The ERISA Litigation Newsletter - October 2014

Editor's Overview

The first article in this month's newsletter focuses on whether specific language in ERISA employer-provided disability insurance plans confer discretionary authority to plan administrators to determine eligibility of benefits. Recently, courts have focused on whether discretion is conferred to a plan administrator when the plan requires that claimants present "proof satisfactory to us" to receive benefits. The article discusses the split in the circuits on this issue, with four circuits ruling that such language grants discretionary authority and thus the arbitrary and capricious standard applies and six circuits holding that lush language does not provide a clear grant of discretionary authority. The second article in this month's newsletter focuses on a new IRS notice, expanding the cafeteria plan "change in status" rules to allow health plans to offer employees the option to revoke their elections for employer-sponsored health coverage to purchase coverage through a Health Insurance Marketplace.

As always, be sure to review the section on Rulings, Filings, and Settlements of Interest including, recent case law on ERISA preemption in the Sixth Circuit, changes to the waiting period in California, and an update on mental health parity litigation.

A Court's Review Of A Disability Benefit Claim May Hinge On The Meaning "Satisfactory To Us"

By Joe Clark

Twenty-five years ago, the U.S. Supreme Court ruled that courts should review an ERISA participant's claim for benefits under a de novo standard of review unless the plan gives the plan fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan. Since then, courts have considered what type of plan language suffices to grant plan fiduciaries discretionary authority to warrant the more deferential arbitrary and capricious standard of review.

The issue has garnered a fair amount of attention in the context of employer-provided disability insurance plans. Courts have been particularly focused on whether the requisite discretion is conferred when the plan requires that claimants present "proof satisfactory to us" (e.g., the plan administrator) to receive benefits. Four circuits [the Sixth, Eighth, Tenth and Eleventh Circuits] have ruled that such language clearly grants discretionary authority to the plan administrator, and claim denials in those cases have been subject to an arbitrary and capricious standard of review. However, six circuits [the First, Second, Third, Fourth, Seventh and Ninth Circuits] have held that such language does not provide a clear grant of discretionary authority to a plan administrator and thus claim denials in these cases were subject to de novo review by a court.

Whether a court reviews a benefit claim denial (i) de novo, thus empowering the court to substitute its own judgment for that of the plan fiduciary, or (ii) under the highly deferential arbitrary and capricious standard of review, can sometimes be outcome determinative. This article sheds some light on the reasoning behind each view and suggests steps that plan drafters can take to better ensure that claim denials are subject to deferential review by the courts.

The Firestone Standard

It is well established that a benefit claim denial being challenged under ERISA is subject to de novo review by courts "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan."1 If the plan provides the administrator or fiduciary with discretionary authority to determine eligibility for benefits, however, courts review the decision under the highly deferential arbitrary and capricious standard of review. A plan administrator bears the burden of establishing that the arbitrary and capricious standard should apply.

Courts Finding "Satisfactory To Us" Allows For Arbitrary And Capricious Review

Several circuit courts have concluded that a plan's statement that proof of disability must be "satisfactory to us" is sufficient to warrant application of an arbitrary and capricious standard of review. In fact, three circuit courts of appeals determined that such language triggered an arbitrary and capricious standard of review based solely on the fact that the language, on its face, clearly gives the plan administrator discretion to determine benefits eligibility.

For instance, the Eleventh Circuit found, without stating its reasoning, that a long-term disability policy requiring "satisfactory proof of total disability to the plan administrator" provided the plan administrator discretion to determine eligibility for benefits, and concluded that it should review the benefit denial under an arbitrary and capricious standard of review.2 The Eighth Circuit reached the same conclusion in a case involving a long-term disability plan that required claimants to provide written proof of total disability that was "satisfactory to the plan administrator."3 The Sixth Circuit also applied an arbitrary and capricious standard of review even in the absence of the "to us" in "satisfactory to us." It found that "[a] determination that evidence is satisfactory is a subjective judgment that requires a plan administrator to exercise his discretion," and "the only reasonable interpretation of the [plan] language" was that the plan administrator "retain[ed] the authority to determine whether the submitted proof of disability [was] satisfactory."4

The Tenth Circuit concluded that "satisfactory to us" conveys the message that the evidence of disability must be persuasive to the plan administrator, and thus...