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

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...