The Conflict of Interest Inherit in Administrative Review and the Ineffectiveness of the Current Standard of Review by U. S. District Courts Law and Medicine By # I. Introduction The Employee Retirement Income Security Act, better known as ERISA, has been a major issue in healthcare litigation since its inception in 1974.
ERISA governs any claim centering on health insurance, disability insurance, or any other employer provided benefits. ERISA affects many aspects of the American legal system, from inter-state commerce to bankruptcy, and particularly insurance and healthcare law. ERISA contains clauses for both the procedure and substance of the law and is often preemptive over state law. There is a great deal of misunderstanding and confusion surrounding the application and coverage of ERISA, which has made litigation even more complex and hazardous. Understanding the basic procedure, coverage and intricacies of ERISA's implications and formalities is essential for any attorney practicing insurance or healthcare law.
This past year I was personally involved in an ERISA litigation suit. This suit involved a woman working for The Mutual of Omaha Companies. She was denied a breast reduction surgery by her employer-run health plan. This surgery had been recommended by her physician and deemed "medically necessary." However, her health insurance plan exempted all forms of breast surgery, not involving cancer, from coverage regardless of their necessity. Our client, the insurance participant ("client") then came to our office to see what assistance we could provide in helping her obtain coverage for this surgery. At this point, our office thought that the chances for recovery of any benefits were very slim due to the fact that the health insurance policy specifically excluded breast reduction surgery from coverage However, we told the client we would look into the possibility of recovery.
With very little investigation we were able to discover that although the health insurance policy had excluded breast reduction surgery, Mutual of Omaha had previously granted coverage to three of the exact same types of surgery to more senior Mutual of Omaha employees within the past year. Thereafter, our case quickly became a question of whether the healthcare administrator was precluded from denying coverage for breast reduction surgery, when it had granted coverage for the same on three previous occasions. The U. S. District Court held that the plan administrator was precluded from denying the claim, when they had granted coverage in the exact same medical circumstances on three previous occasions. This case is currently on appeal with the Eighth Circuit.
The issue that I found most compelling while researching ERISA procedure was the administrative appeal process, and the standard of review to which the U. S. District Court must adhere. The U. S.
District Court was required to review a case on appeal, after the exhaustion of administrative remedies, only for an abuse of discretion, so long as discretion had been granted to a plan administrator within the plan. In our suit, the health insurance policy did contain a clause that gave the administrator discretion to interpret and review, therefore our burden of proof was to convince the U. S. District Court judge that the administrator had abused his discretion and denied coverage beyond what the administer believed were the policy guidelines.
This is an extremely high burden of proof and essentially gave 95% of the power of review to the administrator, which happened to be a panel of senior Mutual of Omaha employees. This seems to me as if the proverbial wolves were guarding the hen house, by placing the persons who benefit from the denial of a claim in charge of the appeal from a claim that a participant thought was unfair. Since I do not understand the reasoning behind this rule of procedure, I will analyze the reasoning that the U. S.
Supreme Court provided for allowing such a high burden of proof for claimants in ERISA actions. II. Overview of the Employee Retirement Income Security Act and Procedure ERISA was designed to secure employee pensions and benefits for their future use by employees. Enacted in 1974, ERISA was a response to concerns about fraud and abuse within private employee benefit programs.
See 29 U. S. C. 1001. ERISA established federal uniform duties and obligations for benefit plan administrators to ensure the preservation of employee pension funds and benefit plans. ERISA governs all benefit programs, which fall within the ERISA's statutory definition of "employee welfare benefit plans." ERISA defines "employee welfare benefit plan," as (1) any plan, fund, or program; (2) established or maintained by an employer; (3) through the purchase of insurance or otherwise; (4) for the purpose of providing medical, surgical, hospital care, sickness, disability, death or unemployment benefits; (5) to its participants and beneficiaries.
29 U. S. C. 1002. As long as a benefit plan falls within ERISA's coverage, a plan participant may bring civil suit appealing their denied claim. See 29 U.
S. C. 1132 (a) (1) (B). A participant of a plan governed by ERISA may bring suit in three situations. First, a participant may bring suit to recover benefits due under the terms of the plan. Second, he or she may bring an action to enforce rights under the terms of the plan.
Finally, a participant may bring suit to clarify his or her rights to future benefits under the terms of the plan. Firestone Tire & Rubber Co. v. Brunch, 489 U. S. 101, 109 S.
Ct. 948, 103 L. Ed. 2 d 80 (1989). ERISA additionally includes procedural formalities that must be satisfied before a claimant may bring civil suit.
First, the participant must file a written claim with the plan administrator. 29 U. S. C. 1002.
If the claimant has not filed a written claim to the plan administrator, the claimant will not receive an administrative review and therefore is precluded from filing a civil action. Second, the claimant must ensure that all administrative remedies have been exhausted. Id. This means that a plan participant must have first appealed his / her claim for an appropriate administrative review, as enumerated in the benefit plan, before he or she can bring a civil suit.
The plan administrator usually conducts these administrative reviews through an internal review process. However, there is one exception to the rule of exhaustion of administrative review. Complete exhaustion of an administrative review is not necessary if the claimant can demonstrate that the participant was not informed as to the administrative claims process or if the claimant can show that the exhaustion will be futile. An administrative appeal is allowed if a beneficiary is denied a claim, which he or she believes is covered under the benefit plan, and the claimant has received a denial notice. When the plan administrator denies a claim, the administrator must meet certain requirement in his or her denial notice. The denial notice must contain four specific statements: (1) the specific reason for the denial; (2) a specific reference to pertinent plan provisions on which the denial is based; (3) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (4) appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review.
29 U. S. C. 1002. If the administrator does not provide a denial notice that includes the above four requirements, the claimant is deemed to have been denied a "full and fair review" and may seek to vacate the benefit denial.
Halpin v. W. W. Grainger, 962 F. 2 d 685 (7 th Cir. 1992).
After receiving a denial notice the claimant may then begin the administrative appeals process, as proscribed by the benefit plan. If a claimant has exhausted all of his administrative remedies and still believes that he or she has a valid claim, the claimant may file an appeal with the U. S. District Court.
29 U. S. C. 1132 (a) (1) (B).
State courts have concurrent jurisdiction over ERISA claims, but any claimant who desires a remedy other than an award of benefits must file their action in federal court. 29 U. S. C. 1132 (e) (1). Although an ERISA action may be brought in state court, the state court is still required to apply the federal ERISA statute.
Bird v. Shears on Lea man/American Express, 871 F. 2 d 292 (2 nd Cir. 1989). The ERISA statute itself determines venue. An ERISA action can be brought in the district where the plan is being administered, where the alleged breach took place, or where a defendant resides.
29 U. S. C. 1132 (e) (2).
Finally, trial courts are given discretion to determine whether attorney's fees should be awarded, and in what amounts, to a prevailing attorney. 29 U. S. C.
1132 (g) (1). Although the payment of attorney's fees is not required they are "expected absent special circumstance which would make the award unjust." Stanton v. Larry Fowler Trucking, Inc. , 52 F. 3 d 723 (8 th Cir. 1995).
In order to award attorneys fees a court usually applies a five-prong test: (1) the degree of the offending parties' culpability or bad faith; (2) the degree of the ability of the defending party to satisfy personally an award of attorney's fees; (3) whether or not an award of attorney's fees against the opposing parties would deter other persons acting under similar circumstance; (4) the amount of benefit as a whole; and (5) the relative merit of the parties' positions. Bittner v. Sad off & Rudo y Industries, 728 F. 2 d 820 (7 th Cir.
1984). Most circuits seem to have a slight presumption in favor of allowing an award for attorney's fees to a prevailing plaintiff. III. What is the Appropriate Standard of Review for a U. S. District Court Prior to Firestone Tire & Rubber Co.
v. Brunch, the Supreme Court had held that an arbitrary and capricious standard of review was to be given to all administrative reviews appealed to the U. S. District Court under ERISA. ERISA has always contained an enforcement clause that grants plan participants the explicit right to file suit to recover benefits that have been wrongfully withheld. 29 U.
S. C. 1132 (a) (1) (B). However, the statute itself does not contain any guidance or standard regarding the proper standard of review for denial of a benefit. Early ERISA decisions applied the "arbitrary and caprious standard," which strongly favored the plan administers. The arbitrary and caprious standard was imported from the Labor Management Relations Act of 1947 (LMRA).
This standard had worked in the LMRA, and was thought to be appropriate for ERISA. However, no one noticed the fundamental differences between LMRA trusts and ERISA. 51 Alabama L. Rev.
733. One important difference between ERISA governed health plans and LMRA trusts, is that LMRA trusts were to be administered by joint employer-employee trustee. Id. This safeguard allowed the conflicting interests of administers and beneficiaries to decide together on the appropriate course of action. Then, if the employer and employees could not decide a course of action, the dispute was turned over to a disinterested arbitrator for a ruling. Id.
This safeguard, embedded in the procedural administration, prevented a conflict of interest from affecting the decision. ERISA, on the other hand, contains no safeguards. Once the courts realized that a conflict of interest could affect benefit approvals and that ERISA should not be treated like the LMRA, many differing opinions began to arise. In 1989, the United States Supreme Court attempted to clarify the standard of review by announcing the appropriate standard of review to be used for appeals arising from ERISA administrative reviews. In Firestone Tire & Rubber Co. v.
Brunch, the Court held that the U. S. District Court shall perform a de novo review of benefit determinations made by plan administrators and fiduciaries in cases where the plan has given no discretionary authority to the plan administrators or fiduciaries to interpret the plan terms or to determine eligibility for benefits. Brunch, 489 U.
S. 101 (1989). The Court went further held that when administrators and fiduciaries are given the authority to interpret the plan's terms, the District Court must review the administrative finding for an abuse of discretion. Id. at 115. If no abuse of discretion is discovered then the administrative ruling must be upheld.
Id. at 115. The Court additionally held that if the administrator or fiduciary is given discretionary authority, and is operating under a conflict of interest, that conflict is to be weighed as a factor in determining whether there has been an abuse of discretion. Id at 115. This holding is a dramatic change from the weight previously given to all administrative rulings. a.
Facts of Firestone Tire & Rubber Co. v. Brunch The facts of Firestone Tire & Rubber Co. v. Brunch are as follows: In 1980, Firestone sold its Plastics Division to Occidental Petroleum.
Nearly all-former Firestone employees were re-hired by Occidental to work in the Plastics Division. Unknown to Firestone, their employee termination pay plan was governed by ERISA, and Firestone had failed to comply with the appropriate steps for establishing a claims procedure. Several former Firestone employees now working for Occidental, sought severance pay from Firestone under the termination pay plan. The plaintiffs claimed that when Firestone sold it's Plastics Division to Occidental, Firestone had made a "reduction in work force," and therefore the plaintiffs were entitled to severance benefits according to the termination pay plan. Firestone, the administrator and fiduciary of the benefit plan, denied the plaintiff's claim because it determined the sale of a division was not a "reduction in work force" as defined by the termination pay plan. The plaintiff then brought a civil suit in the United States District Court for the Eastern District of Pennsylvania.
The District Court granted Firestone's Motion for Summary Judgment because the court believed that Firestone's denial of the plaintiff's claim was not arbitrary and caprious. The plaintiffs appealed to the Third Circuit Court of Appeals. The Appellate Court reversed the finding of the District Court holding that Firestone had a conflict of interest, and had failed to act impartially. The Third Circuit held that due to Firestone's conflict of interest, as employer, administrator, and fiduciary of the plan, the correct standard of review should be a more complete, de novo review. The United States Supreme Court subsequently granted certiorari "to resolve the conflicts among the Court of Appeals as to the appropriate standard of review in actions under 29 U. S.
C. 1132 (a) (1) (B) and the interpretation of the term participant in 29 U. S. C. 1002 (7)." Id. at 108.
The Supreme Court affirmed the de novo review, but not due to the apparent conflict of interest. The U. S. Supreme Court held that the Firestone plan did not give the administrator discretionary authority to interpret the plan, particularly the term "reduction in work force." Id.
at 111. The Supreme Court also reversed the Third Circuit's construction of the word "participant." The Court held that "participant" did not apply to former employees who did not have a reasonable expectation to return to the employment of the employer of the plan." Id. at 117. The case was then remanded to the Third Circuit to determine whether the claimants were "participants" within the meaning of 29 U.
S. C. 1002 (7). Id. at 109.
b. A Closer Look at the Brunch Opinion In Brunch, Firestone raised five separate points why the Court should apply the arbitrary and capricious standard of review to an administrator's decision. First, Firestone argued that prior case law applied the arbitrary and capricious standard of review to ERISA claims. Second, even though the plan did not specifically give the plan administrator the power to use his discretion to interpret terms of the plan, the administrator's position was an "inherently discretionary function." Third, Firestone argued that the arbitrary and capricious standard should be used because the plan administrator is a fiduciary. As such, any exercise of authority by a fiduciary is discretionary and therefore subject to an arbitrary and capricious review. Fourth, Firestone argued that since Congress failed to adopt an amendment that included a mandatory de novo review for all ERISA actions, Congress' intent was to keep the arbitrary and capricious standard.
Finally, Firestone made the argument that applying a de novo review would undermine ERISA's purpose and encourage appeals and civil suits from benefit denials. Brunch at 109. The Court stated that the above arguments applied to the LMRA reasoning for the use of the arbitrary and caprious review, however, that same standard will not be "imported" into ERISA's administration. Id. at 109-10. The Court stated that the arbitrary and capricious standard of review that was previously developed under the Labor Management Relations Act of 1947 (LMRA) was not the appropriate standard of review for ERISA claims.
Id. at 102. The Court determined that the arbitrary and capricious standard was inappropriate for ERISA claims because the LMRA did not expressly make labor / management pension plan decisions reviewable, unlike the ERISA statute. The Court stated that principals of trust law must settle the proper standard of review for ERISA actions. Id. at 102.
Under the principals of trust law, when a trustee is given the power of discretion to interpret the trust plans terms, a court will uphold a reasonable interpretation by that trustee. Id. at 111. However, when a trustee is not given the power to interpret a plan's terms, then the trustee's decision must be given a de novo review. Id. In Brunch, the plan did not give the trustee the power to interpret and construe the plan's terms; therefore no deference was given to the administrator's discretion.
Since the plan did not grant any discretionary authority to the plan administrator, the appeal was given a de novo review by the Court. Id. at 118. Here, the Court extracted a principle developed through trust law, granting a trustee the ability to use his / her discretion, and has blended this principle in ERISA enforcement. Id. The specific rule of law obtained from Brunch holds that all appeals from administrative reviews are to be given a de novo review, unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe terms of plan, regardless of whether the administrator or fiduciary is operating under a conflict of interest.
Id. at 119. This standard is presently controlling in all jurisdictions reviewing an ERISA claim whether in state or federal court. c. Different Interpretations of Firestone v. Brunch There have been three separate interpretations of the Brunch decision.
16 Employee Rel. L. J. 403. These three interpretations are: the "strict" interpretation, the "flexible arbitrary and capricious" interpretation, and the "shift the burden to the employer" interpretation.
Id. Under the "strict" approach, a court examines the plain language of the benefit plan, and then applies a de novo or abuse of discretion standard of review depending on whether the administrator was given discretion to interpret the plan. According to the "flexible arbitrary and capricious" interpretation, a court analyzes all of the facts, and if the court believes that the trustee is operating under a conflict of interest, the standard of review will slide to become more stringent. Finally, courts applying the "shift the burden to the employer" interpretation hold that when a trustee and administrator are the same and that entity is a profit-seeking unit, a conflict of interest is always present, therefore the employer has the burden to show that the denial is appropriate. The "strict" interpretation is alive and well in the Second, Third, Fourth, and Tenth Circuits. In these jurisdictions, the degree of discretion granted to the administrator in the plan language is determinative of the standard of review to be applied in a District Court.
31 Washburn L. J. 280. In fact, broad, generic grants of discretion are enough to trigger a differential review. Pratt v. Petroleum Prod.
Mgmt. Employee Sav. Plan, 920 F. 2 d 651 (10 th Cir. 1990). A differential review can be seen when broad discretion is given to an administrator to interpret the plan and it's terms, and the appellate court honors that discretion.
Pratt, a case from the Tenth Circuit, demonstrated a "strict" interpretation of the Brunch opinion. In Pratt, a former employee brought an ERISA claim against the employer's benefit plan. The plaintiff alleged that he was terminated due to a reduction in work force, and that he was entitled to a distribution of his vested interest in an Employee Contribution Account. The ERISA governed employee benefit plan expressly gave the plan administrator discretionary authority to interpret the plan and it's terms.
The court determined that the language used in the plan did give the administrator discretion and the ability to interpret the benefit plan. Id at 657. The court then held that even though the administrator could interpret the plan, he had done so arbitrarily and capriciously, and therefore the plaintiff was due his benefits. Id. In Pratt, the court stated that they would uphold the administrator decision to deny the benefits, unless the decision was determined to be " (1) arbitrary and capricious, (2) not supported by substantial evidence, or (3) erroneous on a question of law." Id. Since the court would have enforced the administrators decision, but for the above three determinations, the court strictly applied the Brunch opinion.
Very similar to the "strict" approach is the "flexible arbitrary and capricious" interpretation. The "flexible" approach has been enforced in the Fifth, Sixth, Seventh and Eighth Circuits, and is merely a extension of the "strict" interpretation. Again, the "flexible" interpretation allows the court to apply the "strict" interpretation, but slides to a more stringent standard of judicial review whenever a plan administrator or fiduciary is shown to be under some type of conflict of interest. Further, the standard becomes stricter and stricter, the larger the apparent conflict of interest is shown to be. The Fifth, Sixth and Seventh Circuits all allow a very broad and / or generic grant of discretionary power, in order to trigger a differential review. See Batchelor v.
Int'l Board of Elec. Workers, 877 F. 2 d 441 (5 th Cir. 1989), Davis v.
Kentucky Financial Co. , 887 F. 2 d 689 (6 th 1989), Lister v. Stark, 942 F. 2 d 1183 (7 th 1991).
However, the Eight Circuit seems to require a much more carefully drafted grant of discretion, in order for the administrator to be able to use his / her discretion to interpret and construe plan terms and provisions. Jacobs v. Pick lands Mather & Co. , 886 F. 2 d 182 (8 th Cir 1989). In Jacobs, former employees sued to recover benefits under an ERISA governed plan.
The court found that since the plan did not specifically grant the administrator discretion to construe plan terms or to determine eligibility for benefits, the court had to review the actions as if the administrator was granted no discretion. As a result, the court granted a de novo review. The Eighth Circuit required an explicitly tailored grant of discretionary power to the administrator to construe ambiguous plan language before the court will apply a differential review. Id. at 656. As seen in Jacobs, a generic, non-explicit provision that gives a trustee final authority to determine "all matters of eligibility for the payment of claims," is not specific enough to avoid a de novo review.
Another case out of the Eighth Circuit demonstrates the "flexible" approach in comparison to the "strict" interpretation. In Woo v. Deluxe Corp. , a former employee sued his employer and plan administrator seeking review of a denial of both long and short-term disability benefits. On appeal, the Eighth Circuit held that less differential than de novo standard of review applied to the administrator's denial of disability benefits, and when an ERISA plan administrator is operating under a conflict of interest, the sliding scale standard of review applies.
Woo v. Deluxe Corp. , 144 F. 3 d 1157 (8 th Cir. 1998). Under this "sliding scale" or "flexible" approach, the court will continue to review for an abuse of discretion but will decrease the deference given to an administrator in proportion to the seriousness of the conflict.
Id. The court stated that Woo was "required to present evidence which demonstrated that: (1) a palpable conflict of interest or serious procedural irregularity existed, which (2) caused a serious breach of the plan administrator's fiduciary duty to the claimant." Id. at 1160. Further, the court related that Woo needed only to show that the conflict had "some connection to the substantive decision reached" in order to trigger the sliding scale. Id. Woo was able to demonstrate that the administrator was operating under a conflict of interest, so the court reviewed for an abuse of discretion and weighed the conflict of interest against the defendant.
The final interpretation of Brunch is the "shift the burden to the employer" interpretation. The "shift" approach seems to be followed in the Ninth and Eleventh Circuits. See Kun in v. Benefit Trust Life Ins. Co. , 898 F.
2 d 1556 (11 th Cir. 1990), and Newell v. Prudential Ins. Co. of America, 904 F. 2 d 644 (11 th Cir.
1990). The "shift" interpretation generally holds that whenever a court determines that a conflict of interest is present by the administrator, the court will apply a de novo standard of review, unless the employer / administrator can show that the conflict of interest did not influence the decision to deny the claim. In Newell, the court had established a more stringent standard, which required the administrator to "prove that its interpretation of the plan provisions committed to its discretion was not tainted by self interest." The administrator also had to show that he / she operated "exclusively in the interest of the plan participants and beneficiaries." Id. at 651. The "shift the burden" standard does not seem to follow the differential review that Brunch established because Brunch specifically held that a conflict of interest should only weigh against the deference given to the administrative decision, not completely erase the discretion the allocated to the plan administer.
Even though I do believe that this standard does not follow the precedent Brunch set, I personally believe that this standard is the appropriate standard. This is the appropriate standard because the "shift the burden" approach is the only "interpretation" which recognizes that insurance companies or employer administrators are profit-generating entities. As profit-generating entities, these administrators make more money when claims are denied, therefore they have a significant incentive to deny questionable claims. Beneficiaries of these plans are not able to select the benefit plans available to them; therefore they should be given the benefit of the doubt.
In order for the participant to receive the benefit of the doubt, courts must allow a closer review when it is apparent that a conflict of interest exists. In my opinion, the "shift the burden" interpretation this is the appropriate standard of review, and it should become the uniform rule throughout all Circuits. IV. Standards that Still Vary from Circuit to Circuit a. The Grant of Discretion As demonstrated in Jacobs (8 th Cir. ) and Pratt (10 th Cir.
), the determination of whether or not the plan language actually conveys discretionary authority to an administrator, is still at the will of each Circuit. Many courts allow a broad statement giving the administrator the power to permit a differential review and to oversee the administration of the plan. See Pratt. Whereas, some courts require a carefully constructed grant of discretion to each element of the administrator's review. See Jacobs. In Circuits that require specific grants of discretionary authority, like the Sixth Circuit, that grant of discretion should be tailored in line with the ruling in Walker v.
Wal-Mart Stores, Inc. , 159 F. 3 d 938 (6 th Cir. 1998). Walker, held that a plan's grant of discretion should read as follows: "The PLAN herein expressly gives the ADMINISTRATIVE COMMITTEE discretionary authority to resolve all questions concerning the administration, interpretation or application of the PLAN, including without limitation, discretionary authority to determine eligibility for benefits or to construe the terms of the PLAN in conducting the review of the appeal... ." Id.
at 939. If the plan drafters follow the formula set out in Walker, their grant of discretion should be upheld in all Circuits. This grant of discretion is specific enough to demonstrate the drafter's intent and will clearly inform the beneficiary of the administrator's discretion. b. Which Plan to Enforce Since the holding in Brunch benefit plan issuers and organizers have amended their plans to unquestionably "grant the plan administrator the authority to determine the eligibility for benefits and to construe the terms of the plan." SC 62 ALI-ABA 1 (1998). Therefore, the issue has become what clause should courts enforce Under the original plan, the language might allow a de novo review.
However, under the amended plan, the administrator clearly has discretion and the court will surely grant a differential review, making the administrators decision very difficult to overturn. A recent Iowa case has considered just this issue. In Blessing v. Deere & Co. , 985 F. Supp.
899 (S. D. Iowa 1997), the court was asked to decide if the original plan or an amended plan should control. The original plan provided for discretionary authority to the administration while the amended plan did not. The plaintiff argued that since the original plan was in effect when her husband, the actual plan participant, died, the original plan must control. Id.
at 903. The defendant argued that the amended plan was in effect when the claim was made, therefore the amended plan must control. Id. at 903. In the end, the court held that the plan in effect when the claim was made is the controlling plan. Id at 903.
Unfortunately, nowhere in the ERISA statute is this rule enumerated. This could be a issue for the courts for some time and the reasoning of both arguments seems to make reasonable sense especially in Blessing. The plaintiff's argument in Blessing was particularly persuasive to me because the actual participant, the husband, was dead. Since the actual participant was dead, he no longer had any choice over whether to accept the amended benefit plan or to choose another. Further, the wife had no bargaining power to change the benefit plan because she had no value to the employer / provider . Therefore, she had no ability to negotiate for a better benefit plan.
She was required to take the amended plan, which was probably already paid for, or find a new plan at her own expense. To me, this seems as if both parties had valid arguments, and the court could have ruled for either the plaintiff or the defendant. V. Conclusion It is clear that the current standard of review for ERISA appeals to U. S. District Court's is the standard determined by the U.
S. Supreme Court in Firestone Tire & Rubber v. Brunch. The Court specifically held that a U. S. District Court should give an action governed by ERISA, that had been appealed after the exhaustion of administrative remedies, a de novo review.
Id. More specifically the court stated that the district court should review under a de novo standard, unless the plan explicitly confers to the plan administrator the power to interpret the plan and the plan's terms. Id. If the plan provided the administrator with sufficient discretion, the court must only then review the administrator's decision for an abuse of discretion.
Id. This clearly gives the administrator independent authority to admit or deny claims made by plan's participants. I truly believe this is a conflict of interest with potentially unjust results. These results are potentially unjust considering the participant's lack of bargaining power with benefit providers, the participant's lack of understanding of the benefit plan and language, and the participant's lack of understanding of the administrative appeal and litigation process. With all of these factors favoring the plan provider and hindering the plan beneficiary, it seems apparent to me that ERISA's provisions should attempt to assist the beneficiary, not the administrator. Clearly, Congress enacted ERISA to "secure employee pensions and benefits for their future use by employees." See 29 U.
S. C. 1001. Extending from this proposition, it would seem that Congress would have intended a judicial review to support that purpose, and assist employee beneficiaries claiming their rightful benefits.
It remains to be scene whether the U. S. Supreme Court will rule on the question of what is the correct language necessary in order to provide the plan administrator with sufficient discretion to interpret the benefit plan and it's terms. As previously discussed, the Appellate Circuits have different interpretations of what language is necessary for a plan administrator to have discretion to interpret the plan, and therefore avoid a de novo review.
Obviously, this is a very important question because the question of administrator discretion determines if the court reviews for an abuse of discretion. This issue can make or break an appeal and needs to be made consistent in order to provide similar findings throughout the federal court system. For the courts to be consistent with the intent behind the ERISA statute, they must hold plan administrators to a high level of specificity in granting discretionary authority. Plan administrators must not be given generic grants of power, but instead specific discretion limited by the plain language of the plan. Again, the court must understand that plan beneficiaries are often unsophisticated and unfamiliar with the future implications of giving the administrator discretion.
Therefore, administrators should be required to clearly state exactly how much discretion they have, and as to what extent their discretion will control the claims made by plan beneficiaries. Through my limited experience working within ERISA's laws, and reading case law discussing ERISA, I do not think that the true intention of ERISA is fulfilled when the law is construed to protect employers and administrators. Some argue that plan beneficiaries have the right to choose a plan and if they buy into a benefit plan which gives the administrator the power to interpret the plan and it's terms, that is the beneficiary's choice. I completely disagree. I contend that a vast majority of employee / beneficiaries never read the provisions of the plan, and would not understand the plan's implications even if they had read the provisions.
ERISA was intended to secure and protect an employee's rights and benefits for the employee's future use. Under the current standard of review, as strictly applied from the Brunch decision, the court system is not protecting the interest that ERISA was designed to safeguard.