Health Administration Responsibility Project
Standard of review of Denial of Plan Benefits under ERISA.

Click here for Brief Outline

Until the Supreme court decision in Firestone v. Bruch, 489 U.S. 101, 115, (1989), the denial-of-care decisions of plan administrators were usually upheld, unless they were found to be 'Arbitrary and Capricious", a very difficult hurdle for aggrieved beneficiaries to surmount. In that decision, the Court held that the arbitrary and capricious standard of review is often too lenient in that it "would afford less protection to employees and their beneficiaries than they enjoyed before ERISA was enacted."

They further stated: "a denial of benefits challenged under 29 U.S.C. 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." De novo review gives no weight to the decision of the administrator.

Of course, all plans were rewritten to confer such discretion.

If the administrator or fiduciary is given discretionary powers under the plan, his decisions are reviewed for abuse of discretion and will not be disturbed if they are reasonable. Firestone, 489 U.S. at 111, 115; Doe v. Group Hospitalization & Medical Services, 3 F.3d 80, 85 (4th Cir. 1993).


In 2004, the National Association of Insurance Commissioners issued a model act banning the use of discretionary cluses in health & disability insurance policies! As of 2013, 16 states have adopted this rule. California's rule went into effect on 1/1/2012.

It is codified as Insurance Code 10110.6

Such a law is not preempted by ERISA! The 9th Circuit held in Morrison (584 F.3d 837) that the ERISA 'saving clause' (29 USC 1144(b)(2)(A)) protected such clauses from preemption. The 6th Circuit reached a similar conclusion (Ross 558 F.3d 600).

This means that the "de novo review" rule of Firestone v. Bruch will always apply in California! Therefore, the rest of this page is essentially moot!

Insurers have tried to use "choice of law" clauses specifying that the laws of some other state will apply to their contracts. One should argue that California has a materially greater interest in having its own laws govern the claims of its residents.

It appears that there is no significant distinction between the "abuse of discretion" standard and the "arbitrary and capricious" standard.

Whether there is any significant difference under ERISA between the "arbitrary and capricious" standard and the "abuse of discretion" standard is unclear in this [4th] circuit.
Bernstein v. Capitalcare,
70 F.3d 783, 4th Cir. 12/4/95

"We believe the result would be the same whether the abuse of discretion standard and the arbitrary and capricious standard are the same or not; therefore, we likewise need not resolve the issue [of whether the arbitrary and capricious standard is still viable after Firestone]"
Sheppard & Enoch Pratt Hosp. v. Travelers Ins. Co.,
32 F.3d at 125 n.4

"Although the 'abuse of discretion' standard is perhaps broader and less deferential than the 'arbitrary and capricious' standard, 'arbitrary and capricious' definitely is encompassed by 'abuse of discretion.'" Nevertheless, as we concluded in Sheppard, supra, the difference between the two standards, if any exists, would not be significant here; thus, we too decline to resolve the issue.
Richards v. United Mine Workers of Am. Health & Retirement Fund,
895 F.2d 133, 135-36 (4th Cir. 1990)

However, when an administrator or fiduciary with discretion is operating under a conflict of interest, such that its decision to award or deny benefits impacts its own financial interests, "that conflict must be weighed as a 'factor in determining whether there is an abuse of discretion.'"
Firestone, 489 U.S. at 115
(quoting Restatement (Second) of Trusts @ 187, cmt. d (1959));

When a conflict of interest exists, "the fiduciary decision will be entitled to some deference, but this deference will be lessened to the degree necessary to neutralize any untoward influence resulting from the conflict".
Doe , 3 F.3d at 87,

And "the burden shifts to the fiduciary to prove that its interpretation of plan provisions committed to its discretion was not tainted by [the demonstrated] self-interest."
Brown v. Blue Cross & Blue Shield of Alabama,
898 F.2d 1556, 1566 (11th Cir.1990) (citations omitted),
cert. denied, 498 U.S. 1040, 111 S. Ct. 712, 112 L. Ed. 2d 701 (1991).
(This opinion has an excellent discussion)

Though It is difficult to conceive of a situation where Conflict of Interest will Not be found, the 9th Circuit previously required, in its Atwood decision (45 F.3d 1317), that it be "serious", and required plaintiffs to come forward with "material, probative evidence, beyond the mere fact of the apparent conflict, tending to show that the fiduciary's self-interest caused a breach of the administrator's fiduciary obligations to the beneficiary."

Fortunately, the 9th Circuit expressly overturned Atwood in its en banc decision Abatie v. Alta ( No. 03-55601, August 15, 2006). Its new rules are that:
1. If the plan does not give the adminstrator "discretion", his decision is reviewed de novo.
2. If the administrator IS given discretion by the plan, his decision is reviewed for abuse of discretion.
3. The "magic words" "discretion" need not appear, but a grant of discretion must be unambiguous .
4. When a plan administrator also acts as its fiduciary, the conflict of interest that inheres must be weighed as a “factor” in abuse of discretion review."
5. The 9th Circuit rejects the "Sliding Scale" adopted by the 4th, 5th, 8th, & 10th circuits.
6. The conflict of interest may weigh more heavily if accompanied by evidence of malice, of self-dealing, or of a parsimonious claims-granting history, such as: inconsistent reasons for denial, failure to adequately investigate a claim or ask the plaintiff for necessary evidence, failure to credit claimant’s reliable evidence, repeated denial of benefits by incorrectly interpreting plan terms, or by making decisions against the weight of evidence in the record.
7. A conflicted administrator may find it advisable to bring forth affirmative evidence that any conflict did not influence its decisionmaking process.
8. Under de novo review, the court is not limited to the evidence that was in the administrative record.
9. Under "abuse of discretion" review, the court may NOT consider evidence that was not in the administrative record.
10. The court MAY consider evidence outside the administrative record to determine whether a conflict of interest exists that would affect the appropriate level of judicial scrutiny.
11. The court MAY consider evidence outside the administrative record to decide the nature, extent, and effect on the decision-making process of any conflict of interest.
12. The decision on the merits, though, must rest on the administrative record once the conflict (if any) has been established, by extrinsic evidence or otherwise. [??????]
13. If the administrator violates ERISA rules so severely as to amount to failure to exercise discretion, de novo review will be used.
14. But mere procedural irregularities, with substantial compliance, do not justify de novo review.
15. If the administrator did not provide a full and fair hearing, as required by 29 U.S.C. § 1133(2), the court must permit the claimant to present additional evidence.

In Bernstein it was found that "it is also uncontroverted that CapitalCare operates under a conflict of interest when it makes benefit determinations, because it both administers the plan and pays for benefits received by its members. if CapitalCare denies health benefits to its members, it generally profits by the amount of expenses avoided."

In Nightingale, the court found a number of conflicts on the part of an insurance company acting only as administrator, even though it received no payments for claims it denied:

In Lee, the mere fact that the decision maker was an employee of the insurance company led to a holding of conflict of interest.

When there is a conflict of interest, the appropriate standard of review is the modified abuse of discretion standard of Doe, supra: The district court should uphold the plan administrator's decision if the decision was reasonable; and the court should weigh the conflict of interest as a factor in analyzing the reasonableness of the decision.
3 F.3d at 85, 87.
The plan administrator's decision is reasonable "if it is the result of a deliberate, principled reasoning process and if it is supported by substantial evidence."
Baker v. United Mine Workers of Am. Health & Retirement Funds,
929 F.2d 1140, 1144 (6th Cir. 1991).

In Booton v. Lockheed the 9th Circuit stated that the plan administrator's decisions were not entitled to deference unless the plan had complied with regulations relating to notice:

ERISA plan administrators do not have unbounded discretion. Under federal law, an ERISA plan
"shall provide to every claimant who is denied a claim for benefits written notice setting forth in a manner calculated to be understood by the claimant:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent plan provisions on which the denial is based;
(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
(4) Appropriate information as to the steps to be taken if the participant or beneficiary wishes to submit his or her claim for review."
29 C.F.R. @ 2560.503-1(f).

May the court review evidence not available to the administrator?

For the 9th Circuit, see the Abatie case above.

When a district court reviews a plan administrator's decision under a deferential standard, the district court is limited to the evidence that was before the plan administrator at the time of the decision.
Sheppard & Enoch Pratt Hosp. v. Travelers Ins. Co., supra,
32 F.3d at 125.

A plan administrator cannot introduce evidence post hoc to support its benefit determination when the district court reviews that decision under a deferential standard.
Halpin v. W.W. Grainger, Inc.,
962 F.2d 685, 697 (7th Cir. 1992);
Berry, 761 F.2d at 1007.

[HMO bears the burden of proving that treatment was excludable from the plan's coverage].

...even under a deferential standard, the administrative record must document the decision-making process.
Bernstein v. Capitalcare,
70 F.3d 783, 4th Cir. 12/4/95

A district court has discretion to allow evidence that was not before the plan administrator only when the district court reviews a benefit determination de novo. Moreover, the court cautioned that such evidence should be allowed only in exceptional circumstances when it is clearly established that "additional evidence is necessary to conduct an adequate de novo review of the benefit decision."
Quesinberry v. Life Ins. Co. of North America,
987 F.2d 1017, 1025 (4th Cir. 1993)

"If the [district] court believed the administrator lacked adequate evidence, the proper course was to 'remand to the trustees for a new determination,' not to bring additional evidence before the district court." However, in cases where the fiduciary committed clear error or acted in bad faith, "a reversal, rather than a remand, would be within the discretion of the district court."
Berry v. Ciba-Geigy Corp.,
761 F.2d 1003, 1007 (4th Cir. 1985)

However, a plaintiff may introduce evidence which was not before the administrator, in order to demonstrate actual conflict of interest, for purposes of defeating deferential review.
Tremain v. Bell Industries
(9th Circuit, 11/16/99)

Some recent cases:

"When an insurance company both funds and administers benefits, it is generally acting under a conflict that warrants a heightened form of the A&C standard...[which] allows us to take notice of discrete factors suggesting that a conflict may have influenced the administrator's decision"
Pinto v. Reliance Standard, #99-5028
3d Circuit, 3/31/2000

Even though an administrator may be "non-profit", "it still has a financial interest in denying claims", to remain competitive, for their own job stability, etc., so there is a conflict of interest warranting a higher standard of review,
Pitman v. Blue Cross & Blue Shield of Oklahoma, # 98-5034
10th Circuit, 5/22/2000

The 9th Circuit briefly held that a plan administrator's failure to give preference to the views of the treating physician over those of hired consultants, may constitute abuse of discretion. But this was reversed by a unanimous Supreme Court in Black & Decker v. Nord in 2003.

If the SPD, which is given to employees, has less favorable terms than the plan master document, the administrator must abide by the master document.
Bergt v. Ret. Plan, #99-36106
9th Circuit, 6/19/2002

Brief Outline

In Lee v. BC/BS of Ala., 10 F.3d 1597 (1994), the 11th Circuit laid out a decision scheme for analysing these cases in light of the foregoing cases.

We try to outline that scheme here:

1. Does the Claimant present a reasonable interpretation? (de novo review)
No: Insurer verdict.
Yes: goto question 2.
2. Is insurer's interpretation correct? (de novo review)
Yes: Insurer verdict.
No: goto question 3.
Plan Ambiguous: Claimant verdict (by contra proferentum)
Insufficient evidence: Stay and Remand to administrator.
3. Is Insurer's verdict apparently reasonable?
No: Claimant verdict.
Yes: goto question 4.
4. Does decision maker have a conflict of interest? (eg: employee of insurer)
No: Insurer verdict. (Here is the Deference)
Yes: goto question 5.
5. Can insurer justify decision on basis of benefit to all beneficiaries?
No: Claimant verdict.
Yes: goto question 6.
6. Can claimant show insurer was arbitrary or capricious in some other way?
Yes: Claimant verdict.
No: Insurer verdict. (Deference again)

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