50Y%a) of the statute as finally enacted

overstated: the extraordinary breadth of subject. mat-

ter covered by ERISA coupled with an extremely

strong preemption doctrine has resulted in the reality

that section 1132(a) provides the only means for the

remediation of most wrongs suffered in the employee

benefits context. As such, it is not surprising that this

Court has decided several statutory interpretation cas-

es involving the precise scope of section 1132(a).°

One part of section 1132(a)—subsection (1)(A)—

sets forth specific penalties for some “procedural” vi-

olations of ERISA. 29 U.S.C. 1182(a)(1)(A). Violations

of section 11338, however, are not governed by section

1182(a)(1)(A). Instead, civil litigants seeking relief for a

violation of section 1133 must rely on section 1132(a)(3

of the statute. Section 1132(a)(3) permits an ERISA

plan participant or beneficiary to bring a civil action:

\

provide strong evidence that Congress did not intend to authorize

other remedies that it. simply forgot to incorporate expressly.”);

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (“The delibe

rate care with which FEF RISA’s civil enforcement. remedies were

drafted argue strongly for the conclusion that ERISA’s civil en

forcement remedies were intended to be exclusive.”).

Counse! of record for petitioner in this case presented oral

aryument before this Court in the two most recent cases involving

29 U.S.C. 1132(a): LaRue v. DeWolff, Boberg, & Assoc., Inc., 128

S.C. 1020 (2008) (interpreting section 1132(a)(2)) and Sereboff et

ux. Vv. Mid Atlantic Mcd. Servs., Inc., 126 S.Ct. 1869 (2006) (inter

preting section 1132(a)(3)). See also Great-West Life & Annuity

Ins. Co. v. Knudson, 534 U.S. 204 (2002) (interpreting sec

tion 1132a)3)); Mertens v. Hewurtt Associates, 508 U.S. 248 (1993)

(interpreting section 1182(aV(3)). Massachusetts Mutual Life Ins.

Co. Vv. Russell, 473 U.S. 134 (1985) (interpreting section 1132(a)(2))

(A)T'o enjoin any act or practice which violates

any provision of this subchapter, 01

(Bb) To obtain other appropriate equitable relief

(i) to redress such violations or (ii) to en-

force any provisions of this subchapter

* ok Ok

29 U.S.C. 1132(a)(3).. The question presented by this

petition involves the application of section 1132(a)(3) to

a section 1133 violation in an important and recurring

circumstance. The relevant facts are as follows:

ro

3. In March of 2001, petitioner became a partici-

pant in an ERISA-governed welfare plan (the “Plan’”)

insured and administered by respondent. Pet. App. 3a.

In September of 2001, petitioner was diagnosed by

her doctor with stress syndrome, anxiety disorder, de-

pression and migraines. Pet. App. 3a; 7d. at 48a (Com

plaint 719). She was advised to stop working until her

condition improved. /d. In January of 2002, petitioner

made a claim for long term disability (“LTD”) benefits

under the Plan. Pet. App. 49a (Complaint 422).

In March of 2002, respondent approved singe

claim for LTD benefits. Pet. App. 49a (Complaint 923)

did so after petitioner returned a questionnaire it

had requested from her to verify that her disability did

not result from a pre-existing condition. Pet. App. 3a

44. This was relevant because the Plan excluded from

‘In October of 2001, petitioner filed a claim with respondent

for short-term disability (“STD”) benefits. Pet. App. 3a. These

STD benefits were bei proved and provided to petitioner; they are

not at issue in this se. ld.

6

coverage those disabilities that resulted from a pre-

existing condition. Pet. App. 4a.

Petitioner received LTD benefits for several

months; then, on September 17, 2002, respondent in-

formed petitioner “that it was terminating the long-

term disability benefits because [respondent had con-

cluded that petitioner’s specific medical condition]

failed to qualify for disability benefits under the Plan.”

Pet. App. 4a (referring to this as the “Initial Termina-

tion Letter”); Pet. App. 49a (Complaint 9924, 25). No-

where in its termination letter did respondent mention

any concern that petitioner’s medical condition resulted

from a pre-existing condition.

In February of 2003, petitioner commenced this lit-

igation while her administrative appeal was still pend-

ing.” In her complaint, she asserted several claims, in-

cluding two under 29 U.S.C. 1132(a)(3). Pet. App. 57a —

60a (Counts III and IV).

In asserting her section 1182(a)(3) claims, petition-

er alleged that respondent “breached [its] fiduciary du-

ties to [her] by ( J] fail{ing] to provide [her] with notifi-

cation | | that meets the minimum standards required

under ERISA. Pet. App. 58a (Complaint 963). As re-

'’ No one disputes that the relevant administrative proce

dures were ultimately and properly exhausted by petitioner.

‘The Fourth Circuit asserted that “[t]he Initial Termination

Letter included the requisite notice required by ERISA, 29 U.S.C,

1135." Pet. App. 4a. This is of no moment, however, because (as

explained below) the dispute before the Fourth Circuit involved a

second termination letter. And the Fourth Circuit squarely held

that the second letter violated section 1133. /d. at 15a.

lief, she sought—znter a/lia—“an injunction [ ] directing

[respondent] to provide all accrued long term disability

benefits [and prohibiting respondent] from making any

adverse benefit determinations [ ] until such time as

they have established a full and fair review of claims.”

Pet. App. 58a — 59a.

Petitioner filed a motion for summary judgment

which was stayed by the district court because admin-

istrative review was unfinished. Pet. App. 5a. The dis-

trict court ordered respondent “to conduct an Indepen-

dent Medical Examimation (IMIs’) and to ‘complete the

administrative review process and render a fina! deci-

sion on [Gagliano’s} administrative appeal.” Jd. at 6a

(quoting district court).

The IME confirmed that petitioner was correct in

challenging the validity of the termination. Pet. App.

6a. Nonetheless, respondent sent petitioner a letter

dated September 9, 2003 purporting to be its fina! claim

decision. /d. (referring to this as the “Second Termina

tion Letter”). For the first time (in this new letter),

respondent relied on the Pre-Existing Conditions [imi-

tation as the basis for termination of benefits. /d. Peti

tioner filed a new summary judgment motion, again ar

guing that respondent failed to “even minimally comply

with ERISA.” Jd. at 7a.

4. The district court granted summary judgment

for petitioner. Pet. App. 39a. In so doing, “[tJhe dis

trict court held that [respondent] did not comply with

the notice requirements of ERISA when it denied [pe-

titioner’s] elaim in the Seeond Termination Letter ona

different basis than in the Initial Termination Letter.”

Pet. App. 8a. According to the district court, “this a¢

tion violated the notice requirements under ERISA,

7

particularly 29 U.S.C. § 1133 and its underlying regula-

a

tions.” Pet. App. Sa.

The district court then addressed the issue of how

to remedy the violation of section 1133. As the Fourth

Circuit explained:

The district court determined that the proper

remedy for the violation of ERISA’s procedur-

al requirements was to award the payment of

disability benefits to [petitioner] rather than to

remand the case to the plan administrator for

an administrative review on [sic] the Pre-

Existing Conditions Limitation issue.

id. Respondent appealed to the Fourth Circuit.

5. The court of appeals began by affirming the

district court’s holding that respondent had violated 29

U.S.C. 1133. Pet. App. 15a (concluding that “the dis-

trict court did not err in determining ‘that [respondent]

failed to comply with the notice requirements of ERI-

SA [ ] and affirmling] the district court’s judgment in

that regard”).

Next, the court of appeals made clear that the

substantive question of whether petitioner qualified for

benefits under tne Plan was not before the court:

Even though [respondent] argues [ ] that the

record proves the Pre-Existing Conditions [1

mitation applies, and thus we should enter

judgment for [it], this argument is, at best,

premature. Due to the failure of [respondent]

to comply with ERISA notice requirements,

[petitioner] was denied her right to make an

administrative record on the Pre-bxisting

Conditions Limitation issue as well as other

rights set forth in 29 C.F.R. § 2560-503-1(h).

Pet. App. 21a.

Finally, the Fourth Circuit turned to the issue of

what remedy was available to petitioner in light of the

section 1133 violation (ze., the question presented).

Respondent argued that “a substantive remedy is inap-

propriate for a procedural ERISA violation and the

correct remedy is a remand to the plan administrator

for a ‘full and fair review.” Pet. App. 17a. The court of

appeals agreed with respondent. Jd. at 2la. It re-

versed the district court on this issue and “remand[ed]

the case to the plan administrator for a full and fair re

view regarding the basis for denial of benefits in the

Second Termination Letter.” /d. at. 2la - 22a." In so

doing, the Fourth Circuit expressly recognized that it

was creating a circuit split. Jd. at 22a — 23a.

This petition followed.

'* Respondent also argued, and the court of appeals agreed,

that the district court erred in holding that respondent waived its

right to rely on the pre-existing condition exclusion. Pet. App. 17a

(agreeing with respondent that “state law claims for waiver and

estoppel are pre-empted by ERISA, [and] that the [district] court

{ } apphed the concept of waiver to estop [respondent] from assert

ing the Pre-Existing Conditions Limitation.”). Petitioner does not

j

eck further review on this waiver/estoppel question.

10

REASONS FOR GRANTING THE WRIT

I. AS THE FOURTH CIRCUIT ACKNOWLEDGED, THE CIR-

CUITS ARE DIVIDED OVER THE QUESTION PRESENTED

The decision below creates a square conflict with

the Third, Sixth, Seventh, and Ninth Circuits. In re-

solving the question presented, the court of appeals

held as follows:

Even though [respondent] failed to provide

[petitioner] with the proper [ ] notice required

by ERISA * * *, that procedural violation {fof

§ 1133] cannot afford [petitioner] a substantive

remedy if she has no entitlement to benefits

under the terms of the Plan. In cases where

there is a procedural ERISA violation, we have

recognized the appropriate remedy is to re

mand the matter [ ] so that a “full and fair re-

view” can be accomplished.

Pet. App. 21a (footnote omitted).

The Fourth Circuit expressly acknowledged that it

was creating a circuit split. Pet. App. 22a (“The district

court’s reliance on the Sixth Circuit’s decision in Wen-

ner was misplaced, both because it is contrary to the

law of this circuit and because that decision’s rationale

is flawed.”). In Wenner, the Sixth Circuit held that a

court may reinstate benefits that have been terminated

in violation of section 1133. In the words of the Sixth

Cireuit:

When an initial grant of benefits has been ter-

minated in violation of § 1133, the benefits have

“never been properly revoked. Thus, [the] pro-

ceedural violation is not the reason that ithe]

benefits commenced, but [it] is the reason that

they should continue until a decision regarding

the potential revocation of * * * benefits has

been properly determined in compliance with

the plan’s provisions.”

Wenner v. Sun Life Assurance Co., 482 F.3d 878, 883

(CA6 2007) (quotation and citation omitted) (emphasis

in original).

As expressly noted in Weviner, the law of the Se-

venth Circuit is identical! to that of the Sixth Circuit.

See Wenner, 482 F.3d at 883-84 (adopting the reasoning

of, and citing, Schneider v. Sentry Group Long Term

Disability Plan, 422 F.3d 621 (CA7 2005). In Sehnerder,

the Seventh Circuit held that:

prior to the termination of her benefits by im

proper procedures, the status quo was that Ms.

Schnieder was receiving long-term disability

benefits frcm the Plan. The appropriate reme-

dy is an order vacating the termination of her

benefits and directing [the fiduciary] to reins

tate retroactively the benefits. (T]he decision

to terminate Ms. Schneider’s long-term disabil-

ity benefits was not accompanied by the proper

procedural protections, but it was not necessar-

ily wrong. [The fiduciary] is free to revisit. Ms.

Schneider’s eligibility for benefits.

Schneider, 422 F.3d at 630 (concluding that reinstate

ment of benefits is the appropriate way to “restor[e]

the status quo prior to the procedural misstep”).

The Third Circuit has resolved the question pre-

sented consistently with the Sixth and Seventh Cir

cults. See, e.g. Grossmuller v. Intl Union et al, 71d

F.2d 852 (CA3 1983) (finding a violation of section 11338

and holding that “{uJpon remand, the district court.

should enter an order prohibiting the plan from termi-

nating Grossmuller’s benefits * * * until Grossmuller

has received full and fair review.”). And the Ninth Cir-

cuit has similarly rejected the Fourth Circuit’s position.

Pannebecker v. Liberty Life Assurance Co., 542 F.3d

1213, 1221 (CA9 2008) (“The district court should have

awarded [plaintiff] benefits from the time of [defen-

dant’s] improper denial | ] until the company’s decision

[ } to decline to alter its benefits determination.”).

According to the Fourth Circuit: “(t]he only excep-

tion to fits] rule would be where the record establishes

that the plan administrator’s denial of the claim was an

abuse of discretion as a matter of law.” Pet. App. 22a.

See id. (noting that the exception did not apply in this

ease because “the record reflects, at minimum, a color-

able claim that the Pre-lxisting Conditions Limitation

applies”). In rejecting that precise argument, the

Ninth Circuit recently explained:

{Wjhether the administrator abused its disecre

tion because the decision was substantively ar

bitrary or capricious, or because it failed to

comply with required procedures, benefits may

still be reinstated if the claimant would have

continued receiving benefits absent the admin-

istrator’s [violation of ERISA].

Pannebecker, 542 \".3d at 1221 (emphasis added).

Put simply, there is a clear split involving five

courts of appeals over the question presented. In hight

of the importance of the question, see Section IT below,

there can be little doubt that this petition satisfies the

13

Court’s criteria for certiorari. Sup. Ct. Rule 10(a)

(compelling reasons for certiorarT include the fact that

“a United States court of appeals has entered a decision

in conflict with the decision of another United States

court of appeals on the same important matter”).

II. THE QUESTION PRESENTED IS EXTREMELY IMPORTANT

Millions of Americans are covered by employer-

sponsored disability insurance. According to the Unit-

ed States Department of Labor, Bureau of Labor Sta-

tistics, “short and long-term disability benefits were

available [in 2004] to 39 and 30 percent of workers, re-

spectively, and nearly all participated.”

As with all welfare benefits governed by ERISA,

the system of resolving disability claim disputes would

be untenable without the administrative review scheme

codified in 29 U.S.C. 11338." In the words of one court

'S United States Department of Labor, Bureau of Labor Sta

tistics, National Compensation Survey: Employee Benefits in Pri-

vate Industry in the United States, March 2004 at 1, available at

http:/Avww.bls.gov/nes/ebs/sp/ebsm0002.pdf. See also November

5, 1999 Letter from Barbara D. Bovbjerg, Associate Director,

Education, Workforce, and Income Security Issues for the United

States General Accounting Office to the Honorable Robert E. An-

drews, Ranking Minority Member of the Subcommittee on Fm-

ployer-Employee Relations Committee on Education and the

Workforce of the United States House of Representatives, availa

ble at http://archive.gao. gov/pdf/163015.pdf (noting that, according

to 1996 97 data, approximately 36% and 26% of all employees in

the private sector had STD and LTD insurance respectively).

~ As the Fourth Circuit itself has noted, proper administra

tive review is needed to “vindicate ‘Congress's apparent intent in

mandating internal claims procedures * * * which was to minimize

14

of appeals, “[iJn an ERISA benefit denial case, trial is

usually not an option: in a very real sense, the district

court sits more as an appellate tribunal than as a trial

eourt.”” This Court recently confirmed as much when

it refused to “overturn Fyrestone by adopting a rule

that in practice could bring about near universal review

by judges de novo-—i.e., without deference—of the

lion’s share of ERISA plan claims denials.””*

Because disability claims are often wrongfully de-

nied or terminated, the question presented affects an

extraordinary number of potential claimants.'’ And the

question is of manifest importance because disability

benefit claimants are often unable to work.’ Being able

to eventually recover back payments with interest is

the number of frivolous lawsuits; promote consistent treatment of

claims; provide a non-adversarial dispute resolution process; and

decrease the cost and time of claim settlement.”” Gayle v. United

Parcel Service, 401 F.3d 222, 229 (CA4 2005) (citation omitted).

' Leahy v. Raytheon Co., 315 F.3d 11, 18 (CA1 2002).

Io 4 ’ ~ < , <ye ‘ «yer = Vo

Met. Life Ins. Co. v. Glenn, 128 S.Ct. 2348, 2350 (2008).

See, e.g., Maine Bureau of Insurance Press Release, Land

mark Multi-State Settlement Takes Effect; National Remedy

Grants Claims Review for Thousands (Dec. 21, 2004) available at

http:/Awww.state.me.us.pfr/pressv/ins UnumProvident settlement.

htm (describing a landmark agreement in which the largest disa

bility insurer in the United States agreed (i) to pay a $140 million

settlement, (ii) to pay a $15 million penalty, and (iii) to reexamine

more than 200,000 disability benefit claims).

18 rh . .

See, c.g, United States Department of Labor, Office of

Disability Employment Policy Fact Sheet of January 2009, availa

ble at httpy//www.dol.gov/odep/ (noting that “the unemployment

rate for those with disabilities was 13.2 percent”).

hardly comforting to those individuals who are com-

pletely reliant on continued benefits in order to pay for

basic living expenses. As one court of appeals has

noted, “the costs of delay are [very] highf{ ]} for clai-

mants, who may need disability benefits to buy their

| 9919

daily breac

To be fair, however, the question presented is also

of extraordinary importance to fiduciaries. Having to

continue paying improperly granted—or no longer

owed—disability benefits during the pendency of the

administrative process means that fiduciaries will be

forced to rely on recoupment provisions (/.e., seeking ex

post repayment) in order to recover monies received by

claimants to which there was no legitimate entitlement.

And the reasoning of many courts who have adopted

the majority position appears to foreclose such recoup-

ment if the fiduciary has failed to comply with the pro

cedures required by section 1133."

ID ee . Pe j ")« aD | Or [Ar Or

Gilbertson Vv. Allied Signal, Inc. et al., 328 F.3d 625, 635 36

(CA10 2003).

See, e.g., Pannebecker, 542 F.3d at 1215, 1221-22 (upholding

a plan's rnost recent decision to deny benefits as proper but a/so

holding that. claimant was entitled to retroactive benefits for the

penod between plan’s procedurally improper denial and plan’s

procedurally and substantively proper denial of benefits); Laucks

v. Provident Cos, No. 1CV971507, 1999 WI, 33320463 at *9 (M.D.

Pa., October 29, 1999) (unpublished) (holding, after a tmal, that the

claimant was not elimble for disability benefits but nonetheless

awarding retroactive benefits from the point at which the fiduciary

terminated benefits until the date of the court’s order because the

termination did not comply with the procedures of section 1133).

IU. IMMEDIATE REVIEW IS NEEDED.

As is readily apparent, the question presented was

squarely addressed and outcome determinative in this

ease. As explained above, the question is extremely

important and frequently recurring. And, as the

Fourth Circuit expressly noted, the question is the sub

ject of a clear split among the courts of appeals. Al-

though this 4-1 circuit split was created by the Fourth

Circuit in this case, immediate review by this Court is

21

necessary.” This is true for two reasons.

First, there is a strong need for national uniformity

regarding the question presented given its importance

and the underlying purpose of ERISA. As this Court

noted over two decades ago:

An employer that makes a commitment syste-

matically to pay certain benefits undertakes a

host of obligations * * * * The most efficient

way to meet these responsibilities is to estab-

“' Two of the most recent ERISA cases in which this Court

granted certiorarr similarly involved newly created circuit splits

on important questions of statutory interpretation. LaRue v. De

Wolff, Boberg, & Assoe., Inc., 128 S.Ct. 1020 (2008) (where the

Fourth Circuit created a split with the Third, Fifth, Sixth, and Se

venth Circuits on a question involving 29 U.S.C. 1132(a)(2)) and

Beck v. PACE Int’. Union, 127 S.Ct. 2310 (2007) (where the Ninth

Circuit created a split with the Third and Sixth Circuits on a ques

tion involving 29 U.S.C. 1341(b)(3)(A)). In both La/tue and Beck,

the United States participated as amicus curiae at the merits

stage. In both cases, the Umted States recommended that the

Court grant certiorari after the views of the Solicitor General had

heen requested. Petitioner respectfully submits that the views of

the United States would be helpful in this cass

lish a uniform administrative scheme, which

provides a set of standard procedures to guide

processing of claims and disbursement of bene-

fits. Such a system is difficult to achieve, how-

ever, if a benefit plan is subject to differing

regulatory requirements in differing States.

Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 9,

(1987).

Second, further percolation ts likely to proceed

slowly while yielding lhttle—if any—benefit. Percola

tion is likely to proceed slowly because lower courts

regularly (i) find a violation of 29 U.S.C. 1138, (ii) re-

mand to the plan administrator, and (ili) deny plaintiffs

request for reinstatement of benefits without any dis

cussion of whether (a) the court is exercising its discre

tion or (b) the court believes that reinstatement is an

unavailable remedy under ERISA.~ In light of this

°° See, eg., Urso v. Prudential Ins. Co. of America, 2004 U.S.

Dist. LEXIS 23930 (D.N.I1. 2004) (finding violation of 29 C.F.R.

2560.503-1(1)(3), which requires that administrator notify claimant

of its decision on an appeal of denial of disability benefits claim

within 45 days of receiving the request for review, but determin

ing that “rernand [ ] to the administrator to reconsider the benef

ciary’s claim * * * appears to be the appropriate remedy in this

cuse” and noting that “[a] procedural irregularity under the ERI

SA remulations does not entitle a benefi lary to an ward of bene

fits”) (citations omitted); Mullin v. Whirlpool Corporation, et ai.

2007 U.S. Dist. LEXIS 12065 (N.D. lowa 2007) (finding violation

of, inter alla, 29 C.F.R. 2560.503-1(h)(3)), which requires 180 days

to uppeal an adverse benefit termination, and 29 C.F.R. 2560,503

l(h)3iG), which requires review by an Jndependent medical pr

fessional, but denying plaintiffs motion for surmmary judement

and, Instead, rernanding to the “Claim Appeal Fiduciary”); Abat

18

common practice, resolution of the question presented

by a court of appeals will only happen in a small subset

of cases. Because the question is regularly outcome de-

terminative, yet unlikely to be squarely addressed by

the courts of appeals, this case is an ideal vehicle for its

resolution.

At the same time, percolation is unlikely to be pro

ductive because the competing arguments have already

been well developed. The majority position is that

“equitable relief’ permits preservation of the status

quo. See, e.g., Schnieder, 422 F.3d at 629. If a deter-

mination is made that a claimant is entitled to benefits,

she has a right to continue receiving such benefits until

the point at which it is determined—in compliance with

FE RISA—that she was not (or is no longer) entitled.”

The minority position is that only the terms of a plan

are relevant in determining whether a claimant is en-

v. Hartford, Equiva Services, LLC et ail., 471 F.Supp. 2d 72

(F..D.Tex. 2006) (finding fiduciary’s “decision to discontinue [ }

benefits was based upon incomplete administrative record,” re

manding to the plan administrator, and denying plaintiffs motion

for summary judgment “as premature in view of the remand”),

“ Any concern that. the claimant. will have received benefits

to which she was not entitled under the plan could be addressed

through the inelusion and enforcement of plan recoupment provi

sions. In other words, a plan fiduciary can seek repayment of any

monies paid in error once the granted benefits are terminated in

compliance with the statute. Whether such recoupment will be

permitted, however, turns on the theory of benefit restatement. for

ection 1133 violations. See note 20, supra (explaining that some

courts Who have adopted the minority position seern to foreclose

he possibility of recoupment). This is yet another reason why

titled to benefits; either she is entitled or not.“ If she

was mistakenly granted benefits (or if she is no longer

eligible), then there is nothing about the status quo to

which she has a right to preserve. Jf she ultimately

succeeds in proving eligibility, she will be entitled to

get back payments and interest.”

Put simply, immediate guidance is needed from this

Court regarding the proper resolution of the question

presented. Without such guidance, the circuit division

and lower court confusion regarding this important

question of statutory construction will continue un

abated.

WW

I} t tion it was tak tL only by the Fourtl

C} it in this ca t \ oy U issenting ! mber of tl Xt!

Circuit panel in H v. Sun Life Assurance Co., 482 F.3d 87

CA6 2007). Pet. App. 22 23a (“[T]here itutory basis 1

ERISA for the payn of t L otherwise required by t}

plan as a penalty for viol ‘a lural requirement oth

Wenner ASP | it | r 1 tit

Id. 2 reul hat, under the majority \ v, a plaintift

ren 1 windtall | iter proper pro res itt rm

ut th untiff wa entitlea t} efi ! idm

20)

CONCLUSION

For all the reasons discussed above, the petition for

a writ of certiorari should be granted.

Respectfully submitted,

PETER K.STRIS

ROBERT E. HOSKINS Counsel of Record

FOSTER LAW FIRM, LLP BRENDAN S. MAHER

601 BE. McBee Ave. STRIS & MAHER LLP

Suite 104 1920 Abrams Pkwy, #430

Greenville, SC 29602 Dallas, TX 75214

(864) 242-6200 (214) 224-0091

KARL WILLIAM PILGER, SHAUN P, MARTIN

BORING & PILGER, P.C. UNIVERSITY OF SAN DIEGO

307 Maple Ave. W.; Ste. D SCHOOL OF LAW

Vienna, VA 22180 5998 Alcala Park

(703) 281-2161 San Diego, CA 92110

(619) 260-2347

FEBRUARY 2009

APPENDIX

APPENDIX A

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 07-1901

[Filed November 18, 2008]

JOANNE GAGLIANO,

Plaintiff-Appellee,

RELIANCE STANDARD LIFE

INSURANCE COMPANY,

Defendant-Appellant,

and

MARIAM, INCORPORATED, trading as

Darcars Automotive Group;

UNNAMED LONG TERM DISABILITY

INSURANCE PLAN FOR EMPLOYEES OF

DARCARS,

Defendants.

Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

Leome M. Brinkema, District Judge.

a

2a

Cone

(1:03-ev-00160-LMB)

Argued: September 25, 2008

Decided: November 18, 2008

Before NIEMEYER and AGEE, Circuit Judges,

and Richard L. VOORHEES,

United States District Judge

for the Western District of North Carolina, sitting by

designation.

Affirmed in part, reversed in part, and remanded by

published opinion. Judge Agee wrote the opinion, in

which Judge Niemeyer and Judge Voorhees joined.

COUNSEL

Joshua Bachrach, WILSON, ELSER, MOSKOWITZ,

EDELMAN & DICKER, L.L.P., Philadelphia,

Pennsylvania, for Appellant. Karl William Pilger,

BORING & PILGER, P.C., Vienna, Virginia, for

Appellee.

OPINION

AGEE, Circuit Judge:

Reliance Standard Life Insurance Company

(“Reliance”) appeals from the judgment of the United

States District Court for the Eastern District of

Virginia at Alexandria, in favor of Joanne Gagliano

(“Gagliano”). The district court held that Gagliano was

entitled to benefits under a policy of disability

insurance tssued by Reliance, based on noncomphance

with certain procedural! requirements of the Employee

3a

Retirement Income Security Act of 1974 (“ERISA”), 29

U.S.C. § 1001 et seq. For the following reasons, we

affirm in part and reverse in part the judgment of the

district court. We hold that, although Reliance violated

ERISA, the proper remedy is to remand the case to the

plan administrator for a full and fair review.

I.

On March 13, 2001, Gagliano enrolled in an

employee welfare benefit plan (“the Plan”) offered by

her employer, Mariam, Incorporated (“Darcars”). The

Plan was insured by Reliance, also the plan

administrator. In September, 2001, Gagliano, a finance

manager for her employer, “was diagnosed with stress

syndrome, anxiety disorder, depression and migraine

by her treating physician and was advised to

discontinue working at Darcars until her condition

improved.” Gagliano v. Reliance Standard Life Ins.

Co., No. 1:03-cv-160, ship op. at 2 (E.D. Va. Aug. 22,

2007). In October, 2001, Gagliano filed a claim with

Reliance for short-term disability benefits based on

these mental health problems. Jd. Reliance approved

her claim for short-term benefits, and began reviewing

her claim for long-term disability benefits.’ In that

process, Reliance requested that Gagliano complete a

Pre-Existing Conditions Questionnaire to verify that

the Pre-Existing Conditions Limitation did not apply

to her claim.” Gagliano completed the Questionnaire

‘ Gaghano received the short-term disability benefits provided

under the Plan. The issue in this case relates only to the

termination of Gaghano’s long-term disability benefits

The Pre-Existing Conditions Limitation under the Plan excludes

from coverage any claims that arose from a pre-existing condition,

4a

and Reliance approves her claim for long-term

disability benefits in March, 2002.°

Upon a review of Gagliano’s medical records,

Reliance determined “that the medical records

provided do not support a physical or mental condition,

which would prevent you from performing your

occupation as a finance manager in the general

economy.” Acovered disability under the Plan required

that “an Insured cannot perform the material duties of

his/her regular occupation.” By a letter dated

September 17, 2002 (the “Initial Termination Letter”),

Reliance informed Gagliano that it was terminating

the long-term disability benefits because she was not

restricted from returning to work and thus failed to

qualify for disability benefits under the Plan.

The Imtial Termination Letter included the

requisite notice required by ERISA, 29 U.S.C. § 11338,

informing Gagliano of her right to appeal the denial of

her claim. Gagliano did timely appeal the denial of

benefits in the Initial Termination Letter to the plan

administrator, but during the administrative review

process she filed the present civil action in the district

court on February 5, 2003 before the review was

completed.

defined as “any Sickness or Injury for which the Insured received

medical treatment, consultation, care or services... during the

three months immediately prior to the Insured’s effective date of

insurance.” March 13, 2001 was Gaghano’s effective date of

nsurance

* Although long-term, these benefits are limited under the Plan to

payments for twenty-four months

Da

Gagliano’s complaint named Darcars, the Plan, and

Reliance as defendants and alleged various breaches

by them of obligations under the Plan and ERISA.

Gagliano alleged that she “has met and currently

meets all requirements for the receipt of long term

disability benefits from Reliance,” including an

inability to return to work. Gagliano claimed that

Reliance had abused its authority in failing to

recognize that she met the Plan requirements, had

failed to articulate a rational basis for the

determination in the Initial Termination Letter, and

had relied on an incomplete record. Gagliano sought

an injunction directing payment to her of the

long-term disability benefits and preventing any

adverse benefit determinations against her “until such

time as they have established a full and fair review of

claims and adverse benefit determinations, as well as

establishing and _ following reasonable claim

procedures.” In the alternative, Gaglhano requested

monetary damages, pre-judgment interest, and

attorney’s fees.‘

During summary judgment proceedings, the

district court determined that the record was not

complete because the administrative review of

Gagliano’s appeal from the Initial Termination Letter

was unfinished. By order dated July 11, 2003 (“the

July 11 Order”), the court stayed Gagliano’s pending

motion for summary judgment and directed Reliance

‘ Gagliano’s employer, Mariam, Incorporated, trading as Darcars

Automotive Group, is a Maryland corporation that operates a

group of ear dealerships in the Washington, D.C. area. Darcars

was a defendant in the initial suit filed by Gagliano. All claims

against Darcars were resolved and are not before the Court inthis

appeal

6a

to conduct an Independent Medical Examination

(“IME”) and to “complete the administrative review

process and render a final decision on [Gagliano’s]

administrative appeal.”

The IME established that Gagliano was suffering

from a covered disability which entitled her to benefits

under the Plan because her mental health condition

prevented her from working in her regular occupation.

Gagliano, slip op. at 5. Reliance then sent Gagliano a

letter dated September 9, 2003 (the “Second

Termination Letter”), purporting to be its final

decision on her claim pursuant to the July 11 Order.

However, the Second Termination Letter did not

address the basis for denial of benefits in the Initial

Termination Letter or the results of the IME, which

were the subjects of the pending administrative

review. Instead, for the first time, Reliance cited the

Pre-Existing Conditions Limitation under the Plan as

the basis to deny the disability benefits. Reliance

informed Gagliano in the Second Termination Letter

that her medical records presented for review showed

she had received treatment for “stress syndrome/

anxiety disorder” within three months of March 13,

2001, the effective date of her insurance under the

Plan. Since Gagliano “received medical care for a

condition(s) which caused, contributed to or resulted in

her eventual Total Disability due to psychiatric illness

during the three months prior to her effective date of

coverage, her claim must be refused under the Policy’s

Pre-Existing Conditions Limitation.”

The Second Termination Letter did not advise

Gagliano that she was entitled to an administrative

appeal, or otherwise reference her rights under

ERISA. Reliance further stated in the Second

Ta

Termination Letter that “our claim decision is now

final in accordance with the court’s July 11, 2003

ruling .... [H]owever, . . . we would be happy to

consider any additional information .. . if the court

thinks further review by [Reliance] would be

warranted in the present case.”

Gagliano again moved for summary judgment,

arguing that Reliance improperly denied benefits in

the Second Termination Letter on entirely new

grounds and its “failure to even minimally comply with

ERISA.” Reliance responded tiat it was Gagliano’s

lack of complete disclosure on the Questionnaire which

prevented it from asserting the Pre-Existing

Conditions Limitation at an earlier time. In hght of

this argument, the district court denied Gagliano’s

motion for summary judgment and sua_ sponte

reconsidered and granted Reliance’s previously denied

motion for summary judgment by order of October 20,

2003. Gagliano timely filed a motion for rehearing and

reconsideration and relief from that judgment. For

reasons not adequately explained in the record, this

motion lay dormant in the district court until Gagliano

renewed the motion in January, 2007. The district

court directed the parties to re-file motions for

summary judgment. By opinion and order dated

August 22, 2007, the court awarded summary

judgment to Gaghiano.

The district court held that Reliance did not comply -

with the notice requirements of ERISA when it denied

Gagliano’s claim in the Second Termination Letter on

a different basis than in the Initial Termination

Letter. By doing so, Reliance did not accord Gagliano

the opportunity for administrative appeal of its

decision to terminate benefits based on the Pre

8a

Existing Conditions Limitation. Gagliano, slip op. at

9-10. The district court held this action violated the

notice requirements under ERISA, particularly 29

U.S.C. § 1133 and its underlying regulations.

The district court then determined that the proper

remedy for the violation of FERISA’s procedural!

requirements was to award the payment of disability

benefits to Gagliano rather than to remand the case to

the plan administrator for an administrative review on

the Pre-Existing Conditions Limitation issue. The

court opined that Reliance “negligently misseld]

available facts” by failing to cite the Pre-Existing

Conditions Limitation in the Initial Termination

Letter, and that Reliance, “given the equitable nature

of the protections found in ERISA,” should not be

allowed to benefit by this “mistake” with a “second

chance to litigate [the] issue.” Gagliano, slip op. at 15.

The court vacated its earlier award of judgment to

Reliance and ordered Reliance to pay Gagliano the

remaining disability benefits because “[iJt was

Reliance’s failure to evaluate that evidence in its

initial processing of Gagliano’s claims that led to this

litigation.” 7d.

Reliance timely brings this appeal of the district

court’s judgment. This Court has jurisdiction over this

appeal pursuant to 28 U.S.C. § 1291.

II.

Reliance argues four tissues on appeal. First,

Reliance asserts no procedural violation of ERISA

occurred, therefore the district court could not award

judgment to Gaghano. Next, Reliance contends that

the district court erred when it held that Reliance

9a

could not assert the Pre-Existing Conditions

Limitation because Reliance was “negligent” in failing

to properly recognize that defense before assigning a

different basis for termination of benefits in the Initial

Termination Letter. Third, Reliance argues that, even

if there was a procedural ERISA violation, the district

court erred because the proper remedy was a remand

of the case to the plan administrator for an

administrative review of the termination basis in the

Second Termination Letter. Lastly, Reliance posits

that the district court erroneously reconsidered its

earlier award of summary judgment to Reliance

because there was no basis to do so.

On appeal from the district court, we review de

novo the court’s conclusions of law. Provident Life &

Accident Ins. Co. v. Cohen, 423 F.3d 413, 418 (4th Cir.

2005). We also review de novo a district court’s ruling

on a motion for summary judgment. Eckelberry v.

Reliastar Life Ins. Co., 469 F.3d 340, 343 (4th Cir.

2006).

A. ERISA Violation

ERISA requires that every employee benefit plan

“provide adequate notice in writing to any participant

or beneficiary whose claim for benefits ... has been

denied, setting forth the specific reasons for such

denial.” 29 U.S.C. § 1133 (2008). The Plan must

further “afford a reasonable opportunity to any

participant whose claim for benefits has been denied

a full and fair review by the appropriate named

fiduciary of the decision denying the claim.” /d. ‘The

regulations implementing these statutory

requirements provide that a “full and fair review”

includes the opportunity for the claimant to appeal the

10a

adverse benefits determination and to submit written

comments or records. The claimant must also be given

reasonable access to documents relevant to her claim,

and the resulting review must take into account all

relevant information submitted by the claimant. 29

C.F.R. § 2560.503-1(h)(1-2) (2008).

The purpose of the ERISA mandated appeal process

is an important one. That process enables a claimant

who is denied benefits to have an _ impartial

administrative review, but also make an

administrative record for a court review if that later

occurs. Ellis v. Metro. Life Ins. Co., 126 F.3d 228,

236-37 (4th Cir. 1997). Without this opportunity to

make a meaningful administrative record, courts could

not properly perform the task of reviewing such

claims, a specific function entrusted to the courts by

ERISA. Moreover, plan participants would be denied

their statutory rights. Jd. Procedural guidelines are at

the foundation of ERISA and “full and fair review

must be construed ... to protect a plan participant

from arbitrary or unprincipled decision-making.”

Weaver v. Phoenix Home Life Mut. Ins. Co., 990 F.2d

154, 157 (4th Cir. 1998) (quoting Grossmuller v. UAW

Local 813,715 F.2d 853, 857 (3d Cir. 1983)).

The district court’s award of summary judgment to

Gagliano was based on the threshold determination

that “liJt ts uncontested that Reliance failed to comply

with the notice requirements of ERISA, because it

never afforded Gagliano the opportunity to appeal its

decision to terminate her benefits on the new ground

of the pre-existing condition exclusion.” Gagliano, slip

op. at 9. On appeal, Reliance argues that holding is

contested and contends no ERISA violation, procedural!

lla

or otherwise, occurred and thus Gagliano was not

entitled to judgment.

Reliance contends that no ERISA violation occurred

by virtue of the claim resolution in the Second

Termination Letter because (1) ERISA “only requires

the inclusion of appeal language in an initial denial

letter,” (Br. 27); (2) the July 11 Order required a “final

decision on plaintiffs administrative appeal” and

therefore took precedence over any ERISA statutory

requirement, and (3) assumjng a technical ERISA

violation occurred, Reliance nonetheless “substantially

complied with its obligations under ERISA, and that is

all that is required.” (Br. 29). For the following

reasons, we disagree with Reliance.

1. Initial Denial

The Initial Termination Letter denied Gaghano

benefits because “the records do not include

information to suggest that you are restricted from

returning to work.” It is from this determination that

she noted her administrative appeal and, that appeal

not having been resolved when Gagliano filed her

complaint in the district court, was the subject matter

to which the July 11 Orde was directed.

However, the grounds Reliance cited to deny

Gagliano’s claim for disability benefits in the Second

Termination Letter were completely different from

those in the Initial Termination Letter. In fact,

Reliance never addressed in the Second ‘Termination

Letter the yvrounds for denial in the Initial

Termination Letter. Instead, the Second Termination

Letter cited a wholly new basis to deny Gaglhano’s

claim, the Plan’s Pre-existing Conditions Limitation.

4a

Assuming, but not deciding, that the notice and

appeal requirements, as implemented by the ERISA

regulations, 29 C.F.R. § 2560.503-1(h) et seq., apply

only to an “initial” denial, it is clear the denial of

benefits rationale in the Second Termination Letter

was an initial denial on the basis of the Pre-Existing

Conditions provision. As_ such, Gagliano was

statutorily entitled to the ERJSA appeals notice as to

the new basis for denying her claim and Reliance

failed to provide that notice. Reliance thus cannot

avoid the determination of an ERISA violation under

29 U.S.C. § 1133, for failure to provide the required

appeal information in the Second Termination Letter,

because that letter was an initia! denial as to the

Pre-Existing Conditions Limitation.

2. The July 11 Order

Reliance next contends that if an ERISA appeals

notice to Gagliano was required, based on the new

grounds in the Second Termination Letter, it was

relieved of that requirement by the directory language

of the July 11 Order, to “render a final decision on

plaintiff's administrative appeal.”

As just noted above, however, the Second

‘T'ermination Letter did not address the subject matter

of Gagliano’s administrative appeal (the reason for

denial of benefits in the Initial Termination Letter),

but made a “final decision” to deny benefits on a

wholly new ground (pre-existing condition). Nothing in

the July 11 Order limited Reliance’s statutory duty to

comply with the mandates of ERISA while making a

“final decision,” even though the Second Termination

Letter effectively made an initial decision on new

grounds. Moreover, we are aware of no provision in

L3a

ERISA or otherwise, which would permit the district

court, by judicial fiat, to abrogate and nullify a

claimant’s validly existing statutory entitlements

under ERISA.

The force of such a rule, making the party act

on pain of certain punishment regardless of the

validity of the order violated or the court’s

jurisdiction to enter it as determined finally

upon review, would be not only to compel

submission. It would be also in practical effect

for many cases to terminate the litigation,

foreclosing the substantive rights involved

without any possibility for their effective

appellate review and determination.

United States v. United Mine Workers of America, 330

U.S. 258, 351-52 (1947).

Putting aside the frailty of Reliance’s proposed

judicial limitation of a claimant’s statutory rights, it is

evident from the plain language of the July 11 Order

that the district court did not direct Reliance to ignore

Gagliano’s ERISA rights during the process of an

administrative review or purport to grant Reliance the

authority to do so.

3. Substantial Compliance

Citing Hillis v. Metropolitan Life Insurance Co., 126

I'.38d 228 (4th Cir. 1997), for the proposition that

“substantial” comphance with the spirit of the

regulation will suffice, for “not all procedural defects

will invalidate a plan administrator's decision,” td. at

235 (queting Brogan v. Holland, 105 F.3d 158, 165 (4th

(ir. 1997)), Rehance contends the language of the

l4a

Second Termination Letter was in_ substantial

compliance with the ERISA requirement for appeal

notice to a claimant. Specifically, Reliance posits that

the closing sentence of the Second Termination Letter,

“we would be happy to consider any additional

information your client wishes {Reliance] to review”

effectuated substantial compliance with ERISA. We

disagree.

Reliance does not challenge the validity of the

regulations at 29 C.F.R. § 2560.503-1 implementing

the notice provision of 29 U.S.C. § 1133. Those

regulations specify the claims procedures necessary to

meet the ERISA requirements for a “full and fair

review, including, but not limited to the foilowing:

(T]he claims procedures of a plan will not be

deemed to provide aclaimant with a reasonable

opportunity for a full and fair review of a claim

and adverse benefit determination unless the

claims procedures ... (ii) Provide claimants the

opportunity to submit written comments,

documents, records, and other information

relating to the claim for benefits; (i111) Provide

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; (iv) Provide for a review that takes into

account all comments, documents, records, and

other intormation submitted by the claimant

relating to the claim, without regard to whether

such information was submitted or considered

in the initial benefit determination.

l5a

29 C.F.R. § 2560.503-1(h)(2)(ii)-(iv) (2008); see also

§ 2560.503-1(h)(4). Reliance’s offer to “consider any

additional information” is not remotely close to any

concept of substantial compliance under’ the

regulations and is further evidenced by the absence of

any case authority cited by Rehance to support its

argument. Thus, the contention that Reliance

substantially complied with the ERISA notice

requirements is without merit.

Accordingly, we conclude the district court did not

err in determining “that Reliance failed to comply with

the notice requirements of ERISA,” Gagliano, slip op.

at 9, and affirm the district court’s judgment in that

regard.

B. Remedy

“Having concluded that Reliance violated ERISA ”

the district court properly reasoned that “the

remaining question is how to remedy the violation.”

Gagliano, slip op. at 11. Concluding that Reliance

made a mistake in not initially asserting the

Pre-Existing Conditions Limitation as the basis to

terminate Gagliano’s disability benefits, the district

court held that this “negligent failure” on the part of

Reliance was a bar “to a second chance to litigate an

issue.” Id. at 15. Citing Wenner v. Sun Life Assurance

Co. of Canada, 482 F.3d 878 (6th Cir. 2007), the

district court opined that once Reliance denied

Gagliano’s claim for the reason given in the Initial

Termination Letter, it could not thereafter support

termination of “benefits for an entirely different and

theretotore unmentioned reason” in the Second

Termination Letter. Wenner, 482 F.3d at. 882. Todo so,

the district court reasoned, nullifies “the opportunity

l6a

for ‘full and fair review” as afforded by ERISA. “When

an insurer changes the basis for its denial during the

appeal process—whether during administrative review

or judicial review—that opportunity is lost.”° Gagliano,

slip op. at 10. Insomuch as the record reflected the

basis for denial of benefits in the Initial Termination

Letter was no longer valid,° and Reliance could not

assert the Pre-Existing Conditions Limitation, no

other basis existed in the record to deny Gagliano’s

claim. The district court thus concluded an award to

Gagliano of the long-term disability benefits was the

appropriate remedy. “To allow an insurance company

to benefit from its own negligence in the processing of

an ERISA benefit claim would send the wrong message

to insurers, unduly extend the review process, and

pose potential unreasonable burdens on the judiciary,

which would be faced with multiple rounds of

litigation.” Gagliano, slip op. at 15.

Reliance contends the district court’s remedy was

in error for several reasons. First, Reliance argues the

* The district court also relied on an unpublished opinion from this

circuit, Thompson v. Life Insurance Co. of North America, 30 Fed.

Appx. 160 (4th Cir. Mar. 4, 2002) (unpublished), for this

viewpoint. For the reasons set forth herein, Thompson appears

incorrectly decided, but is of no precedential value in any event.

° The basis for terminating benefits in the Initial Termination

Letter was that Gagliano was able to perform the functions of her

employment and was not suffering from a covered disability.

However, the IME conducted pursuant to the July 11 Order

proved this rationale was not valid. The evaluating physician

found that “Mrs. Gagliano’s current emotional and psychological

condition would prevent her from returning to her job in the

finance office of an automobile dealership.” Keliance did not

contest this finding in the district court or on appeal

17a

district court ignored ‘Fourth Circuit precedent which

establishes “that state law claims for waiver and

estoppel are pre-empted by ERISA,” but that the court

nonetheless applied the concept of waiver to estop

Reliance from asserting the Pre-Existing Conditions

Limitation. Second, Reliance contends the summary

award of benefits to Gagliano is contrary to controlling

Fourth Circuit precedent when a procedural ERISA

violation is involved. Instead, Reliance contends a

substantive remedy is inappropriate for a procedural

ERISA violation and the correct remedy is a remand to

the plan administrator for a “full and fair review.” We

agree with Reliance.

1. ERISA Preemption

In White v. Provident Life & Accident Insurance

Co., 114 F.3d 26 (4th Cir. 1997), the insurer issued an

insurance policy based upon a legitimate “mistake.”

Upon discovery of the error, the insurer notified the

insured of the mistake, tendered repayment of all

premiums, and cancelled the policy. The insured

asserted the insurer's “mistaken acceptance of

premiums constituted a waiver of its right to deny” the

validity of the policy. /d. at 29. We rejected that

argument outright because an ERISA claimant:

cannot premise this waiver theory on state law.

ERISA preempts “any and all State laws insofar

as they may now or hereafter relate to any

employee benefit plan” covered by ERISA. In

Holland v. Burlington Industries, 772 F.2d 1140

(4th Cir. 1985), we specifically held that state

law waiver and estoppel claims were preempted

by ERISA, noting that such cliims pose a risk of

creating “conflicting employer obligations and

18a

variable standards of recovery.” This is precisely

the result that ERISA’s broad preemption

clause was enacted to avoid.

Nor can White rely on the federal common

law under ERISA, which does not incorporate

the principles of waiver and estoppel.

White, 114 F.3d at 29. (citations omitted). See also

Crull v. GEM Ins. Co., 58 F.3d 1386, 1390 (9th Cir.

1995); Coleman v. Nationwide Life Ins. Co., 969 F.2d

54, 58-59 (4th Cir. 1992); Cromwell uv.

Equicor-Equitable HCA Corp. , 944 F.2d 1272, 1275-76

(6th Cir. 1991). Although the district court did not use

the terms “waiver” or “estoppel,” that is clearly the

actual effect of the court’s holding.

The “mistake” in White of negligently issuing the

insurance policy could not create an equitable bar of

waiver and estop the insurer from applying the ERISA

plan as written and administering the Plan in

compliance with ERISA which required cancellation of

the insurance policy in question. Similarly, the

“mistake” by Reliance in failing to initially assert tk.

Pre-Existing Conditions Limitation cannot estop

Rehanece from asserting that exclusion under some

notion of waiver because Reliance is required to

administer the Plan as written, including the

Pre-Existing Conditions Limitation. The district

court’s holding has the actual effect of deeming

Reliance to have waived the Pre-Existing Conditions

Limitation and estopping it from administering the

Plan according to its terms. But as we made clear in

White, “ERISA... does not provide for such unwritten

modifications of ERISA plans. See 29 U.S.C.

§ 1102(a1) (requiring that ‘je]very employee benefit

19a

plan shall be established and maintained pursuant to

a written instrument); 29 U.S.C. § 1102(b)(3)

(requiring that an ERISA plan describe the formal

procedures by which the plan may be amended.)”

White, 114 F.3d at 29. See also Canada Life Assurance

Co. v. Estate of Lebowitz, 185 F.3d 231, 235 (4th Cir.

1999) (“This Court will enforce the plain language of

an insurance policy unless it is in violation of

ERISA.”); Coleman, 969 F.2d at 56 (“While a court

should be hesitant to depart from the written terms of

a contract under any circumstances, it is particularly

inappropriate in a case involving ERISA, which places

great emphasis upon adherence to the written

provisions in an employee benefit plan.”); Lockhart v.

United Mine Workers of America 1974 Pension Trust,

5 F.3d 74, 78 (4th Cir. 1993) (“The award of benefits

under any ERISA plan is governed in the first instance

by the language of the plan itself.”).

Under the terms of the Plan, a claimant with a

pre-existing condition (as defined in the Plan) is not

entitled to receive benefits. ERISA requires the Plan

be administered as written and to do otherwise

violates not only the terms of the Plan but causes the

Plan to be in violation of ERISA. See 29 U.S.C.

§ 1102(a)(1) (2008). As the foregoing cases readily

illustrate, the district court was without authority to

direct the plan administrator to administer the Plan

contrary to its terms by injecting the prohibited

concepts of waiver and estoppel. Thus, the district

court erred in making the effective holding that

Reliance was estopped from asserting the Pre-Existing

Conditions Limitation as a basis to deny Gagliano

benefits under the Plan.

20a

2. Remand

Insomuch as Reliance can assert the Pre-Existing

Conditions Limitation, the district court’s conclusion

that Gagliano was entitled to summary judgment

because there was no remaining basis for denial of the

disability benefits is incorrect. Similarly, the district

court’s holding that the procedural ERISA violation, by

virtue of the defective Second Termination Letter,

entitled Gagliano to the substantive relief of an award

of benefits is also in error.

Our decision in Sedlack v. Braswell Services.

Group, Inc., 134 F.3d 219 (4th Cir. 1998), guides the

result in this case. We determined in Sedlack that, as

in the case at bar, a defective notice to a plan

participant could not create a substantive remedy for

a claim that was otherwise not cognizable under the

terms of the ERISA plan.

Section 1133 requires that every plan

“provide adequate notice in writing to any

participant or beneficiary whose claim for

benefits under the plan has been denied, setting

forth the specific reasons for such denial,

written in a manner calculated to be understood

by the participant.” 29 U.S.C. § 1133(1).

Although the district court found that

Braswell’s notices were defective, it held that

Sedlack could ncot recover for unreasonable

claims practices because a breach of section

1133 does not provide a claimant with any new

substantive rights. “Where, as here,” the district

court concluded, “Sedlack’s claim 1s not covered,

Braswells breach of section 1133 would not

entitle him to benefits or to an award of

2la

damages.” This reasoning is sound and

supported by persuasive judicial authority. See

Ashenbaugh v. Crucible Inc., 1975 Salaried

Retirement Plan, 854 F.2d 1516, 1532 (3d Cir.

1988) (noting “general principle” that “an

employer’s or plan’s failure to comply with

ERISA’s procedural requirements does not

entitle a claimant to a substantive remedy”),

cert. denied, 490 U.S. 1105; Ellenburg v.

Brockway, Inc., 763 F.2d 1091, 1096 (9th Cir.

1985) (“A substantive remedy would be

appropriate only if the procedural defects

caused a substantive violation or themselves

worked a substantive harm.”).

Sedlack, 134 F.3d at 225.

Even though Reliance failed to provide Gagliano

with the proper appeals notice required by ERISA in

the Second Termination Letter, that procedural

violation cannot afford Gagliano a substantive remedy

if she has no entitlement to benefits under the terms

of the Plan.’ In cases where there is a procedural

ERISA violation, we have recognized the appropriate

remedy is to remand the matter to the plan

‘ Whether the Pre- Existing Conditions Limitation does, in fact,

apply is not an issue before the Court in this appeal. Even though

Reliance argues on brief that the record proves the Pre-Existing

Conditions Limitation applies, and thus we should enter judgment

for Rehance, this argument is, at best, premature. Due to the

failure of Rehance to comply with ERISA notice requirements,

Gaglhano was demed her right to make an administrative record

on the Pre-Existing Conditions Limitation issue as well as other

nghts set forthin 29 CLF R. § 2560-503-1(h). Relhance has no basis

to receive a judgment in its favor at this stage of the proceedings

22a

administrator so that a “full and fair review” can be

accomplished. “Normally, where the plan

administrator has failed to comply with ERISA’s

procedural guidelines and the plaintiff/participant has

preserved his objection to the plan administrator’s

noncompliance, the proper course of action for the

court is remand to the plan administrator for a ‘full

and fair review.” Weaver, 990 F.2d at 159. See also

Caldwell v. Life Ins. Co. of N. America, 287 F.3d 1276,

1288-89 (10th Cir. 2002).

The only exception to that rule would be where the

record establishes that the plan administrator’s denial

of the claim was an abuse of discretion as a matter of

law. That was, in fact, the situation in Weaver, where

the insurer “produced no evidence that it even

remotely considered any specific reasons in denying

the claim.” Weaver, 990 F.2d at 159. No similar

circumstance exists in the case at bar, as the record

reflects, at minimum, a colorable claim that the

Pre-Existing Conditions Limitation applies.

The district court’s reliance on the Sixth Circuit’s

decision in Wenner was misplaced, both because it 1s

contrary to the law of this circuit and because that

decision’s rationale is flawed. In Wenner, a claimant’s

ERISA benefits were ordered reinstated, a substantive

remedy, even though the only ERISA violation was a

29 U.S.C. $1138 procedural violation and the merits of

the claim had not been decided. The dissent in Wenner

correctly analyzed the frailty of the majority position

and that of the district court in this case.

There is no legal basis to order the payment

of benefits as a penalty for violation of the

procedural requirements of ERISA. First, there

23a

is no statutory basis in ERISA for the payment

of benefits not otherwise required by the plan as

a penalty for violating procedural requirements.

We held, for instance, in McCartha v. National

City Corp., 419 F.3d 437, 447 (6th Cir. 2005),

that a plan administrator’s procedural violation

did not require a substantive remedy because

the administrator affirmed the initial benefits

denial on appeal. Thus, even though the

administrator violated 29 U.S.C. § 1133, the

plaintiff was not entitled to a substantive

remedy under ERISA because the administrator

properly determined that the plaintiff was not

entitled to disability benefits. See also Marks v.

Newcourt Credit Group, Inc., 342 F.3d 444, 461

(6th Cir. 2003); Syed v. Hercules, Inc., 214 F.3d

155, 162 (3d Cir. 2000) (Alito, J.).

Reinstatement is not necessary in order to

make the plaintiff whole for a_ procedural

violation. The flaw in holding otherwise is that

a plaintiff is more than made whole- -and

indeed receives a windfall—if after proper

procedures it is determined that the plaintiff

was not entitled to the benefits that the

administrator terminated with flawed

procedures.

Wenner, 482 F.3d at 884 (Rogers, J., dissenting).

By tailing to follow the precedent in this Circuit

established by Sed/ack and Weaver, the district court

erred in granting Gagliano a substantive remedy in

the form of an award of disability benefits for a

procedural violation of ERISA. The proper remedy was

to remand to the plan administrator for the “full and

24a

fair review” to which Gagliano is entitled regarding the

denial of benefits on the basis of the Pre-Existing

Conditions Limitation in the Second Termination

Letter. Accordingly, the district court’s award of

summary judgment to Gagliano is reversed.”

Il.

For the foregoing reasons, the judgment of the

district court is affirmed in part, reversed in part, and

the case remanded for entry of an order to remand the

case to the plan administrator for a full and fair review

regarding the basis for denial of benefits in the Second

Termination Letter.

AFFIRMED IN PART,

REVERSED IN PART,

AND REMANDED

® As to Reliance’s final issue on appeal the district court did not

err in granting a motion to reconsider its earlier award of

summary judgment to Reliance. The district. court has

considerable discretion in deciding whether to modify or amend a

judgment. While it is true that it is a remedy to “be used

sparingly,” this Court has determined that a motion to alter or

amend a judgment under Rule 59(e) is appropriate on three

different grounds: “(1) to accommodate an intervening change itn

controlling law; (2) to account for new evidence not available at

trial; or (3) to correct a clear error of law or prevent manifest

injustice.” Pacific Ins. Co. v. Am. Nati Fire Ins. Co., 148 F.3d 396,

403 (4th Cir. 1998)

The district court did not err in holding that there was an

error of law with respect to its earlier award of suminary

judgment to Reliance because the carlier judgment did not take

into account the procedural violation of ERISA by Reliance

Accordingly, the district court's reconsideration of its prior

judgment was appropriate

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Alexandria Division

No. 1: 03cv160

[Filed August 22, 2007]

JOANNE GAGLIANO,

Plaintiff,

vs

)

)

)

)

)

RELIANCE STANDARD LIFE )

INSURANCE COMPANY, _ )

Defendant. )

)

MEMORANDUM OPINION

Before the Court are cross motions for summary

judgment concerning the Motion for Reconsideration

filed by the plaintiff, Joanne Gagliano, in which she

asks the Court to reconsider its decision to grant the

Motion for Summary Judgment filed by defendant

Reliance Standard Life Insurance Company and to

vacate the judgment entered in favor of the defendant.

For the reasons stated below, the plaintiffs Second

Motion for Summary Judgment will be granted, the

defendant’s Motion for Summary Judgment will be

denied, the previous judgment in favor of the

26a

defendant will be vacated, and a judgment will be

entered in the plaintiffs favor.

Procedural History and Factual Background

Plaintiff, Joanne Gagliano (“Gagliano”), formerly

known as Joanne Darvish, is a Virginia citizen who

previously was an employee of DarCars Chrysler-

Plymouth Jeep of Marlow Heights, which is owned by

former defendant Mariam, Inc., a Maryland

corporation that operates a group of car dealerships in

the Washington, D.C. area. Mariam offers employees

an employee welfare benefits plan (“the Plan”) that is

insured by defendant LReliance Standard Life

Insurance Company (“Reliance”), an _ Illinois

corporation. All claims against defendants Mariam and

the Plan have been resolved, leaving Reliance as the

only defendant in this civil action.

Although employed with DarCars since 1996,

Gagliano did not begin the process of enrolling in the

Plan until March 2001, shortly after she was treated

at the Loudoun Hospital Center. On September 28,

2001, Gagliano was diagnosed with stress syndrome,

anxiety disorder, depression and migraine by her

treating physician and was advised to discontinue

working at DarCars until her condition improved. On

October 25, 2001, Gagliano filed a claim for short-term

disability benefits with Reliance based on her mental

health problems. Reliance approved that claim on or

about December 28, 2001, and shortly after approving

the claim for short-term disability benefits, Reliance

began processing a rollover claim for long-term

henefits.

27a

On February 6, 2002, while considering Gagliano’s

eligibility for long-term benefits, Reliance sent a letter

informing her that the plan’s pre-existing condition

exclusion might apply to her claim, and requesting

information about any medical treatment she received

in the three months immediately preceding her

enrollment in the Plan. Under Section 2.0, the Plan

would not pay benefits for a pre-existing condition,

defined as “any Sickness or Injury for which the

Insured received medical treatment, consultation, care

or services, including diagnostic procedures, or took

prescribed drugs or medicines, during the three

months immediately prior to the Insured’s effective

date of insurance.” Gagliano’s effective date of

insurance was March 13, 2001.

Although it is unclear from the record whether

Gagliano herself filled out the form titled “Pre-Existing

Condition Questionnaire” or whether a Reliance

employee helped her, it is clear that the questionnaire

was timely filed, and it included information about

Gagliano’s treatment at the Loudoun Hospital Center.

The administrative record reveals that Reliance

subsequently obtained Gagliano’s hospital records and

that these records were considered by Dr. Gladys

Fenichel during Keliance’s review of Gagliano’s

eligibility for benefits under the Plan. Reliance

approved the claim for long-term benefits on March 21,

2002, and started paying Gagliano long-term disability

benefits effective January 16, 2002. Under the policy,

the long-term disability benefits were limited to 24

28a

months because the disability was based on a mental

condition.’

On September 17, 2002, Reliance terminated

Gagliano’s long-term disability benefits (“initial

termination”), after concluding that Gagliano did not

continue to meet the eligibility requirements for a

disability under the long-term disability group policy.

This denial was based solely on Reliance’s decision

that Gagliano’s mental health problems did not render

her disabled. No mention was made in this initial

termination of the pre-existing condition exclusion.

Reliance indicated in its termination letter that its

decision was based in part on the evaluation of Dr.

Gladys Fenichel, its file reviewer.

Gagliano appe®led that initial termination decision

by a letter dated November 13, 2002. On January 21,

2003, Reliance advised Gaghano that although it was

“required to make a decision within 60 days of the date

of [her] appeal,” it was “allowed an additional 60 days

it circumstances do not permit us to make a decision

within the initial 60 day time frame.” In that letter

Rehance also informed Gaghano that it would arrange

for an Independent Medical Examination (“IME”) to

“continue to evaluate [her] claim in timely [sic]

manner.” Instead of submitting to the IME, Gagliano

filed this civil action against Mariam, Reliance, and

the Plan on February 5, 2003.

'Gaplhano received long-term disability benefits tor erght months

before the benefit were terminated, leaving the remalhiny

sixteen months ot benefits at issue in this lawsurt

29a

Reliance filed a Motion for Summary Judgment. On

June 20, 2003, the motion was denied. Subsequently,

Gagliano filed a Motion for Summary Judgment.

During the hearing dealing with that motion, the

Court determined that because the administrative

review process had been cut short when the plaintiff

filed her civil action rather than submitting to the

IME, the administrative record was not complete.

Accordingly, the Court stayed Gagliano’s pending

motion for summary judgment and ordered Reliance to

arrange for an IME to “complete the administrative

review process and render a final decision on plaintiffs

administrative appeal.”

Gagliano submitted to the IME, which resulted in

a medical conclusion that she was indeed suffering

from disabling mental problems, thus confirming that

she remained entitled to continued disability benefits.

However, on September 9, 2003, despite the results of

the IME, Reliance denied Gagliano’s claim by a letter

that it described as its “final decision regarding [her]

eligibility for benefits.” In that final decision Reliance

cited for the first time its position that Gagliano was

not entitled to any disability benefits because her

claim was “barred by the Policy’s Pre-existing

Conditions Limitation provision.” Rehance admitted

that it had made a mistake in approving Gagliano for

benefits in the first place because of this exclusion.

Although Reliance closed the letter by suggesting that

it “would be happy to consider any additional

information [Gagliano] wishe[d] RSL to review if the

court thinks further review by RSI. would be

warranted in the present case,” Reliance did not advise

Gagliano in the letter that she was entitled to an

administrative appeal of the new basis for denying her

claim for benefits

30a

Gagliano’s motion for summary judgment was

renoticed for argument and each party filed a

supplemental brief before the hearing. In Gagliano’s

brief, she maintained that Reliance could not deny her

benefits on an entirely new basis without renewing her

appeal rights. At the hearing, Reliance asserted that

Gagliano had not been fully candid in informing

Reliance about treatment at the Loudoun Hospital

Center because she described it as involving “back and

leg pain,” and that if she had been fully candid, no

benefits would ever have been paid to her.’ In light of

Reliance’s argument and the documents before it, the

Court denied Gagliano’s Motion for Summary

Judgment and sua sponte reconsidered and granted

Reliance’s previously denied motion for summary

judgment.

The plaintiff filed the instant motion for rehearing

and reconsideration, and a motion for relief from the

judgment.’ The court’s trial calendar delayed

resolution of those motions until now.

* The “Pre-Existing Condition Questionnaire,” filled out by hand,

contains an entry underneath a question regarding hospital

treatment giving the name and phone number of Loudoun

Hospital Center and the notation “Reflerence]: back and leg pain.”

Gagliano appears to have given information over the phone toa

Reliance representative, who then faxed the form to Gagliano for

her signature. The hospital record actually shows that Gagliano

was being prescribed opioids and taking Tylenol for back and leg

pain, the overdose of which led to her being hospitalized

‘Count I of the Complaint, a claim for benefits under ERISA

§ 502(a)(1)(B) against Reliance, js all that remains in this civil

action

3la

In January 2007, the motions were noticed for

hearing, and argument was heard on February 9,

2007. Counsel for Reliance did not appear. On

February 9, 2007, the Court issued an order granting

the motions for reconsideration and rehearing, denying

the motions for relief from judgment, reopening

discovery on the pre-existing condition exclusion, and

directing the parties to re-file motions for summary

judgment. The parties have now done so.

Analysis

I. Standard of Review

The parties do not dispute that this case is

governed by the Employee tetirement Income Security

Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. Under

ERISA, if the terms of an employee benefit plan

provide discretionary authority to the fiduciary to

determine a claimant’s entitiement to benefits or to

construe the terms of the plan, the fiduciary’s decision

must be afforded deference and should be overturned

only if the decision is an abuse of discretion. Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989); Doe

v. Group Hospitalization & Medical Serv.’s, 3 F. 3d 80,

85 (4th Cir. 1993). The Plan provides’ such

discretionary authority to Reliance. However, ifa plan

vests discretion in a plan administrator who is

operating under a conflict of interest, the conflict must

be taken into account when a court reviews the

administrator's decision. Firestone, 489 U.S. at 115. A

conflict exists if the administrator is not only the plan

fiduciary, but also the insurer which necessarily

benetits by denial of the claim. Sce Stup v. Unum Life

Ins. Co., 390 F.2d 301, 307 (4th Cir. 2004). In such

circumstances, deference 1s decreased “to the degree

32a

necessary to neutralize any untoward influence

resulting from the conflict.” Doe, 3 F.3d at 87. Because

Reliance is operating under a financial conflict of

interest in that it has a financial incentive to deny the

plaintiffs claim, deference is reduced and the standard

applied is a reasonableness standard, as outlined in

Booth v. Wal-Mart Stores, Inc. Assocs. Health &

Welfare Plan, 201 F.3d 335, 342-43 (4th Cir. 2000).

II. Discussion

Gagliano argues that as a matter of law Reliance

has violated the notice provision of ERISA Section 502,

29 U.S.C. § 1133, which requires that a participant

whose benefits have been denied be given notice in

writing “setting forth the specific reasons for such

denial,” and also requires the participant to have “a

full and fair review by the appropriate named fiduciary

of the decision denying the claim.” 29 U.S.C. § 1133.

This Court reviews de novo the legal question of

whether Reliance complied with the _ notice

requirements of ERISA when it denied Gaghano’s

claim in its appeal decision.

ERISA § 502, codified at 29 U.S.C. § 1133, provides:

In accordance with regulations of the

Secretary, every employee benefit plan shall—

(1) provide adequate notice in writing to any

participant or beneficiary whose claim for

benefits under the plan has been denied, setting

forth the specific reasons for such denial,

written ina manner calculated to be understood

by the participant, and

(2) afford a reasonable opportunity to any

participant whose claim for benetits has been

aaa

denied for a full and fair review by the

appropriate named fiduciary of the decision

denying the claim.

29 U.S.C. § 1133. The governiny regulation for ERISA

claims procedures, 29 C.F.R. § 2560.503-1, sets forth

detailed and particularized processes for making

claims, determining benefits, and providing for review

of adverse benefit determinations. Regulation

§ 2560.503-1(h) specifically asserts that

the claims procedures of a plan will not be

deemed to provide a claimant with a reasonable

opportunity for a full and fair review of a claim

and adverse benefit determination unless the

claims procedures (i) provide claimants at least

60 days following receipt of notification of an

adverse benefit determination within which to

appeal the determination; (11) provide claimants

with the opportunity to submit written

comments, documents, records, and other

information relating to the claim for benefits;

(i111) provide 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...; (iv) provide for a review

that takes into account all comments,

documents, records, and other information

submitted by the claimant relating to the claim,

without regard to whether such information

was submitted or considered in the initial

benefit determination.

29 CLF.R. § 2560.503-1 (emphasis added).

34a

It is uncontested that Reliance failed to comply

with the notice requirements of ERISA, because it

never afforded Gagliano the opportunity to appeal its

decision to terminate her benefits on the new ground

of the pre-cxisting condition exclusion. Reliance

informed Gagliano of the new reason for terminating

her benefits in its letter of September 9, 2003, at the

same time that it recognized that she did, indeed,

suffer from an eligible disability based on the IME.

However, it neither offered her an opportunity to

appeal the new, determinative reason for terminating

her benefits nor even advised her of the right to have

her evidence considered on the factual question of the

pre-existing condition limitation. Instead, the parties

returned to court for the argument of motions.

Reliance now argues that Gagliano is precluded

from contesting the denial of benefits on that new

ground because her evidence is not part of the

administrative record. This argument is disingenuous,

as it is not Gagliano’s fault that she was not afforded

the chance to submit evidence on this question to the

administrative reviewer.

Case law in the Fourth Circuit and elsewhere holds

that insurers cannot change the basis for a denial of

benefits without offering an opportunity for appeal

because ERISA requires that claimants have the

opportunity for “full and fair review” of all

determinative reasons for the denial of benefits claims.

When an insurer changes the basis for its denial

during the appeal process—whether’ during

administrative review or judicial review—that

opportunity is lost. See Thompson v. Life Insurance

Company of North America, 30 Fed. Appx. 160, 163-64,

2002 U.S. App. LEXIS 3390 (4th Cir. 2002)

35a

(unpublished) (remanding to district court where

insurance company changed reason for its denial of

benefits during judicial appeal because allowing

insurer “to raise a new basis for denial would deprive

[the claimant] of the procedural fairness guaranteed to

claimants under ERISA”); see also Wenner v. Sun Life

Assurance Company of Canada, 482 F.3d 878, 880-82

(6th Cir. 2007) (reinstating terminated benefits where

insurance company changed basis for termination after

administrative appeal was filed because “full and fair

review language is inconsistent with insurance

company “denying [the claimant’s] claim for one

reason, and then turning around and terminating his

benefits for an entirely different and theretofore

unmentioned reason, without affording him the

opportunity to respond to the second, determinative

reason for the termination”); Glista _v. Unum _Life

Insurance Company of America, 378 F.3d 113, 130 (1st

Cir. 2004) (remanding to the district court with

instructions that the insurer be held to the reason

articulated during its internal claims review process

since the insurer “violated ERISA and its regulations

by relying on a reason in court that had not been

articulated to the claimant during its internal

review’ ).

faving concluded that Reliance violated ERISA,

the remaining question is how to remedy the violation.

Rehance argues that the proper remedy for this

procedural violation of ERISA is a remand to the

insurance company to allow Gagliano to submit

evidence on the question of the pre-existing condition

See Weaver v. Phoenix Home Life Mut. Ins. Co., 990

F.2d 154, 159 (4th Cir. 1993) (Normally, where the

plan administrator has failed to comply with ERISA’s

procedural guidelines and the plaintiff/ participant has

36a

preserved his objection to the plan administrator’s

noncompliance, the proper course of action for the

court is remand to the plan administrator for a ‘full

and fair review’”). Only a remand, Reliance argues,

would allow the parties to develop fully the

administrative record for further judicial review.

Gagliano argues that a reinstatement of the

improperly terminated benefits is the appropriate

remedy. See Wenner, 482 F.3d at 882 (expressly

recognizing that a “procedural violation does not

require a substantive remedy” under ERISA, but

determining that the appropriate remedy was _ to

reinstate all benefits beginning from the invalid

termination because where the initial grant of benefits

was terminated in violation of § 1133 of ERISA, the

benefits had never been properly revoked). Moreover,

Gagliano argues that a remand is not appropriate

because Reliance abused its discretion by continuously

denying Gagliano her appeal rights in violation of

ERISA. See Weaver, 990 F.2d at 159 (“a remand for

further action is unnecessary here because the

evidence clearly shows that [the insurer] abused its

discretion.”).4

There is no question that if on initial remand

Reliance had limited its review to the question of

Gaglhano’s eligibility for benefits on grounds of her

mental illness, it would have been an abuse of

* Rehance actually argues that a remand is appropriate but

unnecessary, since the factual evidence in-_ the record

demonstrates the applicability of the pre-existing condition

exclusion. This argument demonstrates Reliance’s further effort

to evade the dictates of ERISA, which require that Reliance

consider evidence offered by Gaghano on this question

37a

discretion for Reliance to have affirmed that

termination after the IME sustained Gagliano’s claim

of being disabled. The IME clearly demonstrated to all

parties that Gagliano was, in fact, entitled to benefits

on the ground of her mental illness, and a decision to

the contrary would have been unreasonable and not

supported by the evidence. As the Fourth Circuit held

in Thompson, in reviewing an appeal of an initial

decision, the insurer is limited to whether the

rationale set forth in the initial denial notice is

reasonable. Under this reasoning, a second remand is

unnecessary because the result is clear: Gagliano is

entitled to benefits on grounds of her disability.

Reliance argues that because it made a mistake in

approving Gagliano for benefits in the first place, it

should have the benefit of a second remand to allow

the parties to develop a complete evidentiary record on

the pre-existing condition exclusion. Reliance initially

suggested at oral argument that its mistaken award of

benefits was the result of Gagliano’s failure to be

forthcoming about her previous hospital treatment.

However, the record clearly demonstrates that, in fact,

Gagliano did not purposefully withhold information

from Reliance. In fact, Gagliano provided Reliance

with all of the information it needed to contact the

Loudoun Hospital Center before it granted Gagliano

long-term benefits in the first place. Of particular

significance is the clear evidence that Dr. Fenichel

reviewed those hospital records almost a month before

Reliance made its initial termination decision. The

records put Dr. Fenichel on clear notice that Gagliano

was treated for a Tylenol and possible opioid overdose

and was hospitalized for three nights. During the

hospital stay, Gaghano received a psychiatric consult

and reported to the consulting doctor that she had

38a

been prescribed Xanax. In her pleadings before the

Court, Gagliano maintains that the psychiatric consult

was a five-minute, pre-release standard procedure,

that she took Xanax for one and a half days, and that

she did not follow the hospital’s suggestion that she

seek further psychiatric treatment. Nothing prevented

Reliance from citing to the pre-existing condition

exclusion when it initially terminated Gaglhiano’s

benefits. It was only because of Reliance’s negligence

and not due to any misconduct on Gagliano’s part that

Reliance failed to cite the pre-existing condition

exclusion as the basis for initially terminating

Gagliano’s benefits. Reliance now asks this Court for

a remand to correct that mistake.

In evaluating Reliance’s request for another

opportunity to review this claim, the Court has used

the same analysis that applies when a party requests

that a court reconsider a decision or alter or amend a

judgment based on newly discovered evidence. Such a

request will not be granted unless the party can

demonstrate, among other factors, that the evidence on

which it relies is truly newly discovered. See, e.g.,

United States ex rel. Becker v. Westinghouse

Savannah River Co., 305 F.3d 284, 290 (4th Cir. 2002).

On this record, Reliance cannot argue that the new

basis for denial of benefits was based on newly

discovered evidence, when in fact, that evidence had

been in Reliance’s possession throughout the claims

process. Usually, a party who negligently misses

available facts is not entitled to a second chance to

litigate an issue. This principle preserves limited

judicial resources and promotes efficient and timely

restoration of disputes. Moreover, given the equitable

nature of the protections found in ERISA, denying an

insurance company’s request for a second chance based

39a

on its negligent failure to consider all the evidence in

the record is clearly appropriate.

To allow an insurance company to benefit from its

own negligence in the processing of an ERISA benefit

claim would send the wrong message to insurers,

unduly extend the review process, and pose potential

unreasonable burdens on the judiciary, which would be

faced with multiple rounds of litigation. Ilad Gagliano

concealed evidence that came to light only during

judicial review, the equitable balance in this case

would be different. However, the record demonstrates

that she appropriately complied with Reliance’s

requests for information throughout’ the

administrative review process. It was Reliance’s

failure to evaluate that evidence in its initial

processing of Gagliano’s claims that led to this

litigation. As such, it should not benefit from that

negligence. On these facts, Gagliano remains entitled

to receive the remaining sixteen months of benefits.

Conclusion

Accordingly, for the reasons stated above,

Gagliano’s Second Motion for Summary Judgment will

be GRANTED, and Reliance’s Motion for Summary

Judgment will be DENIED.

A separate order consistent with this opinion will

be entered.

Entered this 22" day of August, 2007.

40a

/s/ Leonie M. Brinkema __

Leonie M. Brinkema

United States District Judge

Alexandria, Virginia

APPENDIX C

TITLE 29. LABOR

CHAPTER 18. EMPLOYEE RETIREMENT

INCOME SECURITY PROGRAM

PROTECTION OF EMPLOYEE

BENEFIT RIGHTS

GENERAL PROVISIONS

29 U.S.C. § 1002. Definitions

For purposes of this title:

(1) The terms “employee welfare benefit plan" and

"welfare plan" mean any plan, fund, or program which

was heretofore or is hereafter established or

maintained by an employer or by an employee

organization, or by both, to the extent that such plan,

fund, or program was established or is maintained for

the purpose of providing for its participants or their

beneficiaries, through the purchase of insurance or

otherwise, (A) medical, surgical, or hospital care or

benefits, or benefits in the event of sickness, accident,

disability, death or unemployment, or vacation

benefits, apprenticeship or other training programs, or

day care centers, scholarship funds, or prepaid legal

services, or (B) any benefit described in section 302(c)

of the Labor Management Relations Act, 1947 [29

USCS § 186(c)] (other than pensions on retirement or

death, and insurance to provide such pensions).

42a

(3) The term "employee benefit plan" or "plan"

means an employee welfare benefit plan or an

employee pension benefit plan or a plan which is both

an employee welfare benefit plan and an employee

pension benefit plan.

TITLE 29. LABOR

CHAPTER 18. EMPLOYEE RETIREMENT

INCOME SECURITY PROGRAM

PROTECTION OF EMPLOYEE

BENEFIT RIGHTS

REGULATORY PROVISIONS

ADMINISTRATION AND ENFORCEMENT

29 U.S.C. § 1132. Civil enforcement

(a) Persons empowered to bring a civil action. A civil

action may be brought--

(1) by a participant or beneficiary--

(A) for the relief provided for in subsection (c) of

this section, or

(B) to recover benefits due to him under the

terms of his plan, to enforce his rights under the terms

of the plan, or to clarify his mghts to future benefits

under the terms of the plan;

(3) by a participant, beneficiary, or fiduciary (A) to

enjoin any act or practice which violates any provision

of this title or the terms of the plan, or (8B) to obtain

other appropmate equitable relief (i) to redress such

violations or (11) to enforce any provisions of this title

or the terms of the plan,

43a

29 U.S.C. § 1133. Claims procedure

In accordance with regulations of the Secretary, every

employee benefit plan shall--

(1) provide adequate notice in writing to any

participant or beneficiary whose claim for benefits

under the plan has been denied, setting forth the

specific reasons for such denial, written in a manner

calculated to be understood by the participant, and

(2) afford a reasonable opportunity to any

participant whose claim for benefits has been denied

for a full and fair review by the appropriate named

fiduciary of the decision denying the claim.

44a

APPENDIX D

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Alexandria Division

No. 03-160-A

[Filed February 5, 2003]

JOANNE GAGLIANO ye

45 Huntley Court

Sterling, Virginia 20165

Plaintiff,

Vv.

MARIAM, INC.

t/a DARCARS AUTOMOTIVE

GROUP

A Maryland Corporation

12214 Cherry Hill Rd.

Silver Spring, Maryland 20904

SERVE: Stephen Hosea

6411 Ivy Lane, Suite 200

Greenbelt, Maryland 20770

and

Ae ae ee ee ee ee ee ee ee ee eee ee

UNNAMED LONG TERM DISABILITY

INSURANCE PLAN FOR EMPLOYEES

OF DARCARS

12214 Cherry Hill Rd.

Silver Spring, Maryland 20904

SERVE: Hon. Elaine L. Chao

Secretary of Labor

200 Constitution Avenue, N.W.

Washington, D.C. 20210

and

RELIANCE STANDARD LIFE

INSURANCE COMPANY

2001 Market Street, Suite 1500

Philadelphia, Pennsylvania 19103-7090

SERVE: Commonwealth Legal

Services Corp.

4701 Cox Road, Suite 301

Glen Allen, Virginia 23060

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

Defendants )

COMPLAINT

(Action For ERISA Benefits, Civil

Penalties, Breach of Fiduciary Duty,

Injurction and Damages)

COMES NOW Plaintiff, Joanne Gagliano, by

counsel, and makes her Complaint against the

defendants as follows:

46a

Parties

1. Plaintiff Joanne Gagliano, formerly known as

Joanne Darvish (hereinafter “Gagliano” or “plaintiff),

is an adult citizen of the United States and a resident

of the Commonwealth of Virginia.

2. Defendant Mariam, Inc. (hereinafter “Mariam”)

is a Maryland corporation with a principal place of

business in Silver Spring, Maryland. Mariam trades

under the name of DarCars Automotive Group and

operates a group of automobile dealerships in the

Washington, D.C. metropolitan area.

3. Defendant Unnamed Long Term Disability

Insurance Plan for Employees of DarCars (hereinafter

“Plan”) is a welfare benefit plan providing long term

disability benefits for employees of Mariam. The Plan

is ant employee benefit plan as defined by the

Employment Retirement Income Security Act of 1974

(hereinafter “ERISA”), Title 29 U.S.C. Sections 1001 et

seq. The Plan’s sponsor has either failed to name the

Plan, or such name is unknown to plaintiff.

4. Defendant Reliance Standard Life Insurance

Company (hereinafter “Reliance”) is an_ Illinois

corporation with a principal place of business in

Chicago, Illinois.

5. At all times relevant hereto, defendant Mariam

was present and doing business in the Commonwealth

of Virginia by virtue of its operation of an automobile

dealership at 10620 Lee Highway, Fairfax, Virginia

22030 and by virtue of its acting as plan administrator

of an ERISA plan providing benefits paid to residents

of the Commonwealth of Virginia, including plaintiff.

47a

6. At all times material hereto, defendant Plan was

present in the Commonwealth of Virginia by virtue of

its provision of insurance benefits to participants and

beneficiaries who reside and/or are employed in the

Commonwealth of Virginia, including plaintiff.

7. At all times material hereto, defendant Reliance

was present and doing business in the Commonwealth

of Virginia by virtue of its providing insurance benefits

to residents of the Commonwealth of Virginia,

including plaintiff.

Jurisdiction and Venue

8. This Court has jurisdiction of this matter under

Title 29 U.S.C. Section 1132(e) and (f) (ERISA

jurisdiction), as well as Title 28 U.S.C. Section 1331

(federal question jurisdiction).

9. This Court has jurisdiction of this matter under

Title 28 U.S.C. Section 1332 (diversity jurisdiction) as

the matter in controversy exceeds the sum or value of

Seventy-Five Thousand Dollars ($75,000.00), exclusive

of interest and costs, and is between citizens of

different states.

10. Venue is proper in this district and division, as

they are the district and division where plaintiff

resides, where the breaches took place, and where

defendants can be found.

11. At all times material hereto, plaintiff Gagliano

was a full-time employee of DarCars Chrysler-

48a

Plymouth Jeep of Marlow Heights (hereinafter

“DarCars CPJ”).

12. Defendant Mariam owns and operates, and at

all times material hereto has owned and operated,

DarCars CPJ.

13. In calendar years 2001 and 2002, Gagliano was

eligible for long term disability insurance offered by

Mariam as a plan participant of the Plan.

14. Such disability insurance was offered through

an ERISA welfare benefit plan insured by defendant

Reliance.

15. On or about April 1, 1996, defendant Mariam

became plan sponsor and plan administrator of

defendant Plan.

16. As plan administrator of the Plan, Mariam isa

fiduciary with respect to the Plan.

17. As the claims review fiduciary with respect to

the Plan, defendant Reliance is a fiduciary with

respect to the Plan.

18. Upon information and_ belief, the Plan

fiduciaries have not created a Summary Plan

Description (“SPD”) with respect to the Plan.

19. On September 28, 2001, plaintiff Gagliano was

diagnosed with stress syndrome, anxiety disorder,

depression and migraine by her treating physician and

was advised by him to cease employment with

DarCars CPJ until her condition improved.

49a

20. On October 25, 2001, plaintiff Gagliano made a

claim for short term disability benefits with defendant

Rehance.

21. On or about December 18, 2001, defendant

Reliance approved plaintiffs application for short term

disability benefits.

22. On or about January 7, 2002, plaintiff Gagliano

made a claim for long term disability benefits under

the Plan by providing information and documents

requested by defendant Reliance.

23. On March 21, 2002, defendant Reliance

approved long term disability benefits for plaintiff;

such Jong term disability benefits commenced as of

January 16, 2002.

24. On September 17, 2002, defendant Reliance

made an adverse benefit determination with respect to

plaintiff Gagliano by terminating her long term

disability benefits under the Plan previously approved

by defendant Keliance.

25. The reason given by defendant Reliance in its

notice of adverse benefits determination was that

plaintiff Gagliano allegedly did not continue to meet

the eligibility requirements under the long term

disability group policy.

26. On November 13, 2002, plaintiff Gagliano

transmitted a written request for review of the

decision of September 17, 2002 regarding termination

of long term disability benefits. Said request for review

was received by defendant Relrance on November 15,

2002

50a

27. On January 21, 2003, defendant Reliance

advised plaintiff Gagliano that it was unable to make

a decision with respect to her long term disability

benefits and would be taking an additional unspecified

amount of time to reach a decision regarding her

request for review dated November 13, 2002.

28. At all times material hereto, plaintiff Gagliano

has paid all required premiums with respect to her

long term disability benefits.

29. At all times material hereto, plaintiff Gagliano

has met all eligibility requirements for long term

disability coverage.

30. Defendant Reliance has failed.and refused to

provide long term disability benefits plaintiff to

Gagliano, and such failure is continuing.

COUNT I

(Claim for Benefits Under

ERISA Section 502(a)(1)(B):

Mariam, Plan and Reliance)

31. All previous paragraphs are realleged as if fully

set forth hereat.

32. As of March 21, 2002, plaintiff Gagliano met all

requirements for receipt of long term disability

benefits under the Plan as a plan participant.

33. Since March 21, 2ZOO2. there has been no

material change in her mental and emotional health.

34. As of September 17, 2007, and thereafter,

plaintiff Gaghano has met and currently meets all

Hla

requirements for the receipt of long term disability

benefits from Reliance.

35. The adverse benefit determination of September

17, 2002 is contrary to the terms of the group contract

for long term disability benefits relating to the Plan.

36. Defendant Mariam, as plan administrator, has

not provided to defendant Reliance discretionary

authority to interpret the Plan and the insurance

policy and to determine eligibility for benefits for plan

participants and beneficiaries. The adverse benefit

determination of defendant Reliance is therefore void.

37. Alternatively, if defendant Reliance has

provided proper discretionary authority to defendant

Rehance to interpret the Plan and the insurance policy

and to determine eligibility for benefit participants

and beneficiaries, such discretionary authority has

been exercised by defendant Reliance arbitrarily,

capriciously and contrary to the information available

to it regarding plaintiffs disability. In such repard,

defendant Reliance has:

a. failed to consider that plaintiffhad previously

met all requirements for long term disability benefits

and failed to expressly identify and consider any new

facts apparent from the record that are material and

substantial enough to cause the prior determination to

grant benefits to be reversed;

b made no reference to, or viven consideration

to, the provisions of any Summary Plan Description

relating to the Plan;

52a

c. failed to articulate a rational basis for the

adverse benefit determination that is supported by the

record:

d. failed to consider the opinions of plaintiffs

treating health care providers that plaintiff is unable

to work;

e. failed to consider that the review of plaintiffs

record performed prior to the adverse benefit

determination by Reliance fails to demonstrate an

ability to return to work;

f. relied on a document review of plaintiffs

record that is incomplete and has mischaracterized the

findings of plaintiff's treating health care providers;

and,

g. failed to examine or test plaintiff with respect

to her disability prior to making its adverse benefit

determination.

38. Defendants have failed to establish and

maintain reasonable claims procedures, in violation of

ERISA and its regulations. In that regard, the

defendants:

a. have failed to establish and maintain claims

procedures that comply with the requirements of

paragraphs (d), (g), (h), and (1) of 29 CFR 2560.5038-1;

b. have fatled to set forth the description of all

claims procedures and the applicable time frames in a

Summary Plan Description meeting the requirements

of 29 CFR 2520.102-3; and,

c. have failed to establish or maintain claims

procedures containing administrative processes and

safeguards designed to ensure and to verify that

benefit claim determinations are made in accordance

with governing plan documents.

39. The notification of the adverse benefit

determination sent to plaintiff did not set forth a

specific reason or reasons for the adverse

determination, but was genera! and conclusory.

40. The notification of the adverse benefit

determination sent to plaintiff did not make reference

to the specific plan provisions on which the

determination was based.

41. The notification of the adverse benefit

determination sent to plaintiff did not contain a

description of any additional material or information

necessary for the plaintiff to perfect her claim and an

explanation of why such material or information was

necessary, including, but not limited to a specification

of what material or information would cure the

perceived deficiency in plaintiffs medical records that

led defendants to the conclusion that plaintiff was not

totally disabled

42. The notification of the adverse benefit

determination sent to plaintiff did not provide the

correct time limits applicable to the Plan's review

procedures

43 The notification of adverse benefit

determination sent to plaintiff failed to include a

statement of the plaintiffs right to bring a civil action

54a

under Section 502(a) of ERISA following an adverse

benefit determination on review.

44. The defendants failed to notify the plaintiff of

the Plan’s benefit determination on review within

forty-five (45) days after receipt of plaintiffs request

for review by the Plan.

45. Defendants failed to provide written notice of

an extension of the 45-day period aforesaid within

such 45-day period, failed to indicate the special

circumstances requiring an extension of time, and

failed to state the date by which the Plan expected to

render the determination on review.

46. The actions and omissions aforesaid by the

defendants have provided plaintiff with no reasonable

opportunity for a full and fair review of her claim and

adverse benefit determination, and such acts and

omissions are in violation of ERISA and_ its

regulations.

47. By virtue of the failure of the defendants to

establish and follow reasonable claims procedures and

the failure of the defendants to provide a full and fair

review of claims and adverse benefits determinations,

plaintiff Gaghano is deemed to have exhausted her

administrative remedies and is entitled to pursue all

availa’'*s remedies under Section 502(a) of ERISA

without judicial deference to the adverse benefit

determination.

48. As a direct and proximate result of the actions

and omissions of the defendants aforesaid, plaintiff

Gapliano has been damaged

JVa

WHEREFORE, plaintiff Gagliano prays for the

entry of an injunction, both preliminary and

permanent, against defendants Mariam, the Plan and

Reliance, directing said defendants to provide all

accrued long term disability benefits denied the

plaintiff as a result of the adverse benefit

determination of September 17, 2002; that said

defendants be enjoined, both preliminarily and

permanently, from making any adverse benefit

determinations as to plaintiff Gagliano until such time

as they have established a full and fair review of

claims and adverse benefit determinations, as well as

establishing and _ following reasonable’ claims

procedures; that, in the alternative, judgment be

awarded plaintiff Gagliano against defendants

Mariam, the Plan and Reliance, jointly and severally,

for payment of benefits due her under the terms of the

Plan in the amount of One Hundred Thousand Dollars

($100,000.00), plus pre-judgment interest; that

plaintiff Gagliano be awarded attorneys’ fees as

provided under ERISA, payment of her costs of this

action, and all such other and further relief as the

Court may deem just and proper.

COUNT II

(Action Under ERISA Section 502(c): Mariam)

49. All previous paragraphs are realleged as if fully

set forth hereat

50. Atall times material hereto, defendant Mariam,

as plan administrator, was required by operation of

federal law to provide plaintiff Gagliano with a copy of

the SPD with respect to the Plan upon request

56a

51. At all times material hereto, defendant Mariam,

as plan administrator, was required by operation of

federal law to provide plaintiff Gagliano with a copy of

any insurance contracts associated with the Plan upon

request.

52. At all times material hereto, defendant Mariam,

as plan administrator, was required by operation of

federal law to provide plaintiff Gagliano with copies of

all summary annual reports relating to the Plan upon

request.

53. At all times material hereto, defendant Mariam,

as plan administrator, was required by operation of

federal law to provide plaintiff Gagliano with copies of

any other documents under which the long term

disability benefits plan 1s operated and maintained

upon request.

54. On October 3, 2002, plaintiff Gagliano, by and

through her counsel, made a written request upon

defendant Mariam for copies of the SPD, any

insurance contracts associated with the Plan, copies of

all summary annual reports for the last three years

relating to the Plan, and any other document under

which the long term disability benefits Plan is

operated or maintained.

55. On November 12, 2002, plaintiff Gaghano, by

her counsel, made a telephonic request to defendant

Mariamat its office of human resources, for documents

responding to the October 3, 2002 request

96. On December 9, 2002, plaintiff Gaghano, by her

counsel, made a further written request upon

57a

defendant Mariam for the documents set forth in the

written request of October 3, 2002.

57. Defendant Mariam has failed to provide a copy

of any of the requested documents or make any other

response to the requests of plaintiff Gagliano.

58. The failure of defendant Mariam as aforesaid is

a violation of ERISA Section 502(c) and subjects it to

civil penalties under ERISA, all of which are due and

payable to plaintiff Gagliano.

{

WHEREFORE, plaintiff Gagliano demands

judgment against defendant Mariam for civil penalties

at the rate of One Hundred Ten Dollars ($110.00) per

day per document for its failure to provide copies of

Plan documents as requested from November 2, 2002

to the date of judgment herein and that plaintiff

Gagliano be awarded her attornevs’ fees under ERISA,

plus payment of her costs, along with such other and

further relief as the Court may deem just and proper.

COUNT III

(Breach of Fiduciary Duty for Failure to

Establish and Maintain Reasonable Claims

Procedures; Equitable Relief Under ERISA

Section 502(a)(3): Mariam and Reliance)

59. All previous paragraphs are realleged as if fully

set forth hercat.

60. At all times material hereto, defendants

Mariam and Reliance, as ERISA fiduciaries, had a

duty of loyalty pursuant to which all decisions

regarding an ERISA plan must be made solely in the

interests of plan participants, as well as other

58a

fiduciary duties including but not lmited to those

duties listed hereafter.

61. At all times material hereto, defendants

Mariam and Reliance, as ERISA fiduciaries, had a

duty to act for the exclusive purpose of providing

benefits to plan participants.

62. At all times material hereto, defendants

Mariam and Reliance, had a duty to act in accordance

with any documents or instruments governing the

Plan.

63. Defendants Mariam and Reliance breached

their fiduciary duties to plaintiff Gagliano by their

failure to provide plaintiff Gagliano with a full, fair,

unbiased and competent review of her medical records

and other pertinent infermation prior to making the

initial adverse benefit determination, by their failure

to provide plaintiff Gagliano with notification of the

adverse benefit determination that meets the

minimum standards required under ERISA, by their

failure to provide plaintiff Gagliano with a full and fair

review of the adverse benefit determination made on

September 17, 2002, as is required under ERISA, and

by their failure to establish and maintain reasonable

claims procedures.

64. As a direct and proximate result of the

aforesaid breaches of fiduciary duties, plaintiff

Gagliano has been damaged.

WHEREFORE, plaintiff Gaghano prays for the

entry of an injunction, both preliminary and

permanent, against defendants Mariam and Rehance,

directing said defendants to provide all accrued long

59a

term disability benefits denied the plaintiff as a result

of the adverse benefit determination of September 17,

2002, plus pre-judgment interest; that said defendants

be enjoined, both preliminarily and permanently, from

making any adverse benefit determinations as _ to

plaintiff Gagliano until such time as they have

established a full and fair review of claims and adverse

benefit determinations, as well as establishing and

following reasonable claims procedures; that plaintiff

Gagliano be awarded attorneys’ fees as provided under

ERISA, payment of her costs of this action, and a!]

such other and further relief as the Court may deem

just and proper.

COUNT IV:

(Breach of Fiduciary Duty for Failure to

Provide All Information Needed to Enforce

Rights of Plan Participants; Equitable Relief

Under ERISA Section 502(a)(3):

Mariam and Reliance)

65. All previous paragraphs are realleged as if fully

set forth hereat.

66. At all times material hereto, defendants

Mariam and Reliance, as ERISA fiduciaries, had a

duty to furnish to each participant all information that

he or she needs to enforce his or her rights under the

Plan.

67. At all times material hereto, defendants

Mariam and Reliance, as ERISA fiduciaries, had a

duty to furntsh each participant with an SPD relating

to the Plan.

60a

68. Defendants Mariam and Reliance have

breached their fiduciary duties by failure to provide

plaintiff Gaghano with a copy of the SPD relating to

the Plan.

69. Defendants Mariam and Reliance have

breached their fiduciary duties to plaintiff Gaghano by

failing to furnish her with all other information that

she needs to enforce her rights under the Plan.

70. As a direct and proximate result of the

aforesaid breaches of fiduciary duties, plaintiff

Gagliano has been damaged.

WHEREFORE, plaintiff Gagliano prays for the

entry of an injunction, both preliminary and

permanent, against defendants Mariam and Reliance,

directing said defendants to provide all accrued long

term disability benefits denied the plaintiff as a result

of the adverse benefits determination of September 17,

2002, plus pre-judgment interest; that said defendants

be enjoined, both preliminarily and permanently, from

making any adverse benefit determinations as to

plaintiff Gagliano until such time as they have

provided to plaintiff Gagliano all information that she

needs to enforce her rights under the Plan, including

a copy of the Summary Plan Description; that plaintiff

Gagliano be awarded attorneys’ fees as provided under

ERISA, payment of her costs of this action, and all

such other and further relief as the Court may deem

just and proper.

6la

COUNT V

(Breach of Fiduciary Duty for Failure to

Establish and Maintain Reasonable Claims

Procedures; Relief Under ERISA Section

502° a)(2): Mariam and Reliance)

71. All previous paragraphs are realleged as if fully

set forth hereat.

72. At all times material hereto, defendants

Mariam and Reliance owed the fiduciary duties

aforesaid in connection with the Plan not only to

plaintiff Gagliano, but also to the Plan itself and all of

its participants and beneficiaries.

73. Defendants Mariam and Reliance, in breach of

their fiduciary duties aforesaid, have failed to

establish, maintain and implement claims procedures

that notify claimants of benefit determinations in

accordance with the requirements of ERISA.

74. Defendants Mariam and Reliance, in breach of

their fiduciary duties, have failed to establish,

maintain and implement procedures by which

claimants have a reasonable opportunity to appeal an

adverse benefit determination to an appropriate

named fiduciary of the Plan.

75. Defendants Mariam and Reliance, in breach of

their fiduciary duties as aforesaid, have failed to

establish, maintain and implement procedures under

which there will be a full and fair review of claims and

adverse benefit determinations.

76. Such breaches of fiduciary duty have permitted

defendants Mariam and Reliance to profit at the

62a

expense of the participants and beneficiaries of the

Plan, and such actions constitute deliberate, willful,

wanton and malicious breaches of fiduciary duty.

77. Such actions and omissions on the part of

defendants Mariam and Reliance are the direct and

proximate cause of damage to the Plan as well as to its

participants and beneficiaries.

WHEREFORE, plaintiff Gagliano requests that a

judgment issue against defendant Reliance requiring

full restitution to the Plan of all insurance premiums

and other consideration it has received in connection

with the Plan; that defendant Reliance be ordered to

account for all such payments and consideration, as

well as any profits it has received as a result; that all

pro..ts be restored for the benefit of the Plan; that a

constructive trust be imposed upon defendant Reliance

for purposes of assuring repayment of all premiums,

consideration and profits with respect to the Plan; that

an injunction, both preliminary and permanent, issue

against defendants Mariam and Reliance prohibiting

further violations of ERISA with respect to the Plan;

that compensatory damages be awarded by the Court

against defendants Mariam and Reliance and in favor

of the Plan in an amount necessary to compensate the

Plan, its participants and beneficiaries for all losses

caused bv Mariam and Reliance; that pre-judgment

interest be awarded against defendants Mariam and

Reliance; that judgment be imposed _ against

defendants Mariam and Reliance for punitive damages

in the amount of Five Hundred Thousand Dollars

($500,000.00): that defendant Reliance be removed as

claims fiduciary ofthe Plan; that defendant Mariam be

removed as a fiduciary under t..e Plan and ordered to

forthwith employ an independent and competent

63a

fiduciary to serve as plan administrator; that plaintiff

Gagliano be awarded her attorneys’ fees under ERISA;

that she be awarded her costs, and that she be

awarded such other and further relief as the Court

may deem just and proper.

COUNT VI

(Breach of Fiduciary Duty for Failure to

Provide All Information Needed to Enforce

Rights of Plan Participants; Relief Under

ERISA Section 502(a)(2):

Mariam and Reliance)

78. All previous paragraphs are realleged as if fully

set forth hereat.

79. At all times material hereto, defendants

Mariam and Reliance owed the fiduciary duties

aforesaid in connection with the Plan not only to

plaintiff Gagliano, but to the Plan itself and all of its

participants and beneficiaries.

80. Defendants Mariam and Reliance, in breach of

their fiduciary duties as aforesaid, have failed to

provide plan participants and beneficiaries with copies

of the Summary Plan Description.

81. Defendants Mariam and Reliance, in breach of

the fiduciary duties aforesaid have failed to furnish

each participant and beneficiary all other information

that he or she needs to enforce his or her rights under

the Plan.

82. Such breaches of fiduciary duty have permitted

defendants Mariam and Reliance to profit at the

expense of the participants and beneficiaries of the

64a

Plan, and such actions constitute deliberate, willful,

wanton and malicious breaches of fiduciary duty.

83. Such actions and omissions on the part of

defendants Mariam and Reliance are the direct and

proximate cause of damage to the Plan as well as to its

participants and beneficiaries.

WHEREFORE, plaintiff Gagliano requests that a

judgment issue against defendant Reliance requiring

full restitution to the Plan of all insurance premiums

and other consideration it has received in connection

with the Plan; that defendant Reliance be ordered to

account for all such payments and consideration, as

well as any profits it has received as a result; that all

profits be restored for the benefit of the Plan; that a

constructive trust be imposed upon defendant Reliance

for purposes of assuring repayment of all premiums,

consideration and profits with respect to the Plan; that

an injunction, both preliminary and permanent, issue

against defendants Mariam and Reliance prohibiting

further violations of ERISA with respect to the Plan;

that compensatory damages be awarded by the Court

against defendants Mariam and Reliance and in favor

of the Plan in an amount necessary to compensate the

Plan, its participants and beneficiaries for all losses

caused by Mariam and Reliance; that pre-judgment

interest be awarded against defendants Mariam and

Reliance; that judgment be imposed ayainst

defendants Mariam and Reliance for punitive damages

in. the amount of Five Hundred Thousand Dollars

($500,000.00); that defendant Reliance be removed as

claims fiduciary of the Plan; that defendant Mariam be

removed as a fiduciary under the Plan and ordered to

forthwith employ an independent and competent

fiduciary to serve as plan administrator; that plaintiff

65a

Gagliano be awarded her attorneys’ fees under ERISA;

that she be awarded her costs, and that she be

awarded such other and further relief as the Court

may deem just and proper.

JOANNE GAGLIANO

By Counsel

BORING & PILGER, P.C.

/s/

Karl W. Pilger, Esq. (Bar #18788)

307 Maple Avenue West, Suite D

Vienna, Virginia 22180-4307

(703)281-2161

Attorney for Plaintiff Joanne Gagiiano

Dated February 5, 2003

VERIFICATIO

I, Joanne Gagliano, hereby certify that I have read

the foregoing Complaint, and state that it is true and

correct to the best of my knowledge and belief.

/s/ Joanne Gaghano

Joanne Gaghano