Defending the De Novo Standard of Review

The least-weird image you get when you ask OpenAI for a cartoon of “brass scales weighing a grinning man in a suit.”

• The legal standard really matters:  A central legal issue in any ERISA benefits case is the “standard of review” a court will apply when reviewing an administrator’s benefits decision.   

• Fair fight, or hands-behind-your-back?:  The “default” standard of review for claim is “de novo.” This means the court reviews the administrator’s decision without giving any deference to how the administrator weighed the evidence in the record. More specifically it means:

“The district court's task is to determine whether the plan administrator's decision is supported by the record, not to engage in a new determination of whether the claimant is disabled. [T]he district court must examine only the rationales the plan administrator relied on in denying benefits and cannot adopt new rationales that the claimant had no opportunity to respond to during the administrative process.”

• “Trust” is maybe not the right word here:  Because the Supreme Court interprets ERISA through trust law principles, plans can vest themselves with the right to “interpret” plan terms as issues arise.  Such plans get the benefit of the deferential “abuse of discretion” standard for their benefits decisions. This standard turns the reviewing court away from the foundational facts of the claim to questions of procedural fairness and whether “substantial evidence” supports a plan’s decision (even if the court would find differently).

•  The plan has discretion, but does the insurance company?

  • The “abuse of discretion” standard of review is a fiasco for claimants unfairly denied benefits.  But the majority of benefits plans are not “self-administered”; rather, day-to-day claims decisions are made by a third-party “claims administrator” or “benefits administrator.”

  • These are usually life insurance companies suited for claims handling and managing long-term claims (Hartford, MetLife, Unum, New York Life, United of Omaha, etc.), The administering carriers usually also underwrite long-term disability benefits through a group policy. Testing whether the insurance company has the same authority and fiduciary duties as the Plan is usually the issue in play on standard of review.   

• Kicking a leg out from the fiduciary duties stool: Establishing a right to discretionary review is the claims administrator’s burden and has three requirements. Knock one out and the administrator lacks the interpretative authority that justifies deferential review.

  • Plans might not have documents at all!:  Reserving a plan’s authority to “interpret” its terms is an ERISA bread-and-butter issue. If there are plan documents a reservation is probably made.  But check the language, and sometimes there aren’t any documents at all (or at least no one can find them).  Work-a-day insurance terms won’t get the job done.

  • Plans forget to appoint fiduciaries!: Ok, the plan reserved discretion for itself.  But when it hired the administrator did it remember to confer appropriate duties and authority?  Sometimes it forgets, or fails to follow its own procedures to do so.

  • Plans forget to tell the participants!: Most plans remember to notify participants that they hired and appointed third-party administrators, but not all!  Plans should do this through a Summary Plan Description or in a notice document accompanying the insurance policy. 

• The insurance policy’s discretionary language may be invalid: This is the gorilla.  In about half of states insurance statutes, regulations, or regulators ban “discretionary clauses” in insurance contracts. 

  • Skipping lots of ERISA preemption backstory these state laws are enforceable against insurance policies underwriting group plans and render all that ERISA documentation just expensive surplusage.   

  • Our practice jurisdictions – Alaska, Oregon, and Washington – each bar discretionary clauses by regulation.

    • Alaska bans discretionary clauses under 3 AAC 31.250(j).

    • Oregon bans them under OAR 836-010-0026.

    • Washington bars them under WAC 284-50-321.

  • If the law of one of these states (or another state with a ban) applies to the group policy at issue, de novo review is likely. And someday this sentence will be a link to the post where we untangle that mess.