Abuse of Discretion Standard of Review


 Is The "Abuse of Discretion" Standard of Review Worth the Candle?

I am an ERISA benefits plaintiff's lawyer. This "note" is not intended to be objective. It is supposed to stimulate discussion.

In 1989, the Supreme Court told us in Firestone v. Bruch that if a plan provided that a fiduciary's benefits decision was given deferential review by the plan documents, so too must a court reviewing the benefits denial. The Court described the standard of review as one for "abuse of discretion" though the term is used interchangeably with "arbitrary and capricious." The Court found the basis for this in trust law, that if a trust instrument gave a trustee discretionary powers, a court must defer to the trustees decision unless it was unreasonable. Even before Firestone, all the Circuits were usually applying an abuse of discretion standard of review as part of ERISA's baptism or, perhaps more aptly, its bris.

There are two views: (a) it doesn't matter which standard of review applies as all judges are intellectual softies and if a judge believes a claimant should be paid, the claimant will be paid; (b) the standard of review is usually the most important issue, oft outcome determinative, in benefits litigation. Rush Prudential v. Moran, 536 U.S. 355, 384 (2002)(referring to deferential review as "highly prized" by benefit plans).

Those who hold that it matters little, seem to litigate the issue the most. Plaintiffs have several arrows in their quivers for attacking the standard: e.g., (a) is the discretion granting language in the appropriate documents and, if so, is it sufficient to grant discretion? (b) if the language is in an insurance policy, has that language been approved by the State Department of Insurance - and does the state have any business regulating this? (c) is the person/entity that was granted discretion the same as the person/entity that exercised it? (d) was the decision within the scope of the discretion granted? and, finally, the Big Doozie - (e) was the decision maker acting under a conflict of interest?

Each one of these issues presents its own discovery challenges. Of course, plans contend that denials must be considered only in the context of the administrative record so that discovery is irrelevant. Plaintiffs, and most courts, hold that while the underlying benefits decision is limited to the administrative record, questions regarding these issues are subject to discovery. For example, recently an en banc panel of the Ninth Circuit in Abatie v. Alta Life & Health Ins. Co., 458 F. 3d 955 (9th Cir. 2006) held that the following issues (and these only relate to the issue of conflict) were to be resolved by the trial court: (a) what outside interests did the decision-maker have? (b) what were its motives? (c) what was the "nature, extent and effect" of the conflict on the decision making process; (d) has there been a parsimonious claims granting history? (e) have there been repeated claim denials to deserving claimants that were against the weight of the evidence? In fact, Abatie recommended that decision-makers affirmatively come forward with evidence to show that its decision was not affected by any conflict. The tail has now become the dog. The whole purpose of deferential review was supposed to be streamlined, efficient and cost effective litigation. Now those defending deferential review find themselves in major, drawn out and costly litigation, even with the most minor claim, over the proper standard of review. At the same time, insurance companies report that they pay between 80 and 90% of all claims. So, putting aside the claims that would easily lose under even the de novo standard of review, aren't we talking about just a few percentage of cases? It seems to me that these cases would be more effectively and efficiently tried under the de novo standard of review.

So, whaddya think?