Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), establishes the principle that courts review de novo an ERISA benefits determination unless the plan confers discretionary authority on its administrator. In this case we again confront the question of exactly what language is sufficient under Firestone to confer discretion on a plan administrator — and thus trigger an abuse-of-discretion review in the courts — over benefits determinations.

In answering this question, we conclude that the plan currently before us does not clearly vest discretionary authority in its administrator and that the district court erred in engaging in an abuse-of-discretion review. Accordingly, we vacate the district court’s judgment and remand for further proceedings using a de novo standard of review.

Woods v. Prudential Ins. Co. of Am., 2008 U.S. App. LEXIS 12423 (4th Cir. Va. June 11, 2008)

Woods presents a typical disability case set of facts, but the decision illuminates the all-important issue of what language suffices to vest discretion in the plan administrator. This language of grant has the consequence, of course, of stipulating the standard of review of claims denials should a federal district court be asked to review the claims denial.

Of the eve of a decision in MetLife v. Glenn, this case serves as one of the most propitious points of departure one might imagine.

The Facts

As observed above, the language of the plan documents, rather than the facts of the case, attract our attention. Nonetheless, the factual background can be easily recounted.

Patricia Woods was employed by Wendy’s International, Inc. as a co-manager. During the time of her employment, she was insured under a long-term disability plan (the “Plan”) issued and administered by Prudential Insurance Company of America (”Prudential”). After Woods was injured in an automobile accident, she filed a claim for benefits under the Plan. Prudential approved Woods’ claim and paid her benefits for an initial twelvemonth period ending in January 2005.

Subsequently, Prudential reevaluated Woods’ claim and denied further benefits beyond January 2005. Woods then pursued administrative appeals with Prudential, which eventually culminated in Prudential’s final denial of benefits in September 2006.

The Case Below

When Woods filed suit, the standard of review proved to be a contentious issue. The district court sided with Prudential:

Both parties moved for summary judgment, which the district court granted in Prudential’s favor. In so doing, the court concluded that (1) the Plan vests discretion in Prudential to make benefits determinations and (2) under a modified abuse-of-discretion standard Prudential’s decision must be upheld. 2 Woods now appeals, asserting that a de novo standard of review applies to Prudential’s benefits determination and requesting that we remand to the district court for reconsideration under that standard.

The Case On Appeal

Prudential found the Fourth Circuit cold to its arguments. The Fourth Circuit set up the issue as follows:

“In reviewing the denial of benefits under an ERISA plan, a court’s first task is to consider de novo whether the relevant plan documents confer discretionary authority on the plan administrator to make a benefits-eligibility determination.” Blackshear v. Reliance Std. Life Ins. Co., 509 F.3d 634, 638 (4th Cir. 2007). In undertaking this inquiry, we begin with the broad principle set out in Firestone. There, the Court held that “a denial of benefits . . . is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone, 489 U.S. at 115 (emphasis added). If such discretionary authority is conferred, the courts’ review is for abuse of discretion. Id. Thus, Firestone established that the default standard of review is de novo, and that an abuse-of-discretion review is appropriate only when discretion is vested in the plan administrator. See, e.g., Bynum v. Cigna Healthcare of North Carolina, Inc., 287 F.3d 305, 311 (4th Cir. 2002).

The Two Ways

How is discretion conferred on the plan administrator? There are two ways, says the Court. One is express, the other implicit.

In applying Firestone, we have held that an ERISA plan can confer discretion on its administrator in two ways: (1) by language which “expressly creates discretionary authority,” and (2) by terms which “create discretion by implication.” Feder v. Paul Revere Life Ins. Co., 228 F.3d 518, 522-23 (4th Cir. 2000). However, regardless of whether discretion is created expressly or implicitly, we have consistently required that the plan manifest a clear intent to confer such discretion.

The Presumption

The law abhors equipoise just as nature abhors a vacuum. Thus, there must be a default position.

The Court noted the operation of a presumption to accomplish this effect, stating:

. . . we have made it plain that “[i]f a plan does not clearly grant discretion, the standard of review is de novo.” Id. at 270 n.6. Finally, in the context of determining whether a plan sufficiently confers discretion, we have held that “[a]ny ambiguity in an ERISA plan is construed against the drafter of the plan . . . and in accordance with the reasonable expectations of the insured.” Id. (internal quotations omitted).

The Language In Contention

Lacking the express terms it needed, the defendant improvised.

While both parties agree that the Plan does not do so expressly, Prudential contends that such authority should be implied because the Plan specifies that a claimant is eligible for benefits “when Prudential determines” that eligibility exists and that disabilities are “determined by Prudential.”

The Court found this argument “unpersuasive”, holding that, “[a]lthough the Plan’s language vests authority in Prudential, it does not create any discretionary authority, as required by Firestone.

Discretionary authority is not conferred “by the mere fact that a plan requires a determination of eligibility or entitlement by the administrator.”

Grants Of Authority Contrasted With Grants Of Discretionary Authority

“[A]lmost all ERISA plans designate an administrator who, in order to carry out its duties under the plan, must determine whether a participant is eligible for benefits.”, the Court observed, yet, “this authority to make determinations does not carry with it the requisite discretion under Firestone unless the plan so provides.

This distinction is important because ERISA plans are to be construed “in accordance with the reasonable expectations of the insured” when ambiguous, Gallagher, 305 F.3d at 269, and are to “enable plan beneficiaries to learn their rights and obligations at any time” by “reliance on the face of written plan documents,” Blackshear, 509 F.3d at 643 (internal citations and alteration omitted). A plan which simply conveys authority to an administrator creates the expectation only that such authority will be exercised, not that the administrator will enjoy wide discretion in wielding its authority as well as freedom from searching judicial scrutiny.

Thus, the Fourth Circuit required review de novo and remanded the case for further proceedings.

Note: The Court noted that the defendant’s view would obliterate the distinction required by Firestone, stating:

This approach makes clear that the Plan’s language merely designates who must make benefit determinations and the timing of those determinations. Nothing in the phrases “when Prudential determines” or “determined by Prudential” implies the conferral of discretion, as opposed to mere authority, on Prudential. A contrary conclusion — that the bare assignment of authority to Prudential creates Firestone-type discretion — would lead to an abuse-of-discretion (rather than a de novo) review whenever an administrator is vested with authority to make eligibility determinations. Thus, because an administrator always possesses such authority (the responsibility to make eligibility determinations being inherent in the office of administrator), Prudential’s argument would lead to an abuse-of-discretion review in nearly every ERISA benefits case, thereby jettisoning Firestone’s distinction between authority and discretionary authority.

Other Supporting Authorites – The Court cited two opinions in support of its views, Gallagher v. Reliance Std. Life Ins. Co., 305 F.3d 264, 268 (4th Cir. 2002), and Herzberger v. Standard Ins. Co., 205 F.3d 327, 332 (7th Cir. 2000). From the latter, the Court quoted the following excerpt:

We hold that the mere fact that a plan requires a determination of eligibility or entitlement by the administrator . . . does not give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary. Obviously a plan will not — could not, consistent with its fiduciary obligation to the other participants — pay benefits without first making a determination that the applicant was entitled to them. The statement of this truism in the [*9] plan document implies nothing one way or the other about the scope of judicial review of his determination, any more than our statement that a district court “determined” this or that telegraphs the scope of our judicial review of that determination.

The Situs Of The Grant – In an interesting footnote, which will be discussed in a subsequent post, the Court observed that a grant of discretion in the summary plan description would not suffice.

MetLife v. Glenn? – SCOTUSblog will have a live blog feed from the Supreme Court beginning at 10 am est today (June 12).

The Justices are expected to release at least one opinion at their public session beginning at 10 a.m. We will provide coverage of all developments via our “LiveBlog,” a reminder for which appears below.

Postscript – SCOTUSblog reports no additional opinions will be issued today, and MetLife was not one of those issued.