Opinion ID: 764885
Heading Depth: 2
Heading Rank: 3

Heading: Reservation of Discretionary Authority

Text: 32 First Reliance contends that even if de novo review is generally available in section 1132(a)(1)(B) cases, the language in its policy is sufficient to reserve to itself the discretionary authority that invokes the arbitrary and capricious standard of review. First Reliance cites the following policy language: 33 We will pay a Monthly Benefit if an Insured: 34 . . . . 35 (4) submits satisfactory proof of Total Disability to us. 36 Judge Leisure ruled that this language was insufficient to avoid de novo review. 2 37 As with the issue of the scope of de novo review, appellate judges are divided on the issue of what language suffices to convey to plan administrators the discretionary authority that warrants the more deferential arbitrary and capricious standard of review. This dispute is well illustrated by the Sixth Circuit's decision in Perez v. Aetna Life Insurance Co., 150 F.3d 550 (6th Cir. 1998) (in banc), in which eight judges of the Court deemed the phrase satisfactory evidence sufficient to preclude de novo review, see id. at 555-58, and six judges found this phrase insufficient, see id. at 558-61 (Boggs, J., dissenting). The Ninth Circuit, also sitting in banc, has deemed insufficient the phrase satisfactory written proof, Kearney, 175 F.3d 1084. The Seventh Circuit has deemed sufficient the phrase proof ... satisfactory to us, [i.e., the administrator] Donato, 19 F.3d at 379 (emphasis added), but has also deemed sufficient the less rigorous phrase such due proof, as shall be from time to time required. Patterson v. Caterpillar, Inc., 70 F.3d 503, 505 (7th Cir. 1995) (internal quotation marks omitted). 38 In our Circuit, we have recognized that 'magic words such as discretion and deference' may not be 'absolutely necessary' to avoid a [de novo] standard of review, Jordan v. Retirement Committee of Rensselaer Polytechnic Institute, 46 F.3d 1264, 1271 (2d Cir. 1995) (quoting Schein v. News America Publishing Inc., No. 89 Civ. 0052, 1991 WL 117638, at  (S.D.N.Y. June 24, 1991)). At the same time, we have noted that the use of such words is certainly helpful in deciding the issue. Id. When we have deemed the arbitrary and capricious standard applicable, the policy language reserving discretion has been clear. For example, in Ganton Technologies, Inc. v. National Industrial Group Pension Plan, 76 F.3d 462, 466 (2d Cir. 1996), the plan explicitly provided that the trustees had authority to resolve all disputes and ambiguities relating to the interpretation of the Plan. In Zuckerbrod v. Phoenix Mutual Life Insurance Co., 78 F.3d 46, 48 (2d Cir. 1996), the policy used the phrase in our judgment to modify a determination of eligibility for benefits. 39 We agree with Judge Leisure that the language of First Reliance's policy is insufficient to preclude de novo review. In the first place, it is not clear whether the key language, requiring the claimant to submit[] satisfactory proof of Total Disability to us, means only that the claimant must submit to First Reliance proof that is satisfactory or that the claimant must submit proof that is satisfactory to First Reliance. Since the plan administrator bears the burden of proving that the arbitrary and capricious standard of review applies, see Sharkey, 70 F.3d at 230, we think the needless ambiguity in the wording of the policy should be resolved against First Reliance. 3 See Kearney, __ F.3d at __, 1999 WL 246485, at . If the policy is read to require satisfactory proof that must be submitted to First Reliance, then the issue is like that in Perez and Kearney, and we think the dissenters in Perez and the majority in Kearney had the better of the argument. As the Perez dissenters pointed out, unless a policy makes it explicit that the proof must be satisfactory to the decision-maker, the better reading of satisfactory proof is that it establishes an objective standard, rather than a subjective one. See Perez, 150 F.3d at 559 (Boggs, J., dissenting). 40 But a more fundamental point than this fine distinction about wording is that the word satisfactory, whether in the phrase satisfactory proof or the phrase proof satisfactory to [the decision-maker] is an inadequate way to convey the idea that a plan administrator has discretion. Every plan that is administered requires submission of proof that will satisfy the administrator. No plan provides benefits when the administrator thinks that benefits should not be paid! Thus, saying that proof must be satisfactory to the administrator merely states the obvious point that the administrator is the decision-maker, at least in the first instance. Though we reiterate that no one word or phrase must always be used to confer discretionary authority, the administrator's burden to demonstrate insulation from de novo review requires either language stating that the award of benefits is within the discretion of the plan administrator or language that is plainly the functional equivalent of such wording. Since clear language can be readily drafted and included in policies, even in the context of collectively bargained benefit plans when the parties really intend to subject claim denials to judicial review under a deferential standard, courts should require clear language and decline to search in semantic swamps for arguable grants of discretion. 41