Fourth Circuit: No Deferential Review Despite Plan's ‘Satisfactory to Us' Language


Language in a Prudential Insurance Co. of America disability policy requiring claimants to submit proof of disability that is “satisfactory to Prudential” didn't constitute an unambiguous grant of discretionary authority that would entitle Prudential to deferential judicial review of an adverse benefit determination, the U.S. Court of Appeals for the Fourth Circuit ruled (Cosey v. Prudential Ins. Co. of Am.,2013 BL 312282, 4th Cir., No. 12-2360, 11/12/13).    

Citing a “gradual but unmistakable change in the precedential landscape,” the court said that it joined “five of our sister circuits” in holding that such language “does not unambiguously confer such discretionary authority.”    

Judge Barbara Milano Keenan's Nov. 12 opinion came three months after the U.S. Court of Appeals for the First Circuit changed course to reject similar “satisfactory to us” language in a disability policy.       

In Gross v. Sun Life Assurance Co. of Canada, 2013 BL 217761 (1st Cir. 2013), the First Circuit reconsidered its 2003 decision in Brigham v. Sun Life of Canada, 317 F.3d 72, (1st Cir. 2003), in the course of vacating and remanding a district court decision applying deferential judicial review to uphold a disability plan's denial of benefits.         

In the Gross ruling, the First Circuit also cited a change in the precedential landscape surrounding “satisfactory to us” plan language.            

Benefit Denial          

Beth A. Cosey worked for bioMerieux Inc. and participated in employer-sponsored short- and long-term disability benefit plans. Prudential acted as claims administrator for both plans.          

Cosey filed claims under both plans in March 2009 after experiencing fatigue, sleep disorder, dysautonomia, dizziness and fibromyalgia. Prudential approved Cosey for short-term benefits but suspended those benefits in May 2009, pending receipt of additional medical documentation.         

Prudential terminated Cosey's short-term benefits July 6, 2009, and denied her long-term benefits claim after concluding that the medical documentation she submitted didn't support any continuing impairment.          

Cosey sued under the Employee Retirement Income Security Act after exhausting administrative remedies.         

The U.S. District Court for the Middle District of North Carolina found that Prudential didn't abuse its discretion in handling Cosey's benefits.         

In so ruling, the district court determined that a deferential judicial review standard applied to Prudential's denial of long-term disability benefits, because the long-term plan required participants “to submit proof of continuing disability satisfactory to Prudential.” This was a sufficient grant of discretionary authority to warrant deferential judicial review, the district court found.          

The district court also found that the short-term benefits decision was entitled to deferential judicial review. In reaching this conclusion, the district court applied North Carolina law after determining that ERISA didn't govern the short-term plan.        

Court Considers Gallagher       

On appeal, the Fourth Circuit considered whether the district court erred in determining that the relevant plans conferred sufficient discretionary authority on Prudential to warrant the application of deferential judicial review.         

Looking to Gallagher v. Reliance Standard Life Ins. Co., 305 F.3d 264, (4th Cir. 2002), the Fourth Circuit said that “no specific words or phrases are required to confer discretion”; however, a grant of discretionary authority “must be clear,” with any ambiguities construed against the drafter of the plan.         

In Gallagher, the Fourth Circuit found that plan language requiring a claimant to submit “satisfactory proof of [t]otal [d]isability to us” was ambiguous and therefore didn't entitle the plan administrator to deferential judicial review. The Gallagher court also said that hypothetical plan language requiring proof “that is satisfactory to [the plan administrator]” would be sufficient to warrant abuse-of-discretion judicial review.         

Although Prudential argued that this discussion in Gallagher required the court to apply deferential review, the Fourth Circuit disagreed, explaining that the example used in Gallagher was hypothetical and therefore not binding.         

The Fourth Circuit therefore went on to consider the discretionary nature of the Prudential plan's “satisfactory to us” language as “a matter of first impression.”         

'Satisfactory to Us.' 

On that point, the Fourth Circuit began by observing that five circuit courts of appeals—the First, Second, Third, Seventh and Ninth—recently held that “satisfactory to us” language “does not unambiguously confer such discretionary authority.”         

Joining those courts, the Fourth Circuit found that “satisfactory to us” was an “inherently ambiguous” phrase, because “such language could be construed as simply stating the truism that the administrator is the decision-maker who initially must be persuaded that benefits should be paid before any amounts are actually paid.”         

Alternatively, it could be read as requiring a level of proof that satisfied the plan administrator's subjective criteria for eligibility or disability, the Fourth Circuit said. Given these ambiguities, the Fourth Circuit concluded that a ruling in favor of Prudential “would violate our requirement of clear plan language” that expressly confers discretionary authority on the plan administrator.          

Moreover, the Fourth Circuit expressed concern that “insured employees who read Prudential's ambiguous plan language are not given sufficient notice whether their plan administrator has ‘broad, unchanneled discretion to deny claims,' ” (quoting Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, (7th Cir. 2005).        

“[W]ithout clear language notifying employees that an administrator's denial of benefits is insulated from plenary judicial review, employees who file claims for benefits may not be fully aware of the gravity of administrative proceedings or the necessity of developing as complete a record as possible early in the claims process,” the Fourth Circuit said.       

Finally, the Fourth Circuit said that its decision was supported by the “well-settled principle” that ambiguities in ERISA-governed plans “must be construed against the administrator responsible for drafting the plan.” The Fourth Circuit reasoned that “drafters of ERISA plans have had every opportunity to avoid adverse rulings on this issue, especially in light of the gradual but unmistakable change in the precedential landscape of federal appellate decisions.”        

In fact, the Prudential policy in question was dated May 1, 2007, which the Fourth Circuit said was “well after” the Second, Seventh and Ninth Circuits rejected similar “satisfactory to us” language in other rulings.

Excerpted from a story that ran in Pension & Benefits Daily (11/13/2013).