Claimant Was Not Required to Exhaust Issues on Appeal

On appeal from the District Court of Arizona, the Ninth Circuit considered whether the claimant in an ERISA case exhausted his administrative remedies when the claim administrator rejected, as deficient, his first attempt to appeal the claim decision. The Court also examined whether a claimant can raise new legal theories supporting his claim during litigation. Initially, the district court granted summary judgment for the Plan, holding that, despite a detailed appeal letter written by Vaught’s attorney, he did not effectively appeal the initial claim decision because he failed to meet the requirement that he “clearly explain…the reason why you think the Claim Administrator should reconsider your claim.” However, the Ninth Circuit disagreed with both the claim administrator’s initial decision and the district court’s factual determination, and found that the appeal letter’s “seven procedural reasons” listing why the initial claim decision should be overturned satisfied the Plan’s appeal requirements. Thus, in response to the argument that Vaught failed to exhaust his administrative remedies, the Ninth Circuit ruled that, while he did not utilize the Plan’s two-step appeal process, that was only because the Plan improperly rejected his first attempt to appeal the claim decision, and because it the administrator’s fault that Vaught did not complete the appeal process, the claim was ripe for litigation. Next, the Ninth Circuit examined whether, during litigation, Vaught could raise new legal bases for challenging the denial of benefits decision, that is, bases that were not raised during the claim review process. The Plan argued that the claimant could not assert a new legal theory supporting his claim if he did not raise the issue during the administrative appeal process. The court disagreed, explaining that neither ERISA, nor the Plan has an “issue-exhaustion requirement.” Specifically, the Court stated that “[b]ecause ERISA and its implementing regulations create an inquisitorial, rather than adversarial process, and because the EOB does not notify a claimant that issue exhaustion is required, [we] conclude that Vaught was not required to exhaust his issues or theories in the context of this case.” On these bases, the court concluded that the claimant exhausted his administrative remedies and was not precluded from raising new theories to the district court.