Tyll v. Stanley Black and Decker Life Ins. Program, 2021 WL 1748474 (2d Cir. 2021)
In a dispute about life insurance benefits under an employer-sponsored ERISA plan, the Second Circuit has upheld a trial court’s use of the deferential arbitrary and capricious standard of review, ruling that the plan adequately delegated discretionary authority to the plan’s insurer. The wife of a deceased participant argued that the trial court should have used the non-deferential “de novo” standard when reviewing the insurer’s benefits determination in connection with her husband’s death. The court explained that the key question was not whether the delegation could have been expressed more clearly—as the wife contended—but whether the plan language adequately communicated a delegation of discretionary authority.
The plan provided that the insurer had authority to determine “eligibility for and the amount of any benefits” and to evaluate “all benefit claims and appeals” under the plan. Therefore, according to the court, the insurer had discretionary authority. In addition, the court explained, discretion is indicated by language establishing a subjective standard for the insurer’s decisions, reflected in a plan provision stating that the insurer would decide claims and appeals “in accordance with its reasonable claims procedures.” The insurer’s discretionary authority was further indicated by the fact that the insurer created the plan’s processes for determining eligibility. And the court concluded that the plan language aligned with language it had held sufficient to indicate a delegation of discretionary authority in other cases. The wife’s other arguments were similarly unsuccessful. The court declined to consider whether the plan’s alleged failure to comply with ERISA’s claims procedures by withholding certain documents triggered the de novo standard of review, agreeing with the trial court that the issue was raised too late. Nor was the court amenable to the argument that the insurer’s inherent conflict of interest (as the party both deciding and paying claims) lessened deference under the arbitrary and capricious standard since no evidence suggested that the structural conflict affected the insurer’s decision in this situation. And although the court noted some ambiguity in the plan’s description of the potential benefit amount, other documents clarified the plan’s intent.
EBIA Comment: This insurance policy did not use the word “discretion” to describe the insurer’s decisionmaking authority. Although magic words or (as this court noted) “linguistic talismans” are not necessary to delegate discretionary authority, and courts may find discretionary authority in language that does not include the word “discretion,” using that term may avoid having to parse the plan language in court. For more information, see EBIA’s ERISA Compliance manual at Sections XI.B (“Discretionary Authority to Interpret Plan and Determine Facts”) and XXXVI.C (“Standard of Judicial Review Applied to Benefit Decisions Under ERISA Plans”). See also EBIA’s Self-Insured Health Plans manual at Section IX.E (“Recommended Plan Provisions”).
Contributing Editors: EBIA Staff.