Opinion
Case No. 01-4133-JAR
November 20, 2002
MEMORANDUM AND ORDER ESTABLISHING DE NOVO STANDARD OF REVIEW
Plaintiff Edgar Ransdell and Defendant Continental Casualty Company have filed cross motions (Docs. 50 and 51) for a determination of the Court's standard of review of Defendant's denial of Plaintiff's claim for long term disability benefits. Having fully considered the parties' submissions, including the insurance policy at issue, the Court concludes that the appropriate standard of review is de novo, because the policy at issue does not clearly and unambiguously vest discretion in Defendant to determine claimant's eligibility for benefits.
Plaintiff brought this action pursuant to 29 U.S.C. § 1132(a)(1)(B), to challenge Defendant's decision to deny his claim for long term disability benefits. Defendant issued the insurance policy to Plaintiff's employer, as part of an employee welfare plan, as defined by ERISA, under which Plaintiff is a participant and Defendant is the plan administrator. Plaintiff urges the Court to exercise a de novo review of Defendant's decision to deny benefits; Defendant urges the Court to exercise the arbitrary and capricious standard of review. In Firestone Tire and Rubber Co. v. Bruch, the Supreme Court held that. . . . . a denial of benefits challenged under § 1132(a)(1)(B) 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." if the plan gives the administrator such "discretionary authority," a deferential standard of review is appropriate. The Tenth Circuit applies the arbitrary and capricious standard when making a deferential review of a denial of benefits.
Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq.
489 U.S. 101, 102, 109 S.Ct. 948, 956-957 (1989).
Id. at 954 (stating that "ERISA abounds with the language and terminology of trust law. . . . ERISA's legislative history confirms that the Act's fiduciary responsibility provisions, 29 U.S.C. § 1101-1114, `codif[y] and mak[e] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts.'").
Chambers v. Family Health Plan Corp., 100 F.3d 818, 825 (10th Cir. 1996) (providing for deferential review of denial of claim for experimental procedure, in a plan that precluded claims for medical or surgical procedures, ". . . which in the judgment of FHP are experimental" and adopting a "sliding-scale" of deference when the administrator operates under a conflict of interest).
Does the plan in this case confer discretionary authority on the Defendant? The analysis begins with the language of the plan. As the Supreme Court noted in Bruch, as in the law of trusts, it is the instrument itself, that is the plan or policy, which must confer any such discretionary authority. And, as in trust law, discretionary authority, if any, is conferred with respect to the exercise of a particular power.
Bruch, 109 S.Ct. at 954 ( quoting Nichols v. Eaton, 91 U.S. 716, 724-725, 23 L.Ed. 254 (1875), "over a century ago we remarked that `[w]hen trustees are in existence, and capable of acting, a court of equity will not interfere to control them in the exercise of a discretion vested in them by the instrument under which they act.'").
Id. (citing Restatement (Second) of Trusts § 187 (1959) "[w]here discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the court except to prevent an abuse by the trustee of his discretion"; and G. Bogert G. Bogert, Law of Trusts and Trustees § 560, pp. 193-208 (2d rev. ed. 1980)).
As this Court has noted, in Bruch the Supreme Court "does not demand any magic words, such as `discretion,' `deference,' `construe,' or `interpret,'" be used to confer discretionary authority. In Bruch, the pertinent plan provisions stated "[i]f your service is discontinued prior to the time you are eligible for pension benefits, you will be given termination pay if released because of a reduction in work force or if you become physically or mentally unable to perform your job. . . The amount of termination pay you will receive will depend on your period of credited company service." The Supreme Court concluded that in that language, there was no evidence that under Firestone's termination pay plan the administrator has the power to construe uncertain terms or that eligibility determinations are to be given deference." In comparison, the Court noted that there was a conferral of discretionary authority in a plan that explicitly provided that "any construction [of the agreement's provisions] adopted by the Trustees in good faith shall be binding upon the Union, Employees, and Employers."
Gust v. Coleman Co., Inc. 740 F. Supp. 1544, 1550 (D. Kan. 1990) ( citing De Nobel v. Vitro Corp., 885 F.2d 1180, 1187 (4th Cir. 1989)), aff'd, 936 F.2d 583 (10th Cir. 1991).
Bruch, 109 S.Ct. at 951-952.
Id. at 955.
Id. (quoting Central States, Southeast and Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 568, 105 S.Ct. 2833, 2839 (1985)).
In de Nobel v. Vitro Corp., the Fourth Circuit concluded that plan language conferred discretionary authority on the plan trustee by empowering them:
885 F.2d 1180, *1186-1187 (4th Cir. 1989).
To determine all benefits and resolve all questions pertaining to the administration, interpretation and application of Plan provisions, either by rules of general applicability or by particular decisions, provided that all Employees similarly situated are treated in a uniform and nondiscriminatory manner.
Similarly, discretionary authority was found by: the Third Circuit in Stoetzner v. U.S. Steel Corp., where the plan administrator's decisions on all questions of interpretation were "final and conclusive"; the Fourth Circuit in Richards v. United Mine Wkrs. of America Health Ret. Fund, where the plan authorized the trustees to make "full and final determination as to all issues concerning eligibility for benefits" and "to promulgate" binding rules and regulations in implementing the plan; the Seventh Circuit in Exbom v. Central States, Southeast and Southwest Areas, Health and Welfare Fund, in a plan that expressly gave the trustees the power to construe the terms of the plan and made such construction binding on the participant; and the Eleventh Circuit in Guy v. Southeastern Iron Workers' Welfare Fund, in a plan conferring to the trustees the "full and exclusive authority to determine all questions of coverage and eligibility" and "full power to construe the provisions . . ."
897 F.2d 115, 119 n. 5 (3rd Cir. 1990).
895 F.2d 133, 135 (4th Cir. 1990).
900 F.2d 1138, 1141-42 (7th Cir. 1990).
877 F.2d 37, 39 (11th Cir. 1989).
See also Gust v. Coleman Co., Inc. 740 F. Supp. 1544, 1550 (D. Kan. 1990) (collecting cases), aff'd, 936 F.2d 583 (10th Cir. 1991).
This plan includes no explicit language that addresses the administrator's power to construe the terms of the plan, or the binding effect of an administrator's construction of terms or determination concerning eligibility or coverage. There is no language deeming the administrator's decisions final. There is no language empowering the administrator to resolve questions concerning interpretation or application, or eligibility or coverage.
Defendant contends that the plan nevertheless confers discretionary authority, by making payment of claims subject to "due written proof of loss," by giving the administrator the "right and opportunity to examine the person of the Insured when and as often as it may reasonably require during the pendency of a claim . . . and by referencing the administrator's interpretation of any indemnity claimed to be due." Defendant cites this Court's Caldwell decision, in which Judge Van Bebber found persuasive the Seventh Circuit's Patterson v. Caterpillar, Inc., decision, and concluded that a plan that conditions payment of benefits on claimant's submission of `due proof' of disability, by its very nature granted discretion to the plan administrator to determine eligibility for benefits. Plaintiff cites this Court's Jones v. Continental Casualty Co. decision, in which Judge Lungstrum disagreed with the reasoning in the Caldwell and Patterson decisions, as have a number of other courts, including the Eighth Circuit in Brown v. Seitz Foods, Inc.
Caldwell v. Life Ins. Co. of North America, 959 F. Supp. 1361, 1365 (D. Kan. 1997) (J.VanBebber).
70 F.3d 503, 505 (7th Cir. 1995) (discretion granted by language that "benefits will be payable only upon receipt by the Insurance Carder or Company of such notice and such due proof, as shall be from time to time required, of such disability"); See also Bollenbacher v. Helena Chemical Co., 926 F. Supp. 781, 786 (N.D. Ind. 1996) (discretion conferred by language stating that "benefits will be paid `[w]hen the Company receives proof that the individual is disabled due to sickness or injury and requires regular attendance of a physician'").
No. 97-2524-JWL, 1998 WL 990998 (D. Kan. Dec. 4, 1998).
140 F.3d 1198, 1199-1200 (8th Cir. 1998) (holding insurer's typical phrase "due written proof of loss" insufficient to confer discretion).
The fact that there are no "magic words" that confer discretionary authority explains the legion of reported decisions on this issue, the split of Circuit Courts of Appeals, as well as a split in this Court. What is at issue in these decisions, is the scope of authority an administrator has in granting or denying claims. One must start with the proposition that plan administrators have the power to receive, process and typically allow or deny claims. That is what plan administration is. Some plans condition payment on submission or receipt of claims in a particular form, and/or filed by a particular deadline. But these are mere procedural prerequisites to payment of claims. The fact That the plan empowers the administrator to condition the allowance of a claim on submission or receipt of proof of loss in a particular form, or by a particular deadline, does not rise to the explicit grant of discretionary authority contemplated in the Bruch case.
Some courts have drawn a distinction between plans that require `satisfactory proof' of loss, finding no grant of discretionary authority in this language when the plan expressly sets out the procedural requirements for filing a claim of loss, but finding a grant of discretionary authority when the plan does not specify the form or time for filing a proof of loss, leaving to the administrator the unilateral right to determine what is "satisfactory." See Williamson v. Unum Life Ins. Co. of America, 943 F. Supp. 1226, 1229 (C.D. Cal. 1996).
The Supreme Court in Bruch noted that in actions arising out of a denial of benefits before the enactment of ERISA, unless a plan gave an administrator discretionary or final authority to resolve disputes over the interpretation or application of plan provisions, such disputes were resolved like any other contract claim — "by looking to the terms of the plan and other manifestations of the parties' intent." ERISA, enacted to provide greater protection of employee benefits, would be eviscerated by giving deferential review to such disputes, when pre-ERISA such disputes were resolved by the law of contracts. Thus, the Supreme Court rejected Firestone's argument for deferential review of an exercise of its standard or typical powers, such as the control and management of the operation and administration of the plan, and the "full and fair review" of claim denials.
Bruch, 109 S.Ct. at 955 (citations omitted).
Id. at 955-956.
In the plan at issue, Defendant, as administrator, is empowered to pay "[t]he indemnities of the policy" to the insured. Payment of benefits is "[s]ubject to due written proof of loss," both for claims submitted "after the occurrence or commencement of any loss," and for claims submitted for "any balance remaining unpaid upon termination of liability." The plan sets forth requirements for the timely filing of claims; and requires claims be made on forms furnished by Defendant, or if Defendant fails to provide such claim forms within a certain time, the claimant may merely submit a "written proof covering the occurrence, the character and the extent of the loss for which claim is made." Nothing in this language confers on Defendant the discretionary authority contemplated in Bruch.
Defendant argues that such discretionary authority can be found in the plan provision that gives it . . . . . the right and opportunity to examine the person of the Insured when and as often as it may reasonably require during the pendency of a claim hereunder." But that language merely serves to give Defendant the opportunity to verify the claimed disability or loss, again a power and responsibility that is typically vested in a plan administrator.
Defendant further argues that the plan's arbitration clause serves to confer discretionary authority. The arbitration clause, titled "Arbitration Board" states in pertinent part:
In the event of a disagreement between the Company and an Insured, or his legal representative, with regard to the Company's interpretation of any indemnity claimed to be due under this policy, it is hereby agreed that either the Company or the Insured, or his legal representative, may submit such disagreement to an Arbitration Board.
The clause goes on to state that the arbitration board will be composed of three physicians, one selected by the administrator, one selected by the insured and one selected by those two arbitrators. This arbitration clause does not support Defendant's argument. It vests in a neutral board of three arbitrators the power to make a final and binding interpretation of any indemnity claimed. This language appears to confer on these arbitrators, not Defendant, the power to make final and binding determinations of eligibility. For all of these reasons, the Court concludes that this plan does not confer discretionary authority on Defendant.
IT IS THEREFORE ORDERED that the Court will exercise a De Novo standard of review of Defendant's denial of benefits.