Opinion ID: 3011361
Heading Depth: 2
Heading Rank: 1

Heading: Firestone

Text: Our analysis of the issue in this case must begin with Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Prior to Firestone, courts had adopted different approaches to the conflict of interest problem under ERISA, many choosing to vary the degree of deference they gave ERISA benefits administrators operating under a conflict of interest. See Brown v. Blue Cross & Blue Shield of Ala., 898 F.2d 1556, 1560 (11th Cir. 1990) (collecting cases). However, as one court of appeals has stated, the Supreme Court [in Firestone] . . . swept the standard of review board clear. De Nobel v. Vitro Corp., 885 F.2d 1180, 1185 (4th Cir. 1989). Firestone began when a group of plaintiffs sued their employer, who was also the ERISA plan administrator, for wrongfully terminating welfare and pension benefits. A panel of this court considered the relevant principles of trust law, with special attention to the rationales for the general deference given to impartial trustees, concluding that those reasons carry little or no force when trustees are in a position to profit from denying trust benefits. See Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134, 145 (3d Cir. 1987). We also considered the incentives and actual relationship of the parties, and the fact that the benefit plan was contracted for and its terms subject to negotiation. Id. We concluded that trust and contract principles both dictated that our review of the conflicted benefits denial should be de novo, giving no deference to either the administrator's or participants' interpretations. We essentially applied the principles governing construction of contracts between parties bargaining at arms length. Id. The Supreme Court affirmed the specific holding in that case--that the administrator's decision should be reviewed de novo, giving no deference to either party--but used a significantly different rationale. The Court began by stating that interpretation of ERISA should be governed by the common law of trusts, and then grounded the de novo 10 review on the fact that the plan gave the administrator no discretion to interpret the plan. See Firestone , 489 U.S. at 111. The Court observed that trust principles dictated that fiduciaries should be given no deference when making nondiscretionary decisions, see 489 U.S. at 111; see also supra note 2. It then turned to a brief discussion pertinent to this case, noting that a deferential standard of review [is] appropriate when a trustee exercises discretionary powers,2 but that if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a factor in determining whether there is an abuse of discretion. Id. at 115 (quoting Restatement (Second) of TrustsS 187, cmt. d (1959)) (emphasis added). Since Firestone, courts have struggled to give effect to this delphic statement, and to determine both what constitutes a conflict of interest and how a conflict should affect the scrutiny of an administrator's decision to deny benefits. The next two Sections discuss these problems as applied to an independent insurer who is empowered with discretion to determine who deserves benefits under a plan which it funds.