The Fifth Circuit Takes a Fresh Look at ERISA Benefit Claims Review Standard

The issue before the Fifth Circuit was the appropriate standard of review that should be applied in ERISA benefits cases. It is well-settled that, in cases where the ERISA plan documents expressly bestow discretion on the administrator to interpret plan terms and make benefit determinations, the judicial standard of review is the deferential “abuse of discretion” standard. But where the plan documents do not grant (or do not validly grant) the administrator discretion, what standard will a court employ when reviewing adverse benefit determinations? Eight circuits have held that a de novo standard of review is applied. But for nearly 30 years, the Fifth Circuit has relied on its decision, Pierre v. Connecticut Gen. Life Ins. Co., 932 F.2d 1552 (5th Cir. 1991), which said that the de novo standard will apply only to legal interpretations of plan terms, while the abuse of discretion standard will apply to administrators’ factual determinations. But in Ariana M., the Fifth Circuit abandoned this rule to achieve uniformity with other circuits, albeit in the face of several powerful dissents, including from Judge E. Grady Jolly, who authored Pierre.
 
The plaintiff in this case, Ariana M., a beneficiary of a health plan who obtained treatment at a mental health care facility, filed suit after Humana (the plan’s insurer and administrator) determined that it would cover only part of her treatment. Based on its investigation, Humana determined that Ariana continued to receive treatment, even when it was not medically necessary. The plan document granted Humana full and exclusive discretionary authority to interpret plan provisions and resolve factual questions relating to coverage and benefits. However, a Texas antidelegation statute prohibits such language, arguably rendering that clause in the plan unenforceable. Humana agreed not to rely on the clause and instead relied on Pierre to argue that it was entitled to the abuse of discretion standard, and thus, its factual determination that treatment was no longer medically necessary should stand. (The Fifth Circuit recognized but declined to address the issue of whether the antidelegation statute was preempted by ERISA, as Humana did not assert that defense.)
 
Thus, the question was squarely before the Fifth Circuit: what standard of review should apply where a valid delegation of discretion to the plan administrator is not in play? In the Fifth Circuit’s 1991 Pierre decision, it held that there is a difference between an administrator’s factual determinations underlying benefit determinations and its decisions construing plan terms. The Fifth Circuit held that the different determinations made by the plan administrator require differing standards of review by a reviewing court – abuse of discretion for factual determinations, and de novo review for plan term interpretations. 
 
The Pierre holding rested on the court’s understanding of the Supreme Court case, Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989). In that case, Firestone Tire sold five of its plants to Occidental Petroleum Company. Occidental rehired most of Firestone’s salaried employees and their employment continued without interruption. At the time of the sale, Firestone maintained three pension and welfare benefit plans for its employees, including a termination pay plan. Six of the employees sought severance benefits from Firestone’s termination pay plan, but Firestone denied the claims because it determined that the sale to Occidental did not constitute a “reduction in work force” within the meaning of the plan terms. The employees filed a class action against Firestone, challenging its interpretation. Relying on trust principles, the Supreme Court held that a deferential standard of review is appropriate only when a fiduciary or plan administrator exercises explicitly vested discretion. In all other situations, courts must review a denial of benefits challenged under ERISA under a de novo standard.
 
The Fifth Circuit in Pierre seized on language in the opinion and other nuances, and interpreted Firestone as addressing only the proper standard of review for an administrator’s interpretation of plan terms, and as not addressing factual determinations that plan administrators necessarily have to make in rendering benefit determinations. In Pierre, a wife’s claim for benefits under her husband’s group accident insurance policy was denied based on the administrator’s determination that the husband’s death was not an “accident.” The Pierre court stated that the determination that the death was not an accident was a factual determination that the plan administrator was in the best position to make as the finder of fact. Because a trial court sits in a position akin to an appellate court in such a case, it should not second-guess factual determinations from a cold record. Factual decisions by a plan administrator were entitled to deference. 
 
The new Ariana M. decision announced that Pierre is no longer good law. The Fifth Circuit noted its sister circuits’ main dispute with Pierre, which the Supreme Court also discussed in Firestone – that a deferential standard would undermine congressional intent because it would afford less protection to employees and their beneficiaries than they enjoyed before ERISA was even enacted. The Fifth Circuit held that trust principles do not distinguish between factual and legal determinations the way the court claimed they did in Pierre. Additionally, the passage of time since Pierre showed that the Pierre Court’s concern that de novo review of all claims determinations would lead to increased litigation and overburden the court system did not prove true after roughly two decades of use in eight other circuits. Finally, the court found that the pull of ERISA uniformity was strong, and it did not make sense to have different standards across different states, especially for employer plans covering employees across the country. Thus, the majority of the Fifth Circuit chose to overrule Pierre and held that Firestone’s de novo standard applies to all facets of benefit determinations where the administrator lacks a valid grant of discretion.   
 
Importantly, however, the court chose to stick to its precedent in Vega v. Nat’l Life Ins. Servs., Inc., 188 F.3d 287 (5th Cir. 1999), which limits a court’s review to the administrative record of the claim, rather than follow some other circuits that allow a party to expand the court record beyond what was before the plan administrator. While the Fifth Circuit found uniformity to be a laudable goal, the scope of discovery that is permitted in ERISA benefits cases will continue to differ circuit to circuit.
 
The Ariana M. ruling now means that plan participants and beneficiaries (along with health care provider assignees) will face the same basic standard of review when challenging benefit determinations in courts across the country. Both an administrator’s interpretation of plan terms and its factual determinations will be subject to de novo review – a standard that is far more kind to plaintiffs than the abuse of discretion standard. The question of the scope of discovery in court, however, remains non-uniform. Plaintiffs, especially those filing in the Fifth Circuit, will be well-advised to make sure that all conceivably relevant evidence is put forth in the administrative remedies process. De novo judicial review is good for participants, beneficiaries, and provider-assignees, but it will be of limited utility if not all of the pertinent evidence is before the court.