The standard of review in ERISA cases can have a considerable impact on the outcome of a long-term disability claim. As the Supreme Court observed in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), “the validity of a claim to benefits under an ERISA plan is likely to turn on the interpretation of terms in the plan at issue.”[1]

ERISA lawyers are familiar with the use of review standards and how an application of those standards can make it easier for a plan to deny a claim and have that claim upheld upon judicial review. Legal terms such as “arbitrary and capricious,” “de novo,” and “abuse of discretion” are regularly cited as standards in deciding ERISA benefit claims.

Many states have used their regulatory authority to ban the use of discretionary clauses.[2]  These bans have been upheld as applied against ERISA fully-insured long-term disability plans. That is, when the benefits are underwritten by an insurance company, the bans apply through a state’s power to regulate insurers.

Sometimes overlooked, however, is whether discretionary authority was properly delegated in the first place.  It is the classic “cart before the horse” argument.  In Miller v. PNC Financial Services Group, Inc., No. 1:16-CV-25142-KMM, 2017 WL 4404469 (S.D. Fla. Oct. 2, 2017), the district court held that an employee benefit plan failed to properly delegate fiduciary review authority to a third-party, thereby eliminating discretionary review.

In Miller, the issue was whether the plan sponsor (PNC) had appropriately delegated discretionary authority to an insurer (Liberty Mutual) to determine eligibility and deny claims under a self-funded ERISA disability benefit plan.  The disability contract at issue stated that the “‘claims administrator determines whether [a participant’s] disability meets’ the definition of an LTD.”[3]  The contract also provided that “[i]f a decision may by the Plan is challenged in court, the court’s review… shall be limited to a determination of whether the decision was arbitrary and capricious.”[4]

Despite the presence of these clauses, the court held:

It is unclear whether Liberty has the full discretion PNC reserved for itself; in particular it is unclear whether Liberty’s determinations are final, or whether Liberty’s authority extends to making such determinations during an administrative appeal.[5]

The court also held that the Administrative Services Agreement (“ASA”) was not a plan document that was capable of conferring discretion and, even if it were, the ASA between the plan and the insurer also failed to delegate discretion:

[E]ven if the ASA were a plan document, the ASA does not confer the type of discretion required for this Court to accord an abuse of discretion review… [invocation of that standard requires] reservation of ‘full and exclusive authority to determine all questions of coverage and eligibility’ along with ‘full power to construe the [ambiguous] provision[s]’ of the plan…[6]

The Court also found notable a provision in the ASA which provided that PNC, as the Sponsor, retained authority to determine “that liberty has misinterpreted the Plan… [and] all claims reported after delivery of such writing will be processed and paid in accordance with the Sponsor’s interpretation as set forth in such writing.”[7]

The case serves as a reminder that all plan documents should be reviewed to determine whether there was proper delegation of discretionary authority to render a decision during all phases of an ERISA claim, or merely just to determine initial eligibility, and also whether that delegation is revocable by the plan sponsor. Without a proper delegation, the plan may not be able to assert the applicability of deferential review.


[1] The Supreme Court has noted that discretionary clauses are “highly prized” by insurers.  Rush Prudential HMI, Inc. v. Moran, 536 U.S. 355 (2002).

[2] See, among others, Am. Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009); Standard Ins. Co. v. Morrison, 584 F.3d 837 (9th Cir. 2009).

[3] Miller v. PNC Financial Services Group, Inc., No. 1:16-CV-25142-KMM, 2017 WL 4404469 at *2 (S.D. Fla. Oct. 2, 2017).

[4] Id. at *14.

[5] Id. at *15.

[6] Id. at *16 (quoting Cagle v. Bruner, 112 F.3d 1510, 1517 (11th Cir. 1997)).

[7] Id. at *16.

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