9th Cir. En Banc Formulates New Standard for ERISA Denial of Benefits Standard of Review

Back in Feburary, we did a lengthy post on the standards of review for ERISA denial of benefit cases and specifically, focused on Abatie v. Alta Health & Life Ins. Co., in which a panel of the 9th Circuit Court of Appeals decided (in my words):

that a life insurance plan gave the necessary discretion to the plan administrator so that the abuse of discretion standard was appropriate.  Moreover, the panel majority held that there was not sufficient evidence of a disabling conflict of interest, even though the insurance company served in the dual roles as administrator and payor, such that the standard review should be de novo.  Finally, under the abuse of discretion standard, the court upheld the plan's denial of life insurance to the plaintiff.

As predicted in that previous post, the 9th Circuit en banc has now reversed the panel and remanded the case back to the district court to apply the appropriate standard.

Here is the en banc opinion in Abatie and here are some the important parts of that opinion as reported by Fuguerre at the Pensions and Benefits Weblog:

We conclude that our earlier opinion in Atwood v. Newmont Gold Co., 45 F.3rd 1317 (9th Cir. 1995), misinterpreted Firestone. We now establish a more comprehensive approach to ERISA cases in which a conflict of interest exists. As we will explain below, abuse of discretion review, tempered by skepticism commensurate with the plan administrator’s conflict of interest, applies here.

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That approach wrongly aligns incentives. Instead of being encouraged affirmatively to demonstrate their impartiality and the reasonableness of their decisions, plan administrators are rewarded for suppressing dissent and denying claims with as little explanation as possible.

Although this new approach to conflict of interests in benefit denials cases is similar to other circuit's, Fuguerre aptly points out:

[T]he 9th consciously rejects the “sliding scale” basis, whereby a court applies less deference as is sufficient to offset the conflict, while recognizing that, “An egregious conflict may weigh more heavily (that is, may cause the court to find an abuse of discretion more readily) than a minor, technical conflict might.”

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Instead, the 9th calls for a case-by-case “indefinite” abuse of discretion review that weighs conflict on the basis of the particular facts and circumstances. The influence of a potential conflict is to be taken into account, without first requiring the participant to show presence of a serious conflict. Although the burden is not necessarily passed back to the plan administrator, the court suggests that “a conflicted administrator, facing closer scrutiny, might find it advisable to bring forth afirmative evidence that any conflict did not influence its decisionmaking process….”

Thanks to Michael Fox at Jottings By An Employer's Lawyer for first bringing the case to my attention.

PS