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Benefits

Court Applies Nondeferential Review Because Insurer Improperly Delegated Discretion to a Claims Administrator

EBIA  

EBIA  

 

Bruton v. American United Life Ins. Co., 2019 WL 1856275 (S.D. Ohio 2019)

A former employee, who stopped working due to lower back pain and depression, was denied long-term disability benefits under his employer’s insured ERISA plan because, according to the claims administrator, he was capable of full-time sedentary work. After the claimant engaged in the plan’s appeals process, which culminated in the final denial of his claim, he sued to recover benefits.

The court upheld the denial. Although the plan granted discretionary authority to the insurer to decide claims, the decision was made by a separate claims administrator appointed by the insurer. Citing Sixth Circuit precedent, the court concluded that the de novo (nondeferential) standard of review should apply because the plan contained no language allowing the insurer to delegate discretionary authority to a third party, and the insurer was not involved in any part of the claims decision process. Under this standard, the court’s role was to determine whether the claims administrator’s decision was correct without according deference or a presumption of correctness. After a thorough analysis of the facts and plan language, the court concluded that the claimant failed to prove by a preponderance of the evidence that he was “totally disabled” as defined by the plan.

EBIA Comment: The standard of review is an important threshold issue in litigation over benefit claims. Although the insurer in this case prevailed under the de novo standard, its decision was subject to much more extensive scrutiny than it would have received under the abuse of discretion standard. To invoke deferential review, it is important to understand who is empowered to exercise discretionary authority on the plan’s behalf and to follow the plan’s procedures for delegation of authority. If an ERISA plan confers discretion to interpret and implement its terms, its decisions generally will be reviewed under the deferential arbitrary and capricious standard. However, as this case illustrates, if the plan lacks delegation provisions or if the plan’s procedures are not followed, it is more likely that the nondeferential standard will apply. For more information, see EBIA’s ERISA Compliance manual at Sections XXXIV.N (“How to Protect Claim Denials From Being Reversed in Court”), XXXV (“Claims Procedures for Disability and Other Non-Health Claims”), and XXXVI.C (“Standard of Judicial Review Applied to Benefit Decisions Under ERISA Plans”).

Contributing Editors: EBIA Staff.

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