Monday, February 6, 2006

Ninth Circuit Grants En Banc Review to Determine Proper Standard of Review in Denial of Benefits Case

One of the more difficult and convoluted areas in ERISA jurisprudence is deciding the proper standard of judicial review in reviewing a plan administrator's decision to deny benefits to a plan participant or beneficiary.

Under the United State Supreme Court's 1989 Firestone decision, although the default rule is de novo review, the benefit decision is subject to abuse of discretion review if "the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.”  Nevertheless, if the plan administrator is operating under a disabling conflict of interest, such as where the same entity is the plan administrator and the source of benefit payment, the court will again review the decision under a de novo standard.

In Abatie v. Alta Health & Life Ins. Co., a 9th Cir. panel held 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.

Judge Pregerson filed a vigorous dissent arguing that a conflict of interest did exist and the de novo standard should have been applied. In particular, he argued that, "[w]here a plan administrator flagrantly violates ERISA’s procedural protections causing the beneficiary to suffer substantive harm, a district court should conduct a de novo review of the plan administrator’s benefits decision."  In this regard, Judge Pregerson believed that there was a flagrant violation of ERISA's procedural protections because the plan administrator ignored probative deposition testimony concerning the plaintiff's rights to the benefits and because the administrator added an additional reason for its denial only at the last and third phase of the internal appeals process.  Such a late addition to its rejection of the claim precluded the plaintiff from seeking a full and fair review of the administrator's reasons for denying benefits.

Today, the 9th Circuit vacated the panel's decision and will hear the case en banc.  At issue is whether the plan administrator's actions in ignoring deposition evidence and adding additional reasons for its benefits denial late in the internal appeals process rises to the level of "material, probative evidence, beyond the mere fact of the apparent conflict, tending to show that the fiduciary’s self-interest caused a breach of [its] fiduciary obligations to the beneficiary.”

Look for the en bacn Ninth Circuit to remand the case to the district court with instructions to apply the de novo standard of review.


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When do you anticipate that the Ninth Circuit will publish it en banc decision in Abatie?
R Wiser

Posted by: Ralph Wiser | Jul 3, 2006 10:13:02 AM

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