You already know that many state laws ban the “abuse of discretion” standard of review in denials of ERISA-governed long term disability benefits.

But self-funded ERISA plans may still apply the discretionary standard of review.

And “incorporating by reference” the Summary Plan Description (SPD) is effective in making the SPD part of the ERISA plan.

Here’s the recent case of Sorger v. Norvatis, __ Fed. Appx. __ (9th Cir. August 25, 2021)(Pre-existing condition case: Abuse of discretion standard of review applied to self-funded plan and employee-purchased supplemental benefit).

FACTS: Sorger sought ERISA-governed long term disability (LTD) benefits from a self-funded plan. Participants could also purchase supplemental LTD coverage that added 17% more to the disability benefit. Funds from purchases by employees were held in a Voluntary Employee Benefit Association (VEBA) trust. The operative ERISA plan conferred discretion to Met Life to construe plan terms and decide eligibility.

Sorger argued the pre-existing condition clause was not valid because the plan stated that Met Life would establish the pre-existing condition limitations, but argued that Met Life had not created the relevant limitation.

Ninth Circuit Court of Appeals Held:

  1. The abuse of discretion standard applied. The VEBA Trust was not a separate ERISA plan because the trust was used only as a funding mechanism for the plan’s supplemental LTD benefit. Op. at 4. Since there was only one ERISA plan, and it clearly conferred discretion, the abuse of discretion standard applied. Op. at 4-5.
  2. “[T]he pre-existing condition clause in the Summary Plan Description was valid.” The plain language of the Plan expressly incorporates, in its entirety, the Summary plan Description prepared by Novartis. Accordingly, Met Life had discretion to construe and enforce the Summary Plan Description. Op. at 6-7.
  3. Sorger had a pre-existing condition, justifying denial of the claim. During the look back period, but prior to when a definitive diagnosis was reached, Sorger received treatment for a variety of unrelated conditions and “underlying conditions” related to his ultimate medical diagnosis. Consequently, Sorger ‘received medical treatment, consultation, care or services’ for his pre-existing condition.” Op. at 9.