As a general rule, there is no right to a jury trial in an ERISA benefit dispute. Usually these cases are decided in federal court by a judge, who reviews the plan administrator's final decision denying a claim. The court may adopt one of two possible standards of review: either a de novo standard or a deferential standard (also known as the "abuse of discretion" standard). The outcome of a case often depends upon which standard of review is applied.
Under de novo review, the court basically looks at a health or long term disability claim denial as it would any other
contract dispute. The judge may simply review the evidence in support of the claim, examine the plain language of the Plan, and render an immediate decision on the merits. Under de novo review, there is no presumption of correctness of the plan administrator's decision.
Deferential review is more restricted. Under this standard, the administrator's decision can be upheld by the Court, even if it is technically wrong, as long as there is "substantial evidence" in the administrative record to support the decision. "Substantial evidence" is a rather nebulous term, which has been defined by the appellate courts as: "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion". It does not mean a large or considerable amount of evidence. It requires "more than a scintilla, but less than a preponderance." Also, as a general rule, "a plan administrator's decision will not be disturbed if reasonable. This reasonableness standard requires deference to the administrator's benefits decision unless it is (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record." Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917, 929 (9th Cir. 2012). This general rule is modified, however, where the administrator has a conflict of interest (see below).
The U.S. Supreme Court, in Firestone Tire Rubber v. Bruch, 489 US 101 (1989), basically held that de novo review is to be presumed. Unfortunately, the Supreme Court carved out a gigantic exception to this rule. The rule applies, "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id at 115. (See article: The Looking Glass Logic of ERISA - Firestone v. Bruch). Most plans include the language necessary to take advantage of this loophole. The insurance industry has made certain of it.
Suffice it to say that Plan attorneys universally argue that the "Firestone exception" applies, so as to try to take advantage of a deferential standard of review. Participants' attorneys will usually argue the opposite, whenever possible. Much of ERISA litigation often involves this rather technical debate over the applicable standard of review. Because of this, (and other reasons) even the simplest benefit dispute takes on a ridiculous degree of complexity.
Although the deferential standard certainly gives the plan administrator a decided advantage over the Participant, it is not the panacea that many sloppy or unscrupulous plan administrators think it is, nor is it akin to a papal dispensation. The deferential standard does not give the administrator carte blanche to do whatever it wants with regard to a particular claim. There are still rules that must be followed, and quite often, ERISA plan administrators (as well as their claims administrators and managed care companies) either do not know the rules or they forget to follow them.
And in those cases where an insurance company is both a funding source of the plan and a decision-maker regarding payment of claims, a clear conflict of interest emerges and the rules become even more complex. As I have stated elsewhere in articles on this website, ERISA imposes "fiduciary duties" on those who administer a benefit Plan. So if a Plan gives that fiduciary "discretion" to decide benefit eligibility issues, it sets up a classic "conflict of interest" situation. This is the ultimate paradox of ERISA. (See article: ERISA – A General Introduction to the Subject).
In recent years, the 9th Circuit and the U.S. Supreme Court have grappled with this problem in Abatie v. Alta Health & Life Ins. Co. 458 F.3d 955 (9th Cir. 2006), Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623 (9th Cir. 2009); and Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343, 554 US 105, 171 L. Ed. 2d 299 (2008). The result of these decisions (and those that have followed) is that deferential review is no longer a singular, definable standard. Instead it is a multi-faceted standard, with perhaps more than 50 shades of gray. The extent of deference to be given to a "conflicted" fiduciary’s decision, is to be determined by weighing a number of substantive and procedural "factors" that are unique to each case. As the Court in Abatie put it:
“We recognize that abuse of discretion review, with any conflict . . . weighed as a factor, . . . is indefinite. We believe, however, that trial courts are familiar with the process of weighing a conflict of interest. For example, in a bench trial the court must decide how much weight to give to a witness' testimony in the face of some evidence of bias. What the district court is doing in an ERISA benefits denial case is making something akin to a credibility determination about the insurance company's or plan administrator's reason for denying coverage under a particular plan and a particular set of medical and other records. We believe that district courts are well equipped to consider the particulars of a conflict of interest, along with all the other facts and circumstances, to determine whether an abuse of discretion has occurred.”
For a more detailed discussion see: article Abatie v. Alta (The New "Non-Sliding", Sliding Scale for Reviewing Decisions of Conflicted ERISA Fiduciaries).
Postscript: Recently, states, such as California, have enacted statutes, banning clauses in life 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. By its terms the statute does not apply to health insurance policies.
THE DEFERENTIAL STANDARD OF REVIEW
ERISA-Governed Health and Long Term Disability
By: Michael A. McKuin
Revised: June 2017
ERISA Disability Lawyer