Opinion ID: 218623
Heading Depth: 2
Heading Rank: 1

Heading: Standard of Review of LINA's Benefits Denial

Text: The Supreme Court has held that a denial of benefits challenged under [ERISA] is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). If the plan gives the administrator or fiduciary discretionary authority to make eligibility determinations, we review its decisions under an abuse-of-discretion (or arbitrary and capricious) standard. [4] Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 111, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008); Doroshow v. Hartford Life & Accident Ins. Co., 574 F.3d 230, 233 (3d Cir.2009). Whether a plan administrator's exercise of power is mandatory or discretionary depends upon the terms of the plan. Luby v. Teamsters Health, Welfare, & Pension Trust Funds, 944 F.2d 1176, 1180 (3d Cir.1991). There are no magic words determining the scope of judicial review of decisions to deny benefits, and discretionary powers may be granted expressly or implicitly. Id. However, when a plan is ambiguous, it is construed in favor of the insured. Heasley, 2 F.3d at 1258. The plan administrator bears the burden of proving that the arbitrary and capricious standard of review applies. Kinstler v. First Reliance Std. Life Ins. Co., 181 F.3d 243, 249 (2d Cir. 1999). Under the abuse-of-discretion standard, we may overturn an administrator's decision only if it is without reason, unsupported by substantial evidence or erroneous as a matter of law. Miller v. Am. Airlines, Inc., 632 F.3d 837, 845 (3d Cir.2011) (quoting Abnathya v. Hoffmann-La Roche, Inc., 2 F.3d 40, 45 (3d Cir. 1993)). In determining whether an administrator abused its discretion, we must consider any structural conflict of interest as one of several factors. Estate of Schwing v. The Lilly Health Plan, 562 F.3d 522, 526 (3d Cir.2009). In contrast, if we exercise de novo review, the role of the court is to determine whether the administrator ... made a correct decision. Hoover v. Provident Life & Accident Ins. Co., 290 F.3d 801, 808-09 (6th Cir.2002) (alteration in original) (quoting Perry v. Simplicity Eng'g, 900 F.2d 963, 965 (6th Cir. 1990)). The administrator's decision is accorded no deference or presumption of correctness. Id. at 809. The court must review the record and determine whether the administrator properly interpreted the plan and whether the insured was entitled to benefits under the plan. Id. The relevant language at issue in the Policy is the Proof of Loss provision, which provides: Written or authorized electronic proof of loss satisfactory to Us must be given to Us at Our office, within 90 days of the loss for which claim is made. (App. at 85) (emphasis added). LINA argues that this language confers discretion upon them because they have expressly reserved the right to decide whether the proof of loss is satisfactory to them. Plaintiff argues that the language does not expressly and unambiguously confer discretion. Specifically, Plaintiff argues that the language can be interpreted in several different ways. [5] Plaintiff argues that the alleged ambiguity should be resolved in her favor and de novo review should apply. The District Court rejected Plaintiff's argument and held that the relevant policy language presents a clear grant of discretionary authority to LINA in deciding whether sufficient proof to support a claim has been submitted to shift the Court's review from de novo to the deferential abuse of discretion standard. Viera v. Life Ins. Co. of N. Am., 2010 WL 1407312, at  (E.D.Pa. Apr. 6, 2010). We disagree. To begin with, we distinguish the language at issue herein particular, the words proof of loss satisfactory to Us from language in other plans that requires submission of satisfactory proof, without reference to who must be satisfied. Most courts of appeals to consider the issue have concluded that the mere requirement to submit satisfactory proof does not confer discretion upon an administrator, and thus, does not insulate the administrator from de novo review. See, e.g., Perugini-Christen v. Homestead Mortg. Co., 287 F.3d 624, 626-27 (7th Cir.2002) (a policy requiring satisfactory proof of Total Disability to [the insurer] results in de novo review); Kearney v. Std. Ins. Co., 175 F.3d 1084, 1089-90 (9th Cir.1999) (en banc) (same where policy requires receipt of satisfactory written proof); Kinstler, 181 F.3d at 251-52 (same where policy requires insured to submit[] satisfactory proof of Total Disability to [the insurer]). On the other hand, courts of appeals interpreting policy language requiring submission of proof of loss satisfactory to Us have reached divergent conclusions, revealing the ambiguity inherent in the language. The United States Court of Appeals for the Second Circuit was the first appellate court to suggest that satisfactory to us language may not be sufficient to trigger abuse-of-discretion review. In Kinstler, 181 F.3d at 252, the court explained: [T]he 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. [Therefore] we reiterate that ... 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. Id. at 252. Shortly thereafter, the United States Court of Appeals for the Seventh Circuit squarely held that satisfactory to us language is insufficient to confer discretion. In Diaz v. Prudential Insurance Co. of America, 424 F.3d 635, 639-40 (7th Cir. 2005), the court broke from other courts of appeals, and its own prior precedent, [6] by holding that the satisfactory to us language was no longer sufficient to compel abuse-of-discretion review. Diaz held that the critical question is whether the plan gives the employee adequate notice that the plan administrator is to make a judgment within the confines of pre-set standards, or if it has the latitude to shape the application, interpretation, and content of the rules in each case. Id. Diaz relied on language from Herzberger v. Standard Insurance Co., 205 F.3d 327 (7th Cir.2000), for the proposition that Herzberger changed the course of Seventh Circuit jurisprudence on this issue. In so holding, it reaffirmed the safe harbor language it pioneered in Herzberger: [i]f a plan wishes to insulate its decision to deny benefits from plenary review, the surest way to do so (at least in this Circuit) is by including language that either mimics or is functionally equivalent to the safe harbor language we have suggested: Benefits under this plan will be paid only if the plan administrator decides in his discretion that the applicant is entitled to them. Diaz, 424 F.3d at 637 (quoting Herzberger, 205 F.3d at 331). However, the Diaz court went further than Herzberger by holding that [n]o single phrase such as `satisfactory to us' is likely to convey enough information to permit the employee to distinguish between plans that do and plans that do not confer discretion on the administrator. Id. at 639. The United States Court of Appeals for the Ninth Circuit followed the footsteps of the Seventh Circuit and held that satisfactory to us language does not unambiguously provide discretion to the plan administrator. Feibusch v. Integrated Device Tech., Inc., 463 F.3d 880, 883 (9th Cir.2006) (applying de novo review). The Ninth Circuit adopted safe harbor language [7] and explained that the policy does not unambiguously indicate that the plan administrator `has authority, power, or discretion to determine eligibility or to construe the terms of the Plan, [and therefore] the standard of review will be de novo. ' Id. at 884 (quoting Sandy v. Reliance Std. Life Ins. Co., 222 F.3d 1202, 1207 (9th Cir.2000)). It reasoned that the term satisfactory to us, only arguably confer[red] discretion, and that therefore the ambiguity must be resolved in favor of the insured. Id. It also noted that although it endorsed the safe harbor language, it was not requiring magic words. Id. There is, however, a split among our sister courts of appeals regarding the impact of the satisfactory to us language. In contrast to the courts of appeals for the Second, Seventh, and Ninth Circuits, the First, Eighth, and Tenth Circuits have held that the satisfactory to us language confers discretion sufficient to insulate an administrator from de novo review. The First Circuit dealt with similar language in Brigham v. Sun Life of Canada, 317 F.3d 72 (1st Cir.2003). The policy at issue provided that the administrator must be provided with such evidence satisfactory to us as we may reasonably require under the circumstances. Id. at 81 (emphasis in original). The court noted that [c]ircuits that have considered similar language view the `to us' after `satisfactory' as an indicator of subjective, discretionary authority on the part of the administrator, distinguishing such phrasing from policies that simply require `satisfactory proof' of disability, without specifying who must be satisfied. Id. It concluded that the language trigger[ed] discretionary review. [8] Id. at 82. Similarly, in Nance v. Sun Life Assurance Co. of Canada, 294 F.3d 1263, 1267-68 (10th Cir.2002), the Tenth Circuit held that the policy language adequately conferred discretion. The language at issue in the insurance policy required that [p]roof must be satisfactory to Sun Life before benefits would be paid. Id. at 1267. The court was careful to caution [ ] that plan drafters who wish to convey discretion to plan administrators are ill-advised to rely on language that is borderline in accomplishing that task. Id. at 1268 n. 3. However, it ultimately held that the satisfactory to Sun Life language suffice[d] to convey discretion to Sun Life in finding the facts relating to disability. Id. at 1268; see also Ferrari v. Teachers Ins. & Annuity Ass'n, 278 F.3d 801, 806 (8th Cir.2002) (a plan sufficiently conferred discretion because it specifie[d] that the employee must provide written proof of continued total disability and that such proof must be satisfactory to [the plan administrator]). [9] We find the reasoning of the Second, Seventh and Ninth Circuits persuasive. To be insulated from de novo review, a plan must communicate the idea that the administrator not only has broad-ranging authority to assess compliance with pre-existing criteria, but also has the power to interpret the rules, to implement the rules, and even to change them entirely. Diaz, 424 F.3d at 639. We agree that [n]o single phrase such as `satisfactory to us' is likely to convey enough information to permit [an insured] to distinguish between plans that do and plans that do not confer discretion on the administrator. Id. Specifically, the language at issue here does not alert the plan participant to the possibility that [LINA] has the power to re-define the entire concept of [a covered loss] on a case-by-case basis. Id. Indeed, the only discretion reserved by this single phrase, nested within a section wholly regarding the procedural requirements for submission of a claim, is the inevitable prerogative to determine what forms of proof must be submitted with a claimsomething that an administrator in even the most tightly restricted plan would have to do. [10] Id. (emphasis in original). In other words, it is not clear whether satisfactory to Us means electronic proof of loss [in a form] satisfactory to Us or electronic proof of loss [substantively and subjectively] satisfactory to Us. We resolve this ambiguity in favor of the insured: [T]he 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. Kinstler, 181 F.3d at 252 (emphasis added). If an administrator wishes to insulate its decision to deny benefits from de novo review, we suggest that it adopt the following safe harbor language: Benefits under this plan will be paid only if the plan administrator decides in [its] discretion that the applicant is entitled to them. Herzberger, 205 F.3d at 331. This is not to say that magic words are required for a policy to reserve discretion. See Luby, 944 F.2d at 1180. Instead, the Policy at issue here simply does not clearly indicate that LINA has discretion to interpret the rules, to implement the rules, and even to change them entirely, and thus the District Court erred in applying abuse-of-discretion review rather than de novo review to LINA's decision. Diaz, 424 F.3d at 639. Because we have concluded that a de novo standard of review applies, we need not reach Plaintiff's argument regarding LINA's conflict of interest in being both the payor and administrator of benefits. That issue is only pertinent to an abuse-of-discretion standard of review. [11] On remand, the District Court must determine whether LINA properly denied Plaintiff recovery under the Policy. This determination may be based on any information before the administrator initially, Hoover, 290 F.3d at 809, as well as any supplemental evidence, such as Dr. Gindea's report. See, e.g., Luby, 944 F.2d at 1184-85 ([A] district court exercising de novo review over an ERISA determination between beneficiary claimants is not limited to the evidence before the Fund's administrator.); Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1025 (4th Cir.1993) (district courts have discretion during de novo review to consider evidence not before administrator); Perry, 900 F.2d at 966 (citing 2 S. Childress & M. Davis, Standards of Review § 15.2 (1986)).