SPD Alone Cannot Grant Plan Administrator Discretionary Authority to Determine Eligibility for Benefits

The United States Court of Appeals for the Ninth Circuit has ruled, in Prichard v. Metropolitan Life Insurance Company, that a summary plan description ("SPD") cannot give a plan administrator discretionary authority to review a claim when the formal plan document is silent on the matter. Therefore, a court does not have to defer to the plan administrator's decision.

Background. The plaintiff was covered under his employer's LTD plan. After initially approving the plaintiff's claim for LTD benefits, the insurer determined that the benefits would be limited to 24 months under a restriction applicable to mental or nervous disorders. The plaintiff made a claim for continued benefits beyond the initial 24-month limit, which the insurer denied. After several unsuccessful appeals, the plaintiff sued the insurer in federal district court.

District Court. At trial, the parties disagreed on what standard of review the district court should apply to the insurer's decision to terminate benefits. The insurer asserted that the discretionary language contained in the SPD required the court to apply the "deferential abuse of discretion" standard, meaning that the plan administrator's decision would be upheld unless it was "arbitrary and capricious." Conversely, the participant argued that the Supreme Court's prior decision in CIGNA v. Amara required the court to review the matter de novo and, therefore, without consideration of or deference to the plan administrator's decision. (In Amara, the Court held that the terms of an SPD cannot be enforced as the terms of the plan itself.) The insurer responded that the SPD is the only formal plan document and, therefore, its terms warrant discretionary review.

The district court concluded that the SPD was the controlling plan document and that it granted the insurer discretionary authority to determine benefits eligibility. Thus, the district court applied the abuse of discretion standard of review and upheld the insurer's decision to terminate the plaintiff's benefits. The plaintiff appealed this decision to the Ninth Circuit.

Ninth Circuit. The Ninth Circuit determined that the district court should have used the de novo review standard and rejected the insurer's argument that the SPD was the only formal plan document. Instead, the Ninth Circuit found that the relevant insurance certificate provided that the plan consisted of the group policy and the employer's application. In other words, the insurance certificate identified these documents, and not the SPD, as the entire agreement between the employer and insurer.

As a result, the Ninth Circuit concluded that the district court erred when it found that the LTD plan's SPD, rather than the insurance certificate, was the plan document. Because the official insurance certificate contained no discretion-granting language, the Ninth Circuit remanded the matter to the district court to review the insurer's decision de novo.

Impacton Employers. The standard of review that a court uses to determine a litigated benefits dispute significantly impacts whether the plan's decision will stand. In fact, it is much less likely that a plan's determination will be upheld when a court applies the de novostandard of review.

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.