Standard of review for Welfare Plan

[Guest RW]

Long term disability welfare plan requires claim for benefits to be submitted to insurer (fully insured), rather than the plan administrator. The claims procedure to the insurer is set forth in the SPD. LTD plan document has "Firestone" language for plan administrator. If a claimant ends up suing both the insurer and the employer, does the employer get the deferential Firestone standard of review if claimant never made a claim directly to plan administrator? Assume no indemnity provisions exist in the LTD contract with employer.

[Guest hank]

RW -

The standard of review in your circumstances SHOULD be the

Firestone standard, but most of the Circuit Courts of Appeals have carved out exceptions to the arbitrary and capricious standard when, for example, there is a facial or actual financial conflict of interest on the part of the plan administrator (not your case, since you represent that the LTD plan is 100% insured rather than self-insured). You can find a very good review of this issue in a recent decision of the Third Circuit Court of Appeals (Pinto v. Reliance Standard Life).

You probably ought to ask counsel for the plan sponsor to examine the law in your circuit. Our plan covers employees in almost every circuit, and we have a self-insured LTD plan, so we have this issue surface in every claim that turns into litigation.

[pjkoehler]

It is, of course, common practice for plaintiffs bringing wrongful denial of benefits claims under ERISA to name the plan administrator as a defendant, as well as the actual fiduciary who adjudicated the claim. So before we get to the applicable standard of review, the threshold issue is whether the "plan administrator" was the party that denied the claim, i.e. is a proper defendant. If the plan administrator did not exercise its discretion to deny the claim or participate with the insurance company in the denial of the claim and had no discretionary authority to review the claims denial (whether or not it exercised it), then the "plan administrator" is a strong position to ask the court to grant a motion to dismiss for failure to state a claim against it, as a proper defendant.

The facts you've mentioned tend to show that the "plan administrator" delegated its claims adjudication fiduciary responsibility by contract to the insurer. You have to be careful here, because insurance companies are renowned for trying to avoid fiduciary responsibility even when, as a procedural matter, the contract requires that they make the initial determination. ERISA provides that no delegation or allocation of fiduciary duty is effective unless its is explicit and accepted in writing by the delegate. Unless the contract contains very explicit fiduciary responsibility delegation language, the insurance company is likely to take the position that, while it made the initial determination as to medical evidence supporting the plaintiff's claim for benefits, the plan administrator retained the fiduciary responsibility to determine whether the Plan should pay the benefit on request for administrative review or an outright benefit appeals. In other words, plan administrators who think this was all the insurance company's responsibility get hauled into court on a "denial of access to the claims procedure theory." The insurance company is likely to argue that providing access to the Plan's claim's procedure is the responsibility of the "plan administrator." Generally, courts listen to this argument, where the "plan administrator" just dropped out of the picture while the claimant and the insurance company's claims personnel go round and round. In such a case, the plaintiff could well argue that the plan administrator's passive role was a denial of access to the claims procedure, which doesn't fit under the Firestone formulation because it's not related to a fiduciary's interpretation of ambiguous plan terms.