The Fifth Circuit Court of Appeals, in Ariana v. Humana Health Plan of Texas, has held that the “de novo” standard of review applies to ERISA denial of benefits claims involving challenges to a legal interpretation of plan provisions and factual determinations about benefit claims unless the plan administrator has been granted discretionary authority.
Law. In Firestone Tire & Rubber Co. v. Bruch, the Supreme Court held that if an ERISA plan does not delegate discretionary authority to the plan’s administrator to interpret plan provisions, a denial of benefits claims based on these provisions is to be reviewed under a de novo standard. The Court further clarified that where a plan had delegated authority to the administrator, the decision must be reviewed under the heightened “arbitrary and capricious” standard.
Following Firestone, the majority of circuit courts of appeals have held that, in cases where a plan has not delegated discretionary authority to its plan administrator, the de novo standard of review applies to both challenges to the legal interpretation of a plan and the administrator’s factual conclusions.
An arbitrary and capricious standard of review means that the plan’s decision will only be overturned by the court if it is “without reason, unsupported by substantial evidence or erroneous as a matter of law.” By contrast, a de novo review means that a court will independently review a claim and not defer to the plan administrator’s, or insurer’s, decision.
Background. In Ariana, the plaintiff filed a lawsuit against the defendant to challenge its decision to discontinue coverage of inpatient treatment for an eating disorder after two experts said she was no longer a danger to herself. After reviewing the claim using the abuse of discretion standard, the district court ruled in favor of the defendant. In turn, the plaintiff appealed the decision to the Fifth Circuit.
Fifth Circuit. The Fifth Circuit first reviewed the Firestone holding and, this time, determined that the decision provided a general standard of review for both legal interpretations of plan language and factual findings. It further acknowledged that subsequent Supreme Court decisions did not limit the de novo standard of review to legal interpretations of plan terms. Finally, the court observed that its past reasoning for declining to apply the de novo standard when reviewing a plan administrator’s factual determination (i.e., doing so would deplete plan funds and overrun courts) had not come to fruition in the other circuits that applied a uniform standard of review. Accordingly, the Fifth Circuit reversed its long-standing precedent of using the abuse of discretion standard to review a plan administrator’s factual determination and ruled that the de novo standard of review should be used when discretionary authority is not granted.
Employer takeaway. In the wake of Ariana, all circuit courts of appeals now apply the de novo standard of review, in the context of ERISA benefit denial claims, to both legal interpretation of plan documents and factual determinations made by a plan administrator when discretionary authority is not granted through plan provisions.