Does Your Plan Document Give Appropriate Discretion to the Plan Administrator?
Generally, a plan administrator’s decision to deny a claim for benefits is subject to the de novo standard of review with no deference given to the plan administrator by the courts. However, after the 1989 U.S. Supreme Court’s decision in Firestone, such determinations are reviewed under the highly deferential standard of abuse of discretion when the ERISA plan document expressly confers discretionary authority to the plan administrator to grant or deny benefits. With the exception of the 5th Circuit, the Circuit Courts have unanimously interpreted Firestone such that when the plan document provides discretion to the plan administrator, the abuse of discretion standard of review applies to plan interpretations, factual determinations, and the application of the facts to the plan provisions. As illustrated by Ariana M. v. Humana Health Plan of Tex., Inc., the 5th Circuit Court of Appeals treats factual determinations differently.
In Ariana, the Court applied the abuse of discretion standard of review as the default for a plan administrator’s factual determinations, while applying the de novo standard of review as the default for interpreting the plan document. In other words, the Court in Ariana gave the plan administrator the benefit of the doubt as to factual determinations, even in the absence of a discretionary clause in the plan document. All other Circuit Courts interpreted Firestone to apply a de novo standard of review as the default for all determinations when the plan fails to expressly grant discretion to the plan administrator. Recently, the 5th Circuit recognized its departure from the majority. In Ariana, three circuit judges joined in a concurring opinion to call for a review its own interpretation of Firestone.
Although the law remains unchanged by Ariana, the concurring opinion illustrates an important distinction between the interpretation of plan provisions and a plan administrator’s factual determinations. The takeaway from Ariana is that ERISA plans should make it clear that the discretion afforded to the plan administrator applies to factual determinations, in addition to interpreting the plan provisions and applying the facts to the terms of the plan. It may be worthwhile to dust off your old Firestone language and clarify that the plan administrator has full discretion to make factual determinations. Otherwise, claimants may argue that the plan administrator’s factual determination should be given no deference and should be reviewed under the de novo standard, rather than abuse of discretion.