Dwinnell v. Fed. Express Long Term Disability Plan, 2016 WL 901562 (D. Conn. 2016)
A participant who was denied benefits under her employer’s long-term disability plan sued and asked the court to review the denial using the “de novo” standard of review. (De novo review, in which the court does not defer to a plan’s benefit decision, is appropriate unless the plan gives the decisionmaker discretionary authority to determine eligibility for benefits or to construe the terms of the plan, in which case the denial is subject to a deferential, abuse-of-discretion review.) The participant challenged the plan administrator’s outsourcing of appeals decisions from an internal appeal committee to a third-party administrator (TPA), arguing that de novo review was appropriate because the TPA was not properly authorized by the plan to decide appeals. The employer (as plan administrator) argued for deferential review, citing plan language authorizing the administrator to appoint an appeal committee and empowering the appeal committee to “interpret the plan’s provisions in its sole and exclusive discretion” as to matters on appeal.
Reviewing the applicable plan provisions, the court noted that nothing in the plan prevented the TPA from serving as the appeal committee. It further determined that the administrator acted within its appointment authority when it outsourced the appeal committee functions to the TPA. Although there was no formal plan amendment appointing the TPA, the court concluded that no amendment was required because the outsourcing action was merely an “effectuation of the existing powers authorized under the plan” that did nothing to alter, modify, or amend the terms of the plan. Because the TPA was duly appointed as the appeal committee, the court determined that it would review the benefits denial using the deferential abuse-of-discretion standard.
EBIA Comment: The court’s decision stands in direct contrast to a recent decision by the Fourth Circuit in a highly similar case involving the same long-term disability plan and TPA (see our Checkpoint article). In that case, the Fourth Circuit held that the plan should have been formally amended to authorize the TPA to serve as the appeal committee. As a result, it used the de novo review standard to overturn the benefits denial that prompted the lawsuit. The Dwinnell court acknowledged but rejected the Fourth Circuit’s position, noting that the Second Circuit has ruled to the contrary. While courts may disagree as to the formality required to bestow discretionary authority on applicable plan fiduciaries, these cases remind plan sponsors of the importance of setting forth clear administrative procedures in plan documents and following them carefully in operation. 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”).
Contributing Editors: EBIA Staff.