With its en banc decision in Ariana v. Humana Health Plan of Texas,1 the Fifth Circuit reconsidered the standard of review in an ERISA denial of benefits case.
In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the Supreme Court held that if an ERISA plan does not delegate discretionary authority to the plan administrator, “a denial of benefits [claim] challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard.” If a plan delegated authority to the administrator, the decision would be reviewed under a heightened “abuse of discretion” standard. Since Firestone, eight different circuit courts of appeals have held that, in the absence of an appropriate delegation of discretion, the de novo standard of review enunciated in Firestone applied to both the administrator’s factual conclusions and challenges to the legal interpretation of the plan.2
But, for the past quarter century, the Fifth Circuit stood as an outlier. Under the Fifth Circuit’s precedent in Pierre v. Conn. Gen. Life Ins. Co., in the absence of a delegation of authority to a plan administrator, challenges to a legal interpretation of a plan are considered under a de novo standard of review.4 Meanwhile, challenges to an administrator’s factual determination that a beneficiary is not eligible were reviewed under an abuse of discretion standard of review. Thus, under Pierre’s interpretation of Firestone, a plan could obtain a more favorable standard of review even if it did not delegate discretionary authority to the plan administrator, provided that the denial of a benefit claim was based on the facts of the claim as opposed to the interpretation of the plan’s language.
The Fifth Circuit’s decision in Ariana, however, reverses Pierre. In its decision, the Fifth Circuit reexamined the language in Firestone, and noted that Firestone could be read to articulate a general standard of review, regardless of whether the denial was based in facts or in an interpretation of the plan language. It also determined that Pierre’s reliance on an apparent distinction between the standard of review of a trustee’s legal versus factual decisions could not withstand scrutiny. Furthermore, it noted that a later Supreme Court case, Metro. Life Ins. Co. v. Glenn, implicitly treated de novo review as the general standard of review without limiting the application of this standard to denials based on interpretation of plan terms.4 Finally, although Pierre articulated public policy concerns about the courts’ ability to conduct de novo review of factual determinations, the Fifth Circuit found that this had not been born out in the intervening years.
Now more than ever, plans that operate in the Fifth Circuit must be sure to include language delegating authority to the plan administrator to decide claims. Otherwise, even a decision to deny benefits based on the facts of a case will be subject to a de novo standard of review.
Moreover, a growing number of states, including (but not limited to) California, New Jersey, Maryland, Texas, Vermont, and Washington, are passing laws that prohibit delegation of discretion provisions in insurance contracts. If the employer’s benefit plan is self-insured, these state laws do not impact the standard of review. As long as the plan administrator is given deference, the standard of review set out in Firestone will govern. But, if the benefit plan is insured, when a beneficiary disputes an insurer’s denial of benefits under a plan, the beneficiary may raise these state bans in an effort to convince a court to substitute its interpretation for the insurer’s judgment.
Although ERISA may preempt these state laws, by and large, courts have held that it does not. Assuming ERISA does not preempt these state anti-delegation laws, a plan’s delegation of authority to the plan administrator in an insurance contract could be entirely disregarded and a court would apply a de novo standard of review. Thus, if operating in states with such anti-delegation of discretion laws, plan sponsors must take care to make sure that the delegation of discretion provision is not in the insurance contract itself, but in another plan document. Although not a guarantee that the court will apply deference to the administrator’s decision, it may be the employer’s best shot at obtaining a heightened standard of review for the administrator’s decisions in the face of a state anti-delegation of discretion law.