In Schorsch v. Reliance Standard Life Ins. Co., — F.3d — ,  2012 WL 3667977 (7th Cir. Aug. 28, 2012), the court “considered here whether the content of a termination notice, specifically the absence of particular information, caused the beneficiary’s failure to exhaust and whether [he is]  estopped from taking advantage of that failure.” The court found that the district court did not abuse its discretion in concluding that “the beneficiary offered no evidence of reasonable reliance on the absent information and that even if the notice was deficient, the alleged deficiencies were not material.”

The facts of the case are somewhat unusual. Reliance, which had been paying plaintiff benefits since 1993, notified her that it was terminating benefits in June 2006 based on the conclusion that she could work full time. About a week before the administrative appeal deadline expired, plaintiff’s attorney provided a “notice of intent” to appeal, with a request for time to submit “a detailed analysis of my client’s position.” Neither plaintiff nor her attorney submitted an actual appeal. About six months later, Reliance wrote to say that, though plaintiff may have intended to appeal, she did not; because the deadline had expired, its determination was final. Plaintiff then sued. During the litigation, Reliance admitted that it had lost the administrative record relating to the claim. Ultimately, the district court granted Reliance’s motion for summary judgment on the ground that plaintiff failed to exhaust her administrative remedies.

On appeal, plaintiff did not “seriously contest” that she failed to timely seek administrative review. Instead, she argued that Reliance should be estopped from relying on her failure to exhaust.

The court began by observing: “Schorsch cannot circumvent ERISA’s administrative remedies by simply pointing to errors in Reliance’s claims termination process. Flaws in Reliance’s termination notice and other errors become relevant only if Schorsch reasonably relied on them in failing to request a review of its decision to terminate her disability benefits,… or if Reliance’s missteps denied her meaningful access to a review[.]” The court then proceeded to go through plaintiff’s arguments and explain that none of them established reliance or a lack of meaningful access.

Plaintiff first argued that the termination letter misrepresented the “real” reasons why Reliance terminated benefits (e.g., claiming that it put weight on surveillance that it did not mention). The court held that Reliance had a good faith basis for terminating benefits, even if it did not disclose every piece of information it relied on. The court further held that, even if the termination letter was deficient in listing evidence, that failure would not provide a reasonable basis for plaintiff’s failure to exhaust administrative remedies. The court stated: “Schorsch obviously could not contest what she did not know, but the termination notice gave her and her counsel an opportunity to ‘review the pertinent documents upon which’ Reliance made its decision. Because Schorsch failed to exercise that option, she cannot now claim that had she known certain details, material or otherwise, she would have requested review of Reliance’s decision to terminate her benefits.”

Plaintiff next argues that the termination letter gave her only 60 days to appeal, while the applicable regulation, she claimed, allowed 180 days. The court found that, while there was a question which version of the regulation applied, the answer did not matter because plaintiff could not establish that disclosure of a different deadline would have made any difference in her failure to file a request for a review, when she never requested a review.

Plaintiff also argued that the loss of the administrative record justified estoppel, but the court found that she could not establish that the subsequent loss of the record justified her prior failure to administratively appeal.

Plaintiff also argued that Reliance did not establish reasonable claims procedures, in violation of ERISA, and that she therefore should be deemed to have exhausted her administrative remedies under 29 C.F.R.  2560.503-1. But the court held that the regulation assumes claimants attempted to exhaust their administrative remedies but the lack of a reasonable claims procedure blocked a decision on the merits of the claim. Plaintiff, the court held, could not establish that Reliance blocked her access to the claim review process, because she never sought that review.

The court summed up its decision as follows:

We do not condone Reliance’s missteps—particularly the loss of the administrative record, the confusion over who performed her vocational assessment, and the impression it gave Schorsch that its decision was based only on her medical records when in fact the surveillance report suggesting she ran a babysitting service influenced the decision by some measure. But Schorsch cannot show how these problems caused her failure to seek review of Reliance’s termination decision. The congressionally mandated internal claims resolution process is the first stop in ERISA’s scheme for addressing such disputes. Schorsch never followed Reliance’s instructions for seeking review, and she does not show how she reasonably relied on any misrepresentation or lack of information in failing to exhaust her administrative remedies. Thus, the district court did not abuse its discretion in requiring exhaustion.