When someone is denied benefits under an employer’s group insurance plan, a court that reviews that decision has to decide which standard of review it has to apply to the case. The standard of review is the method or process the court uses to review the case. There are two standards to choose from, and which standard the court must use depends on the court’s interpretation of language in the employer’s plan document. More importantly, which standard the court uses can greatly impact how strong the employee/participant’s case is in court. A recent case out of Puerto Rico shows why it is important that the trial judge makes the right ruling on which standard of review to use. Using the wrong one can mean the case gets reversed. The wrong standard of review can also can mean that the deck is stacked against you if you are fighting an ERISA denial in court.
Courts Use Two ERISA Standards of Review: 1) De Novo, or 2) Abuse of Discretion
ERISA – the federal Employee Retirement Income Security Act – regulates employee benefit plans. Courts have interpreted ERISA to require one of two standards of review, either of the following:
- Abuse of Discretion (also called arbitrary and capricious) review, or
- De Novo review
Abuse of discretion review requires a judge to give deference to the administrator’s decision. The judge cannot overturn a denial of benefits unless the administrator failed to rely on reasonable evidence in discretionary review cases. That means the judge could disagree with the decision, but if what most people would say is reasonable evidence (such as a credible doctor’s report) is in the file, the judge cannot overturn the denial. In effect, the judge has to put a finger on the administrator’s side of the scale, and the claimant has to have overwhelming evidence to get the scales to go the other way. This standard favors the administrator for obvious reasons – the claimant has to prove that the insurance company’s decision was completely unreasonable, not just wrong – some judges would even say it has to be “outlandish.”
Compare that to de novo review, where the court gives the evidence a fresh look and decides on the facts the way the court sees fit, with no deference to what the administrator did. There is no finger on the administrator’s side of the scale. The judge just calls it like he or she sees it. If a court uses de novo review, it generally is more favorable to the claimant, because the judge is simply weighing the evidence and deciding the case.
This is particularly important in ERISA cases where most decisions are made using the insurance company’s claim file. Trials rarely occur in ERISA court cases. They are usually decided on written briefs with the court using only the insurance company’s pre-lawsuit claim file as the evidence in the case. That means that the claimant cannot bring a witness into court to make their case better or explain something that was in file. The evidence that gets developed and added to the file during the pre-lawsuit claim process must be solid for a claimant to win a case in court.
De Novo or Discretionary Review: How Do Courts Decide Which One Applies?
The starting point is de novo review – it is the “default rule.” For over 30 years, the U.S. Supreme Court has held a court must review an ERISA administrator’s denial of benefits using a “de novo standard of review unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); see also Stephanie C. v. Blue Cross Blue Shield of Mass. HMO Blue, Inc., 813 F.3d 420, 427 (1st Cir. 2016) (“The default rule favors de novo review ….”).
So, how does a plan sponsor (the employer) give an administrator discretion? They put language into their plan document. It is as simple as that. And the issue has been around long enough where any plan sponsor should know that they have to include the special language in their plan to have administrator decisions entitled to the more deferential abuse of discretion standard. But very often, the needed language is not in the plan, or it has not been properly adopted as an addition to the plan. In those case, insurance claimants can still have a chance at de novo review.
Recent First Circuit Case Shows Why Courts Have to Get the Standard of Review Right
Nilda Rodríguez-López worked for Mova Pharmaceutical from 1995 to 2004. She started having physical and mental problems in 2004, and ultimately filed a disability claim under Mova’s Long Term Disability (LTD) Plan.
Originally, Mova had Jefferson-Pilot Life Insurance Company as the group insurer and administrator of the LTD Plan. Jefferson-Pilot had the power to order medical exams, review records, and do other things to process claims. It also had to write notices if it denied claims and explain appeal procedures to employees whose claims were denied.
At some point, another company – Triple-S Vida, Inc. replaced Jefferson-Pilot. After that occurred, everything that Jefferson-Pilot would have done before was done by Triple-S.
Triple-S denied Rodríguez-López’s claim, and ultimately she had to file a lawsuit trying to get the denial reversed. Mova is a Puerto Rico company, and the lawsuit was filed in the U.S. District Court for Puerto Rico. The District Court ruled that the claim was properly denied, and it did so using the abuse of discretion standard. This means that it put its thumb on the scale and gave deference to the denial by Triple-S. The problem with this decision is that it gave Triple-S an unfair advantage that it was not entitled to.
When Rodríguez-López filed suit, one of her arguments had been that the de novo standard of review applied. The District Court did not accept this argument, concluding that Triple-S had properly recieved discretionary authority. So, Rodríguez-López appealed to the United States First Circuit Court of Appeals.
First Circuit Requires Discretionary Language That Employees Knew About
In the First Circuit, “[i]f the plan gives the plan participant or covered beneficiary adequate notice of [a] reservation [of discretionary authority], then “a deferential arbitrary and capricious or abuse of discretion standard” is applied. Gross v. Sun Life Assur. Co. of Can., 734 F.3d 1, 11 (1st Cir. 2013). “[T]he threshold question in determining the standard of review is whether the provisions of the benefit plan at issue ‘reflect a clear grant of discretionary authority to determine eligibility for benefits.’ ” Gross, 734 F.3d at 13.
Triple-S argued that the Plan granted discretionary authority to Mova “but, because Triple-S was actually making the benefit decisions in place of Mova, it is implied that the discretionary authority has been transferred to Triple-S.” Triple-S also claimed that it effectively had Jefferson-Pilot’s discretion, because it was the successor to J-P. Yet the LTD Plan was never amended to discuss this. Instead, it did not even mention Triple-S.
The appeals court made it plain that in the First Circuit, the delegation of discretion has to be clearly stated in the plan. The court plainly stated,
If Triple-S wanted to benefit from the delegation of authority and the deferential standard it provides, the Plan needed to clearly state it so that Plan participants, such as Rodríguez, received adequate notice that Triple-S had been granted discretionary authority to interpret the Plan.
Notice is a key part of this. The plan participant must know about a delegation of discretion. Not only did the plan not mention discretion being given to Triple-S, the employees were not told about any discretion either.
The First Circuit also addressed whether Triple-S was delegated any discretion by Mova. It explained,
Named fiduciaries may be granted discretionary decisionmaking authority. See 29 U.S.C. § 1105(c)(1); Rodríguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580, 584 (1st Cir. 1993). In such a case, however, the Plan’s language must clearly grant this authority. See Stephanie C, 813 F.3d at 428; Rodríguez-Abreu, 986 F.2d at 583-84. ERISA also “allows named fiduciaries to delegate responsibilities (other than trustee responsibilities) through express procedures provided in the plan.” Rodríguez-Abreu, 986 F.2d at 584 (citing 29 U.S.C. § 1105(c)(1)). For the delegation of discretionary authority to be effective so that the deferential standard of review applies, however, the delegation must be clear and the fiduciary must properly designate a delegate for the fiduciary’s discretionary authority. Id. (citing Madden v. ITT Long Term Disability Plan, 914 F.2d 1279, 1283-84 (9th Cir. 1990)).
The court held that Triple-S could not point to any plan or other document which properly delegated any authority to Triple-S.
Because the lower court in Puerto Rico “looked at Triple-S’s denial of benefits through the wrong standard-of-review lens,” the First Circuit vacated the decision which upheld Triple-S’s denial of LTD benefits to Rodriguez-Lopez, and ordered that the District Court review the case again and issue another decision using the de novo standard of review.
When courts wrongly decide that discretionary review should be used to review ERISA administrator’s decisions, they improperly stack the deck against the employee whose claim was denied. If your employer group claim was denied, you must be sure to hire an ERISA attorney who understands the law related to standard of review, and argues for de novo review if it applies in your case. You do not want the stacked deck that an administrator gets with abuse of discretion review. You want the level playing field that de novo review gets you.