On March 1, 2018, the United States Court of Appeals for the Fifth Circuit, sitting en banc, issued an opinion in Ariana M. v. Humana Health Plan of Texas, Incorporated, addressing a question that potentially affects millions of Fifth Circuit residents who rely on ERISA plans for their medical and retirement security—the standard of review for ERISA cases dealing with the denial of benefits. 884 F.3d 246. In its opinion, the Fifth Circuit overruled Pierre v. Connecticut General Life Insurance Co., 932 F.2d 1552 (5th Cir. 1991). In Pierre, a panel of the Fifth Circuit had interpreted the Supreme Court’s decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), as imposing a default de novo standard of review for a claim administrator’s legal determinations, but not its factual determinations, which the panel concluded should be reviewed under an abuse-of-discretion standard, citing trust law and other authorities. With the en banc Ariana M. decision and rejection of Pierre, the Fifth Circuit joins other Courts of Appeals in applying a de novo standard of review for both factual and legal determinations of a claims administrator in the absence of a valid plan provision delegating the administrator discretion in making such determinations.
Ariana M. involved the review of summary judgment in favor of Humana based on Humana’s denial of continued benefits under a Humana-insured and administered medical plan. After approving a partial hospitalization treatment program for a period, Humana determined that continued treatment was no longer medically necessary. On appeal, the parties disputed whether the court should review Humana’s factual determinations under an abuse-of-discretion standard—as the district court had done following Pierre—or under a de novo standard.
Prior to the en banc review, a panel of the Fifth Circuit, applying Pierre, reviewed Humana’s factual determinations only for abuse of discretion and affirmed the district court’s grant of summary judgment. But, in a highly unusual turn of events, all members of the panel joined a special concurring opinion to highlight that Pierre deference had been rejected by all other Courts of Appeals that have considered the issue, including the 2nd, 3rd, 4th, 6th, 7th, 9th, and 11th Circuits, and called for en banc consideration of Pierre’s continued vitality. En banc review was then granted.
Though en banc, the Fifth Circuit’s recent opinion still reflects deep divides between members of the court on this issue. Eight justices formed the majority, with six justices dissenting. The majority first held that a Texas Insurance Code provision—stating that insurers may not rely on policy documents that purport to delegate discretion to insurers in making eligibility or claims decisions or policy interpretations, Tex. Ins. Code § 1701.062(b)(1), (2)(D)—does not mandate a standard of review, but simply renders discretionary clauses unenforceable in insurance policies. The Fifth Circuit abstained from addressing whether ERISA preempts the Texas Insurance Code as applied to insured ERISA plans, given that Humana did not assert this argument and agreed to not rely on its delegation clause in the district court.
With the Texas Insurance Code out of the picture and affirmation that federal law controlled the question of the appropriate standard of review, the majority turned to Pierre. The majority noted that when Pierre was decided, it created a split with the Fourth Circuit, and that, in the intervening years, seven other Courts of Appeals have considered and rejected the reasoning of Pierre for continuing to apply a discretionary standard of review to a claims administrator’s factual findings after Firestone. Taking stock of the waterfront, the majority considered and rejected the reasons given for such deference in Pierre, including the supposed distinction between factual determinations and legal interpretations found in parsing the language used in Firestone, the supposed trust-law distinction between legal and factual decisions, the reversal of trust-law’s presumption in favor of discretion by Firestone, and the analogy to limited review of fact findings of trial courts and administrative agencies. The majority further concluded that other post-Firestone Supreme Court decisions supported applying a default de novo standard of review to claim denials, whether based on plan interpretations or factual determinations. Having concluded that the pillars supporting Pierre had thus eroded, and in light of the uniformity of decisions in other circuits opposing Pierre, the Fifth Circuit overruled Pierre and held that a default de novo review standard should apply to a claims administrator’s factual determinations as well as its plan interpretations. Accordingly, it vacated the district court’s grant of summary judgment and remanded the case for further proceedings.
The six dissenting justices disagreed with the majority’s reasoning, arguing that Firestone is clear that a de novo standard of review applies only to legal questions and that subsequent Supreme Court authority confirms this. In separate dissents, certain justices further argued that there was no need to remand the case to the district court because the district court ruling in favor of Humana could be affirmed irrespective of the standard of review applied to Humana’s determinations.
The elimination of Pierre discretion presents important consequences for both insurers of welfare benefits and sponsors of self-funded plans. For self-funded plans, it underscores the importance of including in plan documents grants of discretion to plan and claims administrators to interpret plan provisions and determine eligibility for benefits, which remains permissible. Under other established authority, the Texas Insurance Code provision barring provisions delegating such discretion does not apply to a self-funded plan, but only insured plans. Without Pierre discretion, the only remaining avenue to discretionary review of a plan or claims administrator’s factual determinations related to the denial of benefits is through the plan itself. The absence of such express language would result in de novo review of all aspects of any challenged benefits denial in the Fifth Circuit as it already does in many others.
For insurers of welfare benefits, the elimination of Pierre discretion may impact review of a claim determination. An increasing number of states, like Texas, have adopted laws that prohibit delegation clauses in insurance policies. As noted above, Ariana M. declined to decide whether ERISA would preempt this Texas law, and availability of discretionary review may turn on the particular language of the anti-delegation law. It may be necessary to litigate the validity of anti-delegation laws or seek relief in the legislative process in order to preserve the discretion that plan sponsors may desire to delegate to administrators of insured plans. In any event, it is all the more necessary to properly document the reasons for a claim denial. As noted by certain dissenting justices, it was significant in the Ariana M. case that Humana had sent this claim to reviewing doctors who determined that continued treatment was not medically necessary.
One silver lining for insurers and sponsors alike may be the Fifth Circuit’s approving citation of Vega v. National Life Insurance Services, Inc., 188 F.3d 287 (5th Cir. 1999) (en banc), overruled on other grounds by Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), and its enunciation of limits on the scope of the record in ERISA cases. Unlike some other jurisdictions, in the Fifth Circuit, under Vega, a district court’s review of an administrator’s findings—even under a de novo standard—is confined to the administrative record, or at least the evidence that was available to the plan administrator, absent very limited circumstances. While the abandonment of Pierre discretion may raise the prospect of increased litigation, affirming Vega and largely limiting judicial review to the record before the administrator may, according to the majority in Ariana M., “mitigate concerns about the time and expense of litigation under a de novo standard.”