:: Sixth Circuit Reviews ERISA Plan TPA Benefit Denial De Novo
The evidence in the record demonstrates that BAS made the decision to deny coverage, communicated that decision directly to counsel for the Med, and then merely “informed” Majestic of its decision. Given the substantial evidence in the record supporting the district court’s finding, we conclude that the district court did not clearly err in finding that BAS rather than Majestic made the decision to deny Weatherspoon’s claim for benefits. Because the district court’s underlying factual finding is dispositive of the standard of review applicable to the benefits decision, we further conclude that the district court did not err in applying the de novo standard of review.
Shelby County Health Care Corp. v. Majestic Star Casino, LLC Group Health Benefit Plan 08-6078 (6th Cir.) (09/22/09)
This recent Sixth Circuit case addresses several important legal issues, including the appropriate standard of review when a delegate makes a fiduciary decision and the application of an exclusion medical expenses incurred during performance of illegal acts.
The Facts
The issues arose after a plan participant sustained serious injuries in a single car accident. The police officer investigating the scene noted that blood alcohol test results were pending. Thereafter, a hospital, as assignee, pursued payment under the plan which was opposed by the claims administrator based upon the illegal acts provision in the plan.
The Exclusion
The plan language read as follows:
This Plan does not cover and no benefits shall be paid for any loss caused by, incurred for or resulting from . . . . [c]harges for or in connection with an injury or illness arising out of the participation in, or in consequence of having participated in, a riot, insurrection or civil disturbance or being engaged in an illegal occupation or the commission or attempted commission of an illegal or criminal act.
The Standard Of Review
The parties disputed the standard of review applicable to the decision to deny the benefits claim.
The Sixth Circuit agreed with the district court that a de novo standard should apply. Though the plan contained a grant of discretionary authority to the plan fiduciary, the Court noted that the claims administrator made the benefits decisions.
In an exception to the Firestone deferential review paradigm, the Court observed that:
Nonetheless, even when the plan documents confer discretionary authority on the plan administrator, when the benefits decision “is made by a body other than the one authorized by the procedures set forth in a benefits plan,” federal courts review the benefits decision de novo. Sanford, 262 F.3d at 597 (adopting the reasoning of Sharkey v. Ultramar Energy Ltd., 70 F.3d 226, 229 (2d Cir. 1995)). Where a plan administrator does not make the benefits decision, the plan administrator has not exercised its discretionary authority, and therefore a deferential standard of review is not justified. See id. at 596-97 (”When an unauthorized body that does not have fiduciary discretion to determine benefits eligibility renders such a decision, . . . deferential review is not warranted.”).
So, though it was “ undisputed that the Plan documents give Majestic [the employer] the discretionary authority to interpret the Plan and make the final determination” on benefit entitlements, the parties also agreed that “the Plan explicitly denies BAS [the claims administrator] such authority. ”
Thus, having determined that the plan fiduciary “was almost totally uninvolved in the decision to deny benefits”, the Court found that a de novo standard should apply.
Because BAS was explicitly not granted discretionary authority to determine eligibility for benefits and Majestic simply adopted its decision without engaging in any independent fact-finding, the Court will apply a de novo standard of review.” Thus, the district court made a finding of fact that BAS, not Majestic, made the decision to deny benefits.
Judge Rogers, in a concurring opinion, found this aspect of the opinion contrary to Geddes v. United Staffing Alliance Employee Medical Plan, 469 F.3d 919, 927 (10th Cir. 2006). The majority distinguished Geddes as inapplicable, stating that:
[Geddes] does not apply to this matter because the issue in that case was whether a plan administrator could only delegate its fiduciary duties to another fiduciary, or whether it could delegate its fiduciary duties to an independent third party. In Geddes, the court found that the plan administrator had not forfeited its discretionary authority by delegating fiduciary duties to an independent third party. Here there is no dispute that Majestic was entitled to delegate fiduciary duties to independent third party BAS. However, unlike the plan administrator in Geddes, Majestic did forfeit its discretionary authority by not exercising its final review authority over the decision to deny benefits and thereby violated the plan.
Note: There are several other aspects of this opinion that are worthy of note. Rob Hoskins did a fine job of summarizing the opinion on erisaboard.com yesterday and members of that forum should read his comments. I will likely add further comment in another post.
Circuit Conflict - On the issue of the grant of authority, here are some interesting additional points:
The concurring opinion urges Geddes v. United Staffing Alliance Emple. Med. Plan as the correct approach to ascertaining the standard of review where the TPA does the heavy lifting. That was a harsh 10th Circuit opinion that I reviewed here. In Geddes, the 10th Circuit marginalized its prior holding that deferential review did not apply in the case of “deemed denials” of benefits:
When substantial violations of Employee Retirement Income Security Act of 1974, 29 U.S.C.S. § 1001 et seq., deadlines result in the claim’s being automatically deemed denied on review, the district court must review the denial de novo, even if the plan administrator has discretionary authority to decide claims. Gilbertson v. Allied Signal, Inc., 328 F.3d 625 (10th Cir. N.M. 2003)
Geddes stated that:
Gilbertson stands for the proposition that ERISA administrators are not entitled to deference for “deemed denied” decisions made “by operation of law rather than the exercise of discretion.” 328 F.3d at 631. But Everest and United did not simply deem the Geddeses’ claims “denied” without further review, as the defendant-administrator did in Gilbertson. Id. Instead, Everest made a benefits determination according to the procedures of the Plan, which United, as the Plan fiduciary, then accepted. Thus, unlike in Gilbertson, discretion was exercised by some combination of the fiduciary and its agent.
Gilbertson in no way implies, as the district court inferred, that plan fiduciaries qualify for Firestone deference only if they delegate their authority to other named fiduciaries.
Geddes v. United Staffing Alliance Emple. Med. Plan, 469 F.3d 919 (10th Cir. Utah 2006)
Geddes expressed its disagreement with the 11th Circuit. The 11th Circuit has concluded that:
. . . one who is not a fiduciary is also not “an administrator with discretionary authority” under 29 U.S.C. § 1002(16)(A) and (21)(A). “Administrators” are distinguished from “fiduciaries” by the former’s lack of discretionary authority or discretionary control”; therefore, any entity or person found not to be an ERISA “fiduciary” cannot be an “administrator with discretionary authority” subject to the arbitrary and capricious standard.
Baker v. Big Star Div. of Grand Union Co., 893 F.2d 288 (11th Cir. Ga. 1989)
Practice Pointer – Granted, Baker was pre-Glenn, but it has been cited by the 11th post-Glenn. These are important issues that should be reviewed with a careful eye toward plan language and actual administrative practices.
See also – :: Thorny Issues Presented In Grants Of Discretion To Benefit Administrators
