United States: Second Circuit Applies Stricter Rules for a Plan Administrator's Noncompliance with Benefit Claims Regulations


The US Court of Appeals for the Second Circuit's recent ruling addresses various issues that could arise during a plan administrator's review of a participant's benefit claim and appeal and any ensuing litigation, including the deference to be granted upon review in a federal court, civil penalties and the possibility of introducing additional evidence outside the administrative record. This decision demonstrates the need for employers to review their benefit plans' claims procedures to ensure they comply with applicable law and best practices.

In Depth

On April 12, 2016, the US Court of Appeals for the Second Circuit in Halo v. Yale Health Plan, 2016 WL 1426291 (2d Cir. Apr. 12, 2016), addressed various issues that could arise during a plan administrator's review of a participant's benefit claim, appeal and any ensuing litigation.  The Second Circuit held that, under the Employee Retirement Income Security Act of 1974, as amended (ERISA):

  • When denying a claim for benefits, a plan administrator's failure to comply with the US Department of Labor's (DOL) claims procedure regulations in 29 C.F.R. § 2560.503‐1 will result in the plan administrator's claim determination receiving no deference on review in federal court, unless the plan's claims procedures fully conform to regulatory requirements and the plan administrator can establish that any failure was inadvertent and harmless;
  • Civil penalties are not available to a plan participant or beneficiary for a plan administrator's failure to comply with the claims procedure regulations; and
  • A plan administrator's failure to comply with the DOL's claims procedure regulations could warrant the introduction of additional evidence outside the administrative record if the claim determination is challenged in litigation.


In Halo, the plaintiff was a college student who was insured under the university's health plan.  The plaintiff underwent eye surgery with doctors who were outside of the plan's network.  The university's health plan stated that treatment with an out-of-network provider was covered under the plan only if it constituted an emergency or if the plan preauthorized the treatment.

Because the participant's surgery did not meet the plan's coverage requirements for out-of-network treatment, the plan administrator denied the plaintiff's claim for coverage.  In her subsequent lawsuit, the plaintiff alleged that the plan and the plan administrator violated the DOL's claims procedure regulations with respect to both the timing and content of the claim denials.

The US District Court for the District of Connecticut held that (1) when exercising discretionary authority to deny a benefit claim, a plan's failure to establish or follow reasonable claims procedures in accordance with the DOL's regulations entitles a claimant to de novo review of the claim in federal court, unless the plan "substantially complied" with the regulation, in which case an arbitrary and capricious standard would apply to the federal court's review of the claim; and (2) a plan administrator's failure to follow the DOL's regulations may result in unspecified civil penalties.  On review, the Second Circuit vacated and remanded the district court's decision.

Standard of Review

The primary issue in Halo focused on what review standard a court should apply when a plan fails to comply with the DOL's claims procedure regulations:  (1) a de novo standard, which allows a court to take a fresh look at the decision without deference; or (2) a much less exacting arbitrary and capricious review standard, which merely requires the plan administrator to interpret a plan's provisions reasonably.  After examining regulatory guidance and applicable case law, the Second Circuit concluded that when denying a benefit claim, a plan's failure to comply with the DOL's claims procedure regulations will result in that claim being reviewed de novo in federal court, unless the plan has otherwise established procedures in full conformity with the regulations and can establish that its failure to comply with the DOL's claims procedures when reviewing the benefit claim was inadvertent and harmless.  The Second Circuit rejected the lower court's substantial compliance doctrine and cautioned that, while minor deviations from the claims procedure regulations may occur, "such deviations should not be tolerated lightly."

Civil Penalties

The Second Circuit also rejected the district court's ruling that civil penalties are available to a participant when a plan fails to comply with the DOL's claims procedures.  The Second Circuit found that the district court's finding that civil penalties could attach to failures to provide a full and fair review was not supported by the regulations or ERISA.

Administrative Record

In reviewing a claim denial, regardless of the review standard, a district court typically limits its review to the administrative record—the documents and information reviewed and considered by the plan administrator in rendering its claim decision.  When there is good cause, however, a district court may exercise its discretion to consider additional evidence outside of the administrative record.  The Second Circuit has previously held that a conflict of interest in the entity tasked with reviewing a benefit claim could constitute good cause and warrant the review and consideration of additional evidence.  In Halo, the Second Circuit stated that good cause could also be expanded to include a plan's failure to comply with the DOL's claims procedures when that failure impacts the administrative record's development.  The Second Circuit therefore held that a plan's failure to comply with the DOL's claims procedures may, in the district court's discretion, constitute good cause warranting the introduction of additional evidence outside the administrative record.  The Second Circuit remanded this determination to the district court.

Halo's Impact on Plan Sponsors and Administrators

The Halo decision presents a mixed message to employers.  On the positive side, the Second Circuit reaffirmed that civil penalties are not available to plaintiffs who sue the plan alleging a violation of the DOL's claims procedures.  On the negative side, the Second Circuit's decision enhances a plaintiff's ability to introduce additional evidence that was not included in the administrative record.  More importantly, the Second Circuit lowered the bar for a plaintiff to argue that a de novo review standard should be applied in the face of administrative review errors.  While the general rule in most circuits is that substantial compliance with the DOL's claims regulations will not change the standard of review from arbitrary and capricious to de novo—even in the face of errors in the claims review process—the Halo decision increases the burden on plans and plan administrators to prove compliance with the DOL's claims regulations in order to preserve deferential review.  This case provides an important reminder for employers to establish written claim review procedures that conform to the DOL's claims regulations and adhere to a disciplined administrative procedure when reviewing benefit claims and appeals.  These procedures include, as the Second Circuit notes, enhanced claims procedures for health and welfare plans in situations governed by the Affordable Care Act.  Given the increased employee protections in ERISA claim review procedures over the past decade (see, for example, DOL's New Disability Claim Rules Add to a Plan Administrator's Duties under Welfare and Retirement Benefit Plans), employers should review their benefit plans' claims procedures, evaluate their compliance with applicable law, and make updates as necessary.

Second Circuit Applies Stricter Rules for a Plan Administrator's Noncompliance with Benefit Claims Regulations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions