Gagliano v. Reliance Standard Life Insurance

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

JOANNE GAGLIANO, 
Plaintiff-Appellee,
v.
RELIANCE STANDARD LIFE
INSURANCE COMPANY,
Defendant-Appellant,
and  No. 07-1901

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.
Leonie M. Brinkema, District Judge.
(1:03-cv-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.
2 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
Affirmed in part, reversed in part, and remanded by published
opinion. Judge Agee wrote the opinion, in which Judge Nie-
meyer 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 issued by Reliance, based on noncompliance with
certain procedural requirements of the Employee 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 wel-
fare 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 diag-
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 3
nosed with stress syndrome, anxiety disorder, depression and
migraine by her treating physician and was advised to discon-
tinue working at Darcars until her condition improved."
Gagliano v. Reliance Standard Life Ins. Co., No. 1:03-cv-160,
slip 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. Id. Reliance
approved her claim for short-term benefits, and began review-
ing her claim for long-term disability benefits.1 In that pro-
cess, Reliance requested that Gagliano complete a Pre-
Existing Conditions Questionnaire to verify that the Pre-
Existing Conditions Limitation did not apply to her claim.2
Gagliano completed the Questionnaire and Reliance approved
her claim for long-term disability benefits in March, 2002.3

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 gen-
eral economy." A covered 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 Gagli-
ano 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.
1
Gagliano received the short-term disability benefits provided under the
Plan. The issue in this case relates only to the termination of Gagliano’s
long-term disability benefits.
2
The Pre-Existing Conditions Limitation under the Plan excludes from
coverage any claims that arose from a pre-existing condition, 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
Gagliano’s effective date of insurance.
3
Although long-term, these benefits are limited under the Plan to pay-
ments for twenty-four months.
4 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
The Initial Termination Letter included the requisite notice
required by ERISA, 29 U.S.C. § 1133, 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.

Gagliano’s complaint named Darcars, the Plan, and Reli-
ance 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," includ-
ing an inability to return to work. Gagliano claimed that Reli-
ance 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 proce-
dures." In the alternative, Gagliano requested monetary dam-
ages, pre-judgment interest, and attorney’s fees.4

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 pend-
ing motion for summary judgment and directed Reliance to
4
Gagliano’s employer, Mariam, Incorporated, trading as Darcars Auto-
motive Group, is a Maryland corporation that operates a group of car
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 in this appeal.
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 5
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 treat-
ment 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 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 [Reli-
ance] would be warranted in the present case."

Gagliano again moved for summary judgment, arguing that
Reliance improperly denied benefits in the Second Termina-
6 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
tion Letter on entirely new grounds and its "failure to even
minimally comply with ERISA." Reliance responded that it
was Gagliano’s lack of complete disclosure on the Question-
naire which prevented it from asserting the Pre-Existing Con-
ditions Limitation at an earlier time. In light of this argument,
the district court denied Gagliano’s motion for summary judg-
ment and sua sponte reconsidered and granted Reliance’s pre-
viously denied motion for summary judgment by order of
October 20, 2003. Gagliano timely filed a motion for rehear-
ing 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 Gagliano.

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-
Existing Conditions Limitation. Gagliano, slip op. at 9-10.
The district court held this action violated the notice require-
ments 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 ERISA’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 Limita-
tion issue. The court opined that Reliance "negligently mis-
se[d] 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
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 7
"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 Gagli-
ano the remaining disability benefits because "[i]t was Reli-
ance’s failure to evaluate that evidence in its initial processing
of Gagliano’s claims that led to this litigation." Id.

Reliance timely brings this appeal of the district court’s
judgment. This Court has jurisdiction over this appeal pursu-
ant to 28 U.S.C. § 1291.

II.

Reliance argues four issues on appeal. First, Reliance
asserts no procedural violation of ERISA occurred, therefore
the district court could not award judgment to Gagliano. Next,
Reliance contends that the district court erred when it held
that Reliance 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 proce-
dural ERISA violation, the district court erred because the
proper remedy was a remand of the case to the plan adminis-
trator 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).
8 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
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." Id. The regulations implement-
ing these statutory requirements provide that a "full and fair
review" includes the opportunity for the claimant to appeal
the adverse benefits determination and to submit written com-
ments 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 submit-
ted 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 meaning-
ful 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. Id. Procedural guide-
lines are at the foundation of ERISA and "full and fair review
must be construed . . . to protect a plan participant from arbi-
trary or unprincipled decision-making." Weaver v. Phoenix
Home Life Mut. Ins. Co., 990 F.2d 154, 157 (4th Cir. 1993)
(quoting Grossmuller v. UAW Local 813, 715 F.2d 853, 857
(3d Cir. 1983)).

The district court’s award of summary judgment to Gagli-
ano was based on the threshold determination that "[i]t is
uncontested that Reliance failed to comply with the notice
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 9
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 hold-
ing is contested and contends no ERISA violation, procedural
or otherwise, occurred and thus Gagliano was not entitled to
judgment.

Reliance contends that no ERISA violation occurred by vir-
tue of the claim resolution in the Second Termination Letter
because (1) ERISA "only requires the inclusion of appeal lan-
guage in an initial denial letter," (Br. 27); (2) the July 11
Order required a "final decision on plaintiff’s administrative
appeal" and therefore took precedence over any ERISA statu-
tory requirement; and (3) assuming a technical ERISA viola-
tion 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 Gagliano 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 Order 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 Termina-
tion Letter. In fact, Reliance never addressed in the Second
Termination Letter the grounds for denial in the Initial Termi-
nation Letter. Instead, the Second Termination Letter cited a
wholly new basis to deny Gagliano’s claim, the Plan’s Pre-
Existing Conditions Limitation.
10 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
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 ERISA 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 pro-
vide the required appeal information in the Second Termina-
tion Letter, because that letter was an initial 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 Sec-
ond 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 Termination Let-
ter did not address the subject matter of Gagliano’s adminis-
trative appeal (the reason for denial of benefits in the Initial
Termination Letter), but made a "final decision" to deny bene-
fits on a wholly new ground (pre-existing condition). Nothing
in the July 11 Order limited Reliance’s statutory duty to com-
ply with the mandates of ERISA while making a "final deci-
sion," even though the Second Termination Letter effectively
made an initial decision on new grounds. Moreover, we are
aware of no provision in ERISA or otherwise, which would
permit the district court, by judicial fiat, to abrogate and nul-
lify 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
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 11
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 liti-
gation, 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 lim-
itation 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 Ellis v. Metropolitan Life Insurance Co., 126 F.3d
228 (4th Cir. 1997), for the proposition that "substantial"
compliance with the spirit of the regulation will suffice, for
"not all procedural defects will invalidate a plan administra-
tor’s decision," id. at 235 (quoting Brogan v. Holland, 105
F.3d 158, 165 (4th Cir. 1997)), Reliance contends the lan-
guage of the Second Termination Letter was in substantial
compliance with the ERISA requirement for appeal notice to
a claimant. Specifically, Reliance posits that the closing sen-
tence 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
12 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
"full and fair review," including, but not limited to the follow-
ing:

[T]he 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 pro-
cedures . . . (ii) Provide claimants the opportunity to
submit written comments, documents, records, and
other information relating to the claim for benefits;
(iii) Provide that a claimant shall be provided, upon
request and free of charge, reasonable access to, and
copies of, all documents, records, and other informa-
tion relevant to the claimant’s claim for benefits; (iv)
Provide for a review that takes into account all com-
ments, documents, records, and other information
submitted by the claimant relating to the claim, with-
out regard to whether such information was submit-
ted or considered in the initial benefit determination.

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 addi-
tional 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 Reli-
ance to support its argument. Thus, the contention that Reli-
ance 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 dis-
trict court properly reasoned that "the remaining question is
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 13
how to remedy the violation." Gagliano, slip op. at 11. Con-
cluding that Reliance made a mistake in not initially asserting
the Pre-Existing Conditions Limitation as the basis to termi-
nate 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 Termina-
tion Letter, it could not thereafter support termination of "ben-
efits for an entirely different and theretofore unmentioned
reason" in the Second Termination Letter. Wenner, 482 F.3d
at 882. To do so, the district court reasoned, nullifies "the
opportunity 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."5 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,6
and Reliance could not assert the Pre-Existing Conditions
Limitation, no other basis existed in the record to deny Gagli-
ano’s claim. The district court thus concluded an award to
Gagliano of the long-term disability benefits was the appro-
priate remedy. "To allow an insurance company to benefit
from its own negligence in the processing of an ERISA bene-
5
The district court also relied on an unpublished opinion from this cir-
cuit, Thompson v. Life Insurance Co. of North America, 30 Fed. Appx.
160 (4th Cir. Mar. 4, 2002) (unpublished), for this viewpoint. For the rea-
sons set forth herein, Thompson appears incorrectly decided, but is of no
precedential value in any event.
6
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." Reliance did not contest this
finding in the district court or on appeal.
14 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
fit 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 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 Con-
ditions 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 cor-
rect 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 premi-
ums constituted a waiver of its right to deny" the validity of
the policy. Id. 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. Bur-
lington 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
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 15
claims pose a risk of creating "conflicting employer
obligations and variable standards of recovery." This
is precisely the result that ERISA’s broad preemp-
tion clause was enacted to avoid.

Nor can White rely on the federal common law
under ERISA, which does not incorporate the princi-
ples 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 v. 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. Sim-
ilarly, the "mistake" by Reliance in failing to initially assert
the Pre-Existing Conditions Limitation cannot estop Reliance
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(a)(1) (requiring that ‘[e]very employee ben-
efit 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 Can-
ada Life Assurance Co. v. Estate of Lebowitz, 185 F.3d 231,
16 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
235 (4th Cir. 1999) ("This Court will enforce the plain lan-
guage 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 adher-
ence 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.

2. Remand

Insomuch as Reliance can assert the Pre-Existing Condi-
tions 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 incor-
rect. Similarly, the district court’s holding that the procedural
ERISA violation, by virtue of the defective Second Termina-
tion 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.
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 17
We determined in Sedlack that, as in the case at bar, a defec-
tive 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 bene-
ficiary 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 not
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 is not
covered, Braswell’s breach of section 1133 would
not entitle him to benefits or to an award of dam-
ages." This reasoning is sound and supported by per-
suasive 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 Ter-
mination Letter, that procedural violation cannot afford Gagli-
ano a substantive remedy if she has no entitlement to benefits
18 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
under the terms of the Plan.7 In cases where there is a proce-
dural ERISA violation, we have recognized the appropriate
remedy is to remand the matter to the plan 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 non-
compliance, 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 Condi-
tions Limitation applies.

The district court’s reliance on the Sixth Circuit’s decision
in Wenner was misplaced, both because it is 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. § 1133 procedural violation and the
merits of the claim had not been decided. The dissent in Wen-
7
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 Reliance, this argument is,
at best, premature. Due to the failure of Reliance to comply with ERISA
notice requirements, Gagliano was denied her right to make an administra-
tive record on the Pre-Existing Conditions Limitation issue as well as
other rights set forth in 29 C.F.R. § 2560-503-1(h). Reliance has no basis
to receive a judgment in its favor at this stage of the proceedings.
 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE 19
ner 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 is no statutory
basis in ERISA for the payment of benefits not oth-
erwise 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 proce-
dural violation did not require a substantive remedy
because the administrator affirmed the initial bene-
fits denial on appeal. Thus, even though the adminis-
trator 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 wind-
fall—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 failing to follow the precedent in this Circuit established
by Sedlack and Weaver, the district court erred in granting
Gagliano a substantive remedy in the form of an award of dis-
ability benefits for a procedural violation of ERISA. The
proper remedy was to remand to the plan administrator for the
"full and fair review" to which Gagliano is entitled regarding
20 GAGLIANO v. RELIANCE STANDARD LIFE INSURANCE
the denial of benefits on the basis of the Pre-Existing Condi-
tions Limitation in the Second Termination Letter. Accord-
ingly, the district court’s award of summary judgment to
Gagliano is reversed.8

III.

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 ben-
efits in the Second Termination Letter.

AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED

8
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 in 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.
Nat’l 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 summary judgment to Reliance because
the earlier 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.