Stephanie C. v. Blue Cross Blue Shield of Mass. HMO Blue, Inc., 2016 WL 629058 (1st Cir. 2016)
This ruling from the First Circuit provides an example of plan language that does not clearly confer discretionary authority on a plan decisionmaker, resulting in “de novo” court review of plan benefit decisions. (If a decisionmaker has discretionary authority, courts will apply the deferential standard when reviewing benefit denials, typically overturning only decisions that are arbitrary and capricious or an abuse of discretion. De novo review affords the decisionmaker no such deference.) The participant in this appeal challenged the trial court’s use of the deferential standard of review to uphold his health plan’s benefit denial, asserting that the plan language lacked the necessary grant of discretionary authority. The relevant document (a subscriber certificate describing the plan’s terms) stated that the claims administrator “decides which health care services and supplies that you receive (or you are planning to receive) are medically necessary and appropriate for coverage.” The trial court held that the power to decide implies discretion.
The First Circuit disagreed, explaining that while no precise words are required to confer discretionary authority, the language must unambiguously indicate that the decisionmaker has discretion to interpret the terms of the plan and determine whether benefits are due—and the language in the certificate fell well short. Instead, the language was ambiguous and could result in reasonable differences of opinion regarding the decisionmaker’s authority. The court rejected the argument that a separate document—a service agreement between the plan sponsor and the claims administrator—should be taken into account to clarify the language. Although that agreement did contain a clear grant of discretionary authority, the agreement was not disclosed to participants and thus, according to the court, could not be used against them to clarify the language in the certificate. The case was sent back to the trial court for de novo review.
EBIA Comment: This ruling demonstrates the importance of ensuring that plan language purporting to grant discretionary authority is clear and unambiguous. While there are generally no “magic words” that will guarantee deferential review, including the word “discretion” would seem to be a good starting point. And keep in mind that disclosure to participants is key, but including the language in the SPD is not necessarily enough for deferential review—if the language is not also in the formal plan document, it may not be enforced (see, for example, our Checkpoint article). 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”) and EBIA’s 401(k) Plans manual at Section XXXVII.D (“Judicial Review of Plan Administrator’s Decision”).
Contributing Editors: EBIA Staff.