Standard of Review

Firestone Rubber Co. v. Bruch, 489 U.S. 101 (1989)

Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989).  Firestone sold five plants to Occidental.  Most of the employees were rehired by Occidental.  Firestone had a termination pay plan, a retirement plan and a stock option plan, all regulated by ERISA.  Respondents were employees rehired by Occidental who sought benefits from Firestone under the termination plan, arguing that under the plan that the sale constituted a “reduction in work force” under the plan.  Firestone denied benefits on the grounds that the sale to Occidental did not constitute a “reduction in work force.”  Several respondents also sought information concerning the plan that Firestone refused to provide on the grounds that they were no longer “participants” in the plan and not entitled to the disclosure. 

 

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.  This is true whether the plan is funded or unfunded and regardless of whether the administrator or fiduciary is operating under a possible or actual conflict of interest.  If a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’  Citing Restatement (Second) of Trusts §187, Comment d (1959). 

 

ERISA does not set out the standard of review for an action under § 1132(a)(1)(B).  ERISA abounds with the language and terminology of trust law and the Court has held that courts should develop a federal common law of rights and obligations under ERISA-regulated plans.  Citation omitted.  In determining the appropriate standard of review the Court is guided by principles of trust law.  Citation omitted.  Trust principles make a deferential standard of review appropriate when a trustee exercises discretionary powers.  Citation omitted.  When trustees are in existence 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.  Citation omitted from a case from 1875).  Firestone’s termination pay plan did not confer power to the administrator to construe uncertain terms or give it deference in making eligibility determinations.  Absent such a grant of deference, courts construe terms in trust agreements without deferring to either party’s interpretation.  This trust law de novo standard of review is consistent with the judicial interpretation of employee benefit plans prior to the enactment of ERISA.    

 

The term ‘participant’ is defined in §1002(7) as “any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit…from an employee benefit plan…or whose beneficiaries may be eligible to receive any such benefit.”  The Supreme Court held that the term participant is naturally read to mean either or reasonably expected to be in currently covered employment or former employees who have a reasonable expectation of returning to covered employment or who have ‘a colorable claim’ to vested benefits.  (Citations omitted).  To establish that he or she “may become eligible” for benefits, a claimant must have a colorable claim that (1) he or she will prevail in a suit for benefits, or that (2) eligibility requirements will be fulfilled in the future.  The Court remanded the case to the Court of Appeals a determination on this issue.    

Ordorf v. Paul Revere Life Insurance Company, 404 F.3d 510 (1st Cir. 2005).

Ordorf v. Paul Revere Life Insurance Company, 404 F.3d 510 (1st Cir. 2005). Plaintiff appealed the district court’s denial of benefits on de novo review of an ‘own occupation’ disability policy.  He started benefits in 1995 for drug dependency but was limited to three years of benefits for that condition.  Before benefits ended for that reason he informed defendant he was disabled due to back problems.   Plaintiff treated for back injuries beginning in 1976.  He did have objective evidence of disc disease and had multiple treatments over the years.  The question for the first circuit was what is entailed in a de novo review.  Firestone v. Bruch, 489 U.S. 101 (1989) makes clear that in plan language disputes no deference is given and courts should apply the normal rules for contract interpretation.  But it also includes a conclusion to deny benefits based on a set of facts.  The court agreed with the plaintiff that the correct standard is whether, upon a full review of the administrative record, the decision of the administrator was correct.  De novo review generally consists of the court’s independent weighing of the facts and opinions in the record to determine whether the claimant has met his burden of showing that he is disabled within the meaning of the policy.  Plaintiff bears the burden of making a showing sufficient to establish a violation of ERISA.  GRE Ins. Group v. Met. Boston Hous., 61 F.3d 79, 81 (1st Cir. 1995).  As in deferential review, see Liston v. Unum, 330 F.3d 19 (1st Cir. 2003) on de novo review, the focus of judicial review is ordinarily the record made before the administrator and at least some very good reason is needed to overcome that preference.  After an exhaustive review of the medical history and other facts, the court concluded that Plaintiff did not meet his burden because he worked for years despite back pain and treatment, he originally became disabled for drug dependency, his back pain was controllable even after he went out on disability, his recreational life was inconsistent with his claim, the SSA decision did not establish disability due to back problems alone and his claim based on the back disability came only after he expressed concerns with work issues as he started to cope with the idea of getting cut off from benefits based on the drug disability limitation. 

 

Other notable rules and statements.  The plan is limited to the grounds of denial it articulates to the claimant.  Citing Glista v. Unum Life Ins. Co., 378 F.3d 113, 128-29 (1st Cir. 2004).  (It’s hard to see how this applies to de novo review).  Summary judgment is just a vehicle for deciding the issue.  Liston v. Unum, 330 F.3d 19 (1st Cir. 2003).  The fact that judicial review is de novo does not itself entitle a claimant to a trial or to put on new evidence. 

Jane Doe v. Harvard Pilgram, 2018 WL 4237288 (1st Cir.).

Jane Doe v. Harvard Pilgram, 2018 WL 4237288 (1st Cir.). Health benefits case in which participant was admitted to a mental health facility.  HPHC paid for the initial stay, then denied coverage for additional time.  Then she was readmitted and HPHC paid again.  Plaintiff sued after an unsuccessful appeal where she said the record was incomplete.  After suit was filed, HPHC told Plaintiff she had additional claims whose administrative remedies had not been exhausted.  The parties agreed to a post lawsuit review during which time Plaintiff submitted more evidence.  After HPHC denied that review HPHC filed an updated administrative record that did not include anything submitted after the final denial before suit was filed.  Plaintiff filed a motion to expand the record.  The district court denied it and found for HPHC.  Plaintiff appealed to the first circuit. 

            Plaintiff challenged the district court’s decision on the definition of the administrative record and the finding on the merits.  Regarding the record, the first circuit’s rule is that the decision for judicial review is the final administrative record and, absent a good reason or very good reason, courts reviewing that decision are limited to the evidence presented to the administrator as of that time.  Held that the administrative record for review includes documents submitted or generated as part of the post-filing review.  The court found that there was an unambiguous agreement to include this evidence in the record and found that in none of its cases had it suggested that an ERISA fiduciary can unilaterally walk away from a clear agreement with the beneficiary concerning the status of an administrative review under a plan.  The court had previously found that an administrative record can be reopened and the records supplemented.  Gross v. Sun Life Assurance Co. of Canada, 734 F.3d 1 (1st Cir. 2013).  Therefore there was a more than good reason to deem the documents submitted to HPHC after filing suit to be part of the record. 

            Regarding the review standard on the merits, the court held that where the court is reviewing the merits of an ERISA benefits denial de novo it will review the court’s factual findings for clear error.  They specifically offered no opinion on the standard of appellate review when the court below reviews a discretionary determination under the arbitrary and capricious standard.  See ft. 3.   They  cited a recent Supreme Court case, U.S. Bank National Ass’n ex rel. CWCapital Asset Management LLC v. Village at Lakeridge, LLC, -U.S.-, 138 S.Ct. 960, 200 L.Ed.2d 218 (2018).  They reasoned that summary judgment in the ERISA context is akin to judgment after a bench trial.

Lavery v. Restoration Hardware, 2018 WL 3733936.

Plaintiff had an office visit for a lesion on his back on April 25, 2014 at which his primary care physician suspected that it was a basal cell carcinoma (a non-life threatening skin cancer) and recommended he consult a dermatologist.  He began working on May 12, 2014 and his coverage under the plan began June 1, 2014 according to the plan administrator and based on communications between the claims administrator (Aetna) and the employer/plan administrator.  Plaintiff went to a dermatologist on June 10, 2014 and was diagnosed with malignant melanoma (life threatening cancer requiring chemotherapy) on June 19, 2014.  Plaintiff stopped working on September 29, 2014 and ultimately sought LTD benefits.  The pre-existing condition provision in the policy provided that “a disease or injury is pre-existing if, during the three months before the date you last became covered [the look back period]: it was diagnosed or treated; or services were received for the disease or injury; or you took drugs or medicines prescribed or recommended by a physician for that condition.”  The claims administrator’s initial pre-x assessment by a clinical consultant concluded that the malignant melanoma was not pre-existing because there was no evidence of a definitive diagnosis and management for it during the look back period.  Another Aetna employee on the same day recommended denying the claim, without receiving any new medicals and without providing any adequate reasoning.  The claim was denied.  On appeal, the same basic pattern recurred: a clinical consultant recommended overturning the denial because the disease was not pre-existing, but again another Aetna claims administrator overrode the recommendation and denied the appeal.  Just before issuing the final denial, Aetna added a note to the claim file indicating that the effective date of coverage was not June 1, 2014 but July 1, 2014, based on a new Summary of Coverage that had been issued on June 23, 2014 that changed eligibility to the first day of the calendar month following the date the employee completes a 30 day probationary period.  If applicable to the claim, this would mean that the June 10, 2014 dermatologist appointment and June 19, 2014 diagnosis of malignant melanoma would be in the pre-x period and would make the disease pre-x under the plan. 

 

            The case was before the judge for ‘summary judgment’ and also for Defendant’s motion to enlarge the administrative record to include affidavits purporting to show steps taken by the Defendant to guard against any conflict of interest that Aetna has as both the decider of the claim and the payer of any benefits found due.   The court reviewed the rule that there is a strong presumption that the record on review is the one before the administrator when it made its determination but that new evidence relating to the procedure as opposed to the merits of the decision that outside evidence may be relevant and may be allowed based on the discretion of the court.  The court assumed that the evidence was considered but still found in favor of the plaintiff.

 

            Regarding the determination on the merits based on a look back period calculated based on the original June 1, 2014 coverage date and a focus on the initial consultation with the primary care physician, the court focused on the lack of any explanation for Aetna’s change in position in either the initial decision or the decision on appeal, especially because it did not receive any additional evidence and because the initial determination that was changed had been detailed and specific, calling them unexplained reversals.  Aetna’s reasoning did not explain why it was reasonable to conclude that the lesion was itself a disease or injury or why the mere presentation of the lesion to the primary care physician constituted receipt of ‘services’ for a ‘disease or injury.’

 

            Regarding the determination on the merits based on the new, July 1, 2014 coverage date that would have included the June 19, 2014 diagnosis, the court found that it would not award summary judgment to Defendants based on this reasoning because Plaintiff did not have a full and fair opportunity to contest it during the appeal period, citing Glista.  As to whether it was appropriate to award benefits or remand to determine whether Plaintiff was on notice of the new Summary of Coverage provisions, the court found that even if he was, he had his dermatologist appointments before he could have had notice of the June 23, 2014 provisions.  ERISA does not allow modifications that affect benefits that have already become due, which is analogous to the situation here where Plaintiff would have reasonably relied on the Summary of Coverage in effect when he decided to have his appointment when he did, according to which any diagnosis received at that time would not be considered pre-existing and subject to exclusion under the plan.