For more than a decade, the test applied to decisions of conflicted fiduciaries in the 9th Circuit was the one announced in Atwood v. Newmont Gold Co., 45 F.3d 1317 (9th Cir. 1995). Under the old Atwood test, ERISA long term disability plaintiffs had a shot at de novo review in the District Courts, even in those cases where discretion was conferred upon an insurance company by the Plan. All a plaintiff had to do was come forward with “material, probative evidence, beyond the mere fact of the apparent conflict, tending to show that the (insurer’s) self-interest caused a breach of (its) fiduciary obligations to the beneficiary.” Atwood at 1323. If the plaintiff did that, then the burden shifted to the Plan to prove that the conflict of interest did not affect its decision to deny benefits. If the Plan could not carry that burden, the standard of review would be elevated to de novo. Id. at 1323.
In August 2006, the 9th Circuit handed down its en banc opinion in Abatie v. Alta Health & Life Ins. Co. 458 F.3d 955 (9th Cir. 2006). Abatie completely changed the rules for determining the standard of review applicable to decisions of conflicted fiduciaries. The rule change was a substantial one. Assuming discretion is conferred by the Plan, a plaintiff now has little chance for de novo review. Instead, the 9th Circuit essentially adopted a “sliding scale abuse of discretion” approach, while refusing to call it what it is. Therefore, I’ll call it a “non-sliding”, sliding scale.
The 9th Circuit in Abatie found that the burden-shifting analysis of Atwood failed to follow the Supreme Court precedent of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989), in that Atwood was said to place “an unreasonable burden on ERISA plaintiffs”, which “requires that we overrule it”. Abatie, supra at 966. Thus, the stated purpose of the Abatie decision was to “(alleviate) the unreasonable burden Atwood placed on ERISA plaintiffs” to “(bring) forth evidence of a ‘serious conflict of interest,’ triggering de novo review”. Abatie, supra at 969. In theory, no longer would administrators’ decisions be upheld, merely because they are “grounded on any reasonable basis.” Id., citing Jordan v. Northrop Grumman Corp. Welfare Benefit Plan, 370 F.3d 869, 875 (9th Cir. 2004). To the contrary, “Going forward, plaintiffs will have the benefit of an abuse of discretion review that always considers the inherent conflict when a plan administrator is also the fiduciary, even in
the absence of ‘smoking gun’ evidence of conflict.” Abatie, supra at 969.
Therefore, Abatie replaced Atwood’s burden-shifting approach with an abuse of discretion standard, but very different from the traditional abuse of discretion standard of review. Under Abatie, judicial review is now colored by consideration of all the relevant facts and circumstances. Id. at 968-69.
Abatie also recognized that there is a rare class of cases where procedural violations may actually give rise to de novo review, where the “administrator utterly fails to follow applicable procedures”. Id at 959. Those are cases involving “violations so flagrant as to alter the substantive relationship between the employer and employee, thereby causing the beneficiary substantive harm.” Id at 971, such as where an administrator engages in “wholesale and flagrant violations of the procedural requirements of ERISA, and thus acts in utter disregard of the underlying purpose of the plan as well” Id at 971, citing Firestone 489 U.S. at 111. However, Abatie held that in ordinary cases, procedural violations are a factor to be weighed in abuse of discretion review: “A procedural irregularity, like a conflict of interest, is a matter to be weighed in deciding whether an administrator’s decision was an abuse of discretion.” Abatie at 972. So in essence, the Abatie decision vests the District Courts with carte blanche authority to “decide in each case how much or how little credit” to give the insurer’s reasons for denying a claim. The District Courts will now simply treat conflicted decision-making as a “factor” to be “weighed” in what is basically a traditional “abuse of discretion” analysis.
As Judge Kleinfeld’s concurring opinion noted, Abatie added even more “unpredictability” to the mix. Personally, I did not agree with the Abatie decision because, contrary to what the Court stated in Abatie, I never felt that the Atwood test necessarily required “smoking gun evidence”. Cases such as Lang v. Long-Term Disability Plan 125 F.3d 794, 797 (9th Cir. 1997), and Friedrich v. Intel Corp., 181 F.3d 1105, 1109 (9th Cir. 1999) made it clear that there were many types of evidence, sufficient to shift the burden under Atwood. Among these were: unfairness of the claims process; inadequate communication regarding the claim; insufficiency of notice of a claim decision; inconsistency of claims administration; and (my personal favorite) administering the claim in an adversarial manner, inconsistent with fiduciary obligations. In this writer’s experience, 90% of the time, one or more of these factors is present in every long term disability claim decision. Moreover, under the pretense of protecting plaintiffs from the perceived unfair burden of Atwood, I feared that Abatie may actually impose a new burden on plaintiffs to conduct formal discovery, regarding conflict of interest. But any evidence adduced by such discovery does nothing more than give rise to “factors” that a District Court judge may consider or “weigh”.
However, in all fairness I have to admit that Abatie did put more teeth into the abuse of discretion standard of review; and other cases that followed it [e.g. Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623 (9th Cir. 2009)] have expanded the Abatie analysis in a way that is perhaps favorable to plaintiffs. In addition, in Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343, 554 US 105, 171 L. Ed. 2d 299 (2008), the United States Supreme Court essentially adopted the same approach as Abatie, regarding the weighing of factors, extending this analysis to all federal courts, nationwide. (Interestingly, the Glenn decision does not once even mention Abatie, which may be indicative of what the Supreme Court thinks of the 9th Circuit). In the wake of Glenn, there are at least two published 9th Circuit cases, where the courts have cited Abatie and Glenn in tandem: Vaught v. Scottsdale Healthcare Corporation Health Plan, 546 F.3d 620 (9th Cir., 2008); and Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016 (9th Cir. 2008). In Burke the 9th Circuit even referred to the approach for determining abuse of discretion as “the newly-established MetLife/Abatie standard” at Id at *30.
In the final analysis, whereas many plaintiffs might have obtained de novo review under the former Atwood test, they will now be stuck with a traditional “abuse of discretion” review, no matter what, albeit a new and different kind of “abuse of discretion” review. Be that as it may, often depending on the trial judge, "abuse of discretion" review can be the "kiss of death" to any ERISA long term disability claimant. Therefore, in the wake of Abatie, the construction of the administrative record — which has always been vitally important in ERISA cases — is now made even more so. An ERISA plaintiff’s lawyer must go absolutely overboard in putting evidence into the record that will hopefully cause the “non-sliding” scale to slide in plaintiff’s favor.
Postscript: Recently, states, such as California, have enacted statutes, banning clauses in health and disability policies (as well as contracts, certificates, or other agreements), which grant insurance companies discretion to determine eligibility for benefits or to interpret plans. (See: Insurance Code §10110.6). In California, this would apply to all such policies issued or renewed on or after January 1, 2012 and it applies to all such policies, which insure California residents, regardless of where the policies were "issued". Insurance companies, however, have tested creative ways to try to get around the ban. (See article: Discretionary Bans and ERISA’s The Savings Clause). However, in May 2017 the Ninth Circuit issued its decision in Orzechowski, v. The Boeing Company Non-Union Long-Term Disability Plan ( No. 14-55919), holding that “By its terms, §10110.6 covers not only ‘policies’ that provide or fund disability insurance coverage but also ‘contracts, certificates, or agreements’ that “fund” disability insurance coverage.” Therefore, unless the Supreme Court takes up the issue, it appears that for insured plans discretionary review for ERISA benefit plans is dead in California.
ABATIE v. ALTA HEALTH & LIFE INSURANCE CO.
The "Non-Sliding" Sliding Scale for Reviewing Decisions
of Conflicted ERISA Fiduciaries
By: Michael A. McKuin
ERISA Disability Lawyer