Ruling: Plan Documents Govern Discretion to Deny Claims

9th Circuit says plan document, not just summary plan description, is authoritative

By Stephen Miller, CEBS May 5, 2015
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The U.S. 9th Circuit Court of Appeals panel, in Prichard vs. Metropolitan Life Insurance Co. [and] IBM Long-Term Disability Plan, vacated a district court’s judgment, ordering the lower court to rehear a challenge to a benefit plan administrator’s denial of an employee's claim for long-term disability benefits. The decision was handed down on April 21, 2015.

Matthew Prichard had appealed from the district court’s judgment affirming Metropolitan Life Insurance Co.’s decision to deny him long-term disability benefits under the long-term disability plan of his employer, IBM.

The 9th Circuit held that the district court erred in reviewing for an abuse of discretion IBM's denial of benefits when the summary plan description (SPD) conferred discretionary authority on the plan administrator, but a governing plan document in the form of an insurance certificate did not. The ruling requires the district court to review the denial of benefits "de novo" (that is, without reference to the legal conclusions made in the previous court's decision).

Impact on Employers

This is a complicated case dealing with conflicting plan-related documents, but the ruling nevertheless is significant for plan sponsors. As noted in an overview by the Wagner Law Group, “Employers with insured health plan arrangements are advised to have their wrap plan documents, group policies and insurance certificates reviewed by qualified benefits counsel to determine if those documents properly provide plan administrators with discretionary authority to administer and interpret the terms of their plans. Otherwise, they may discover, as in Prichard, that the governing documents do not contain language sufficient to grant discretionary authority to the plan administrator to determine benefits eligibility.”

Similarly, an analysis by law firm Paul Hastings LLP advised, “The Prichard decision serves as a reminder to plan sponsors that all important plan provisions must not only be described in the SPD, but included in the plan document itself.”

Plan sponsors may address this issue in a number of ways, according to Paul Hastings’ attorneys, including:

Having a combined plan document/SPD, when appropriate.

Incorporating the SPD into the plan document.

Including parallel language in the plan document and the SPD.

Further highlighting the importance of adequate plan documentation, the law firm noted, “the 9th Circuit ruled that a grant to the plan administrator of discretionary authority to interpret plan terms in the plan’s [SDP], but not in the plan document itself, was insufficient to bestow Firestone deference,” referring to the U.S. Supreme Court’s 1989 ruling in Firestone Tire & Rubber Co. v. Bruch, which set a standard for reviewing the decisions of plan administrators. Specifically, the Supreme Court held in Firestone that when an ERISA plan document gave the plan administrator the power to interpret the plan and to determine eligibility for benefits, a court reviewing an administrator's denial was to defer to that decsion unless the decision itself was arbitrary and capricious.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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