Opinion ID: 770872
Heading Depth: 2
Heading Rank: 1

Heading: Standard of Review of An Insurer's Benefits Eligibility Determination

Text: 10 The first issue disputed by the parties is whether the lower court applied the correct standard in its review of ITT Hartford's decision to terminate appellant's disability benefits. Appellant argues that the applicable standard is one of reasonableness, rather than the arbitrary and capricious standard applied by the lower court and advocated on appeal by the appellee. 11 As the magistrate's recommendation correctly noted, the Supreme Court held in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), that an insurer's termination decision will be reviewed under a deferential arbitrary and capricious standard where, as here, the language of the underlying plan reserves discretion to the insurer in determining eligibility for benefits. See also Doe v. Travelers Insur. Co., 167 F.3d 53, 56-57 (1st Cir. 1999). However, the Court in Firestone also suggested that, where a plan's fiduciary operates under a conflict of interest, the reviewing court should consider that conflict in its determination of whether the fiduciary abused the discretion vested in it by the plan. See Firestone, 489 U.S. at 115; Doe, 167 F.3d at 57. The courts of appeals have since differed somewhat in their interpretation of that suggestion. See Doe, 167 F.3d at 57 & n.2 (collecting cases). 12 This Circuit first addressed the level of review appropriate for an insurer's benefit eligibility determination under these circumstances in Doyle v. Paul Revere Life Insurance Co., 144 F.3d 181 (1st Cir. 1998). There we noted that an insurer does have a conflict of sorts when a finding of eligibility means that the insurer will have to pay benefits out of its own pocket, although we also noted that the market presents competing incentives to the insurer that substantially minimize the apparent conflict. See id. at 184. Noting the divergence of approaches taken by the other courts of appeals, we announced that our own standard under such circumstances would adher[e] to the arbitrary and capricious principle, with special emphasis on reasonableness, but with the burden on the claimant to show that the [insurer's] decision was improperly motivated. Id. 13 In Doe v. Travelers Insurance Co., 167 F.3d 53 (1st Cir. 1999), we reiterated much of what was stated in Doyle. However, we expressed some skepticism about the helpfulness of a formulaic approach to this standard of review question, stating: 14 It seems to us that the requirement that Travelers' decision be reasonable is the basic touchstone in a case of this kind and that fine gradations in phrasing are as likely to complicate as to refine the standard. The essential requirement of reasonableness has substantial bite itself where, as here, we are concerned with a specific treatment decision based on medical criteria and not some broad issue of public policy. 15 Id. at 57. It is Doe's emphasis on reasonableness that the appellant argues supports a less deferential review of the termination decision than the arbitrary and capricious standard applied by the lower court. 16 We conclude that the district court applied the proper standard in rejecting appellant's ERISA claim. The Supreme Court made clear in Firestone that, where an insurance plan grants discretion to the insurer to determine eligibility for benefits, the insurer's decisions will generally be reviewed only for an abuse of that discretion. See Firestone, 489 U.S. at 115. We have since referred to such abuse of discretion review in this context as applying an arbitrary and capricious standard, see Doyle, 144 F.3d at 184, which may have created some confusion despite the functional equivalence of the two standards. We did not intend such reference to alter the standard of review prescribed by the Supreme Court in Firestone. Nor did we intend such an alteration in Doe when we focused on the reasonableness aspect of our review when potential conflicts of the sort involved here are present. See Doe, 167 F.3d at 57. Rather, we intended merely to recognize that, in order to find that an insurer had abused its discretion under the contract, we would have to conclude that the insurer's eligibility determination was unreasonable in light of the information available to it. In other words, an unreasonable determination would necessarily constitute an abuse of discretion, and a reasonable determination necessarily would not. Furthermore, in both Doyle and Doe, we took into account the potential for conflict in considering whether the insurer's decision had strayed outside the bounds of reasonableness to become an abuse of discretion. See Doyle, 144 F.3d at 184; Doe, 167 F.3d at 57. 17 In this case, the lower court properly tracked our guidance in Doyle and Doe. The court adhered to the arbitrary and capricious standard established by the Supreme Court in Firestone, and also correctly followed Doyle and Doe by (1) recognizing that the reasonableness of the insurer's decision determines whether or not it constituted an abuse of the discretion vested in the insurer by the plan and (2) further recognizing that the possible existence of a conflict of interest would necessarily affect the court's determination of what was reasonable conduct by the insurer under the circumstances. The court correctly inquired whether the circumstances indicated an improper motivation on the part of ITT Hartford and, finding no such impropriety, proceeded to simply ensure that the termination decision was not objectively unreasonable in light of the available evidence. This approach was precisely what was required by the case law, and we affirm it as an example to other courts considering ERISA claims of this type.