Opinion ID: 76301
Heading Depth: 2
Heading Rank: 1

Heading: Standard of Review for Factual Determinations

Text: 15 The seminal Eleventh Circuit case articulating what has later come to be known as heightened arbitrary and capricious standard of review is Brown v. Blue Cross and Blue Shield of Alabama, 898 F.2d 1556 (11th Cir.1990). Plaintiff there was a participant in an ERISA health care plan under which Blue Cross provided the insurance coverage. Blue Cross denied certain hospitalization expenses incurred by plaintiff. Because Blue Cross both made the decision denying coverage, and would have had to pay out of its coffers if the coverage decision had been favorable to plaintiff, Blue Cross operated under a conflict of interest. Because the plan document conferred discretion upon Blue Cross in the matter of benefits determinations, its denial of benefits would have been entitled under Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), to the arbitrary-and-capricious, or abuse of discretion, standard 5 absent the conflict of interest. The court in Brown saw its task as developing a coherent method for integrating factors such as self interest into the legal standard for reviewing benefits determinations. 898 F.2d at 1561. After extensive analysis, the court noted that the inherent conflict between the fiduciary role and the profit-making objective of an insurance company makes a highly deferential standard of review inappropriate. Id. at 1562. The court therefore held that the abuse of discretion, or arbitrary and capricious, standard applies to cases such as this one, but the application of the standard is shaped by the circumstances of the inherent conflict of interest. Id. at 1563. 16 The Insurers argue that Brown is not controlling with respect to the proper standard of reviewing factual determinations by an ERISA fiduciary, because the underlying issue in Brown was one of plan interpretation, and not a factual issue. The Insurers rely by analogy upon the Fifth Circuit opinion in Pierre v. Conn. Gen. Life Ins. Co., 932 F.2d 1552 (5th Cir.1991). There, the Fifth Circuit distinguished Bruch and held that factual determinations by an ERISA fiduciary should be reviewed pursuant to an abuse of discretion standard, even though the plan document did not expressly confer discretionary authority upon the fiduciary. The court recognized that the Supreme Court had required de novo review of an ERISA fiduciary's interpretations of plan provisions unless discretionary authority was expressly conferred. However, the Fifth Circuit thought factual determinations by the fiduciary were sufficiently different from legal interpretations of the terms of the document to warrant a different result. Id. at 1554. 17 We reject the Insurers' invitation to distinguish between legal and factual determinations so that an ERISA fiduciary's factual determinations would be entitled to the arbitrary and capricious standard of review even though the fiduciary is under a conflict of interest. First and foremost, we believe that we are bound by precedent to apply the heightened arbitrary-and-capricious standard both to factual determinations and interpretations of the plan document by an ERISA fiduciary operating with discretionary authority but operating under a conflict of interest. Contrary to the Insurers' assertion, the underlying issues in Brown included not only issues of plan interpretation, but also factual determinations by the fiduciary. 6 We also applied the heightened arbitrary-and-capricious standard when reviewing the factual determinations of a conflicted ERISA fiduciary in Levinson v. Reliance Standard Life Ins. Co., 245 F.3d 1321 (11th Cir.2001). There, the underlying determination by the fiduciary which the court was called upon to review was the fiduciary's decision that the plaintiff there was not totally disabled, a decision which clearly involved a factual determination. See also Yochum v. Barnett Banks, Inc. Severance Pay Plan, 234 F.3d 541 (11th Cir.2000) (applying heightened arbitrary and capricious review to fact-based determination as to whether ERISA plan beneficiary turned down comparable offer of employment so as to be disqualified from receiving severance). 7 18 Although we feel bound by our prior precedent rule, we also note several weaknesses in the Insurers' position. First, not only did the holding of Brown apply to reviewing factual determinations as well as legal interpretations of the plan document, but the language of the Brown opinion suggests that it applies to benefits decisions, whether they involve plan interpretations, factual determinations, or both. The court described its task: to develop a coherent method for integrating factors such as self-interest into the legal standard for reviewing benefits determinations. 898 F.2d at 1561 (emphasis added). It referred throughout the opinion to benefits determinations and articulated its holding as applying to benefits determinations, id. at 1566. Even more significant than the language of the Brown opinion is its underlying rationale: the notion that a fiduciary's duty of loyalty to the beneficiaries might be compromised by the fiduciary's own self-interest. Common sense tells us that this rationale is applicable both to decisions involving plan interpretations and to decisions involving factual determinations; in both, the same self-interest operates such that a conflicted fiduciary may favor, consciously or unconsciously, its interests over the interests of the plan beneficiaries. Id. at 1565; see also Rowan v. Unum Life Ins. Co. of America, 119 F.3d 433, 436 (6th Cir.1997) (refusing to afford deference to ERISA plan administrator's findings of fact, because one party to a contract has an incentive to find facts not in a neutral fashion, but in the manner that is most advantageous to its own interests) (quoting Perez v. Aetna Life Ins. Co., 96 F.3d 813, 824 (6th Cir.1996)). 19 Second, the Insurers' reliance on the Fifth Circuit opinion in Pierre is inapposite. The issue in the instant case is whether the arbitrary and capricious, or abuse of discretion, standard should be modified when the decision of the fiduciary may be tainted by conflict of interest. An entirely different issue was involved in Pierre. There, the ERISA plan did not expressly confer discretionary authority upon the ERISA fiduciary charged to make benefits decisions. 932 F.2d at 1556. Of course, in Bruch, the Supreme Court had recently held that a court reviewing such a fiduciary's interpretation of the plan language should conduct a de novo review, unless the plan document expressly conferred upon the fiduciary discretionary authority. 109 S.Ct. at 957. The issue in Pierre was whether the principles of trust law gave such a fiduciary implied authority to make discretionary findings of fact, and whether that and other differences between fact findings and plan interpretations were sufficient to distinguish Bruch, so that a court should defer to such a fiduciary's findings of fact, even though no deference is due to the fiduciary's plan interpretations. The Fifth Circuit did distinguish Bruch by distinguishing between plan interpretations and findings of fact, did conclude that such a fiduciary would have implied authority to make discretionary findings of fact, and thus concluded that a court reviewing such a fiduciary's findings of fact should do so deferentially under the abuse of discretion standard. 8 932 F.2d at 1561-62. 20 However, the issue with which the Fifth Circuit in Pierre struggled is simply not before this court in the instant case. As noted above, the ERISA plan here confers discretionary authority, and the appropriate standard of review would be the arbitrary and capricious, or abuse of discretion, standard, except for the fact of the conflict of interest. But because of the conflict of interest, the standard of review is altered by our precedent, as described above. The Insurers argue that the Pierre distinction between an ERISA fiduciary's plan interpretations and its findings of fact is a viable distinction, and urge that we extend its holding and make this same distinction, and thus disregard the conflict of interest. We readily reject this argument. Even if the distinction between plan interpretations and findings of fact has some significance with respect to the issue in Pierre 9 — whether discretionary authority has been expressly conferred or appropriately can be implied, which in turn has significance under Bruch as to whether the standard of review should be de novo or abuse of discretion — we are confident that the distinction is relatively insignificant with respect to the very different issue before us — i.e., whether the standard of review should be altered because the fiduciary is operating under a conflict of interest in order to protect against the fiduciary's self-interest. As previously noted, the holding, the language and the rationale of Brown all apply with equal force not only to an ERISA fiduciary's plan interpretation, but also to its findings of fact. As a matter of common sense, the need to protect against the fiduciary's self-interest applies with equal force to plan determinations and findings of fact made by a conflicted fiduciary in the course of its benefits decision. 21 Third, although its discussion was arguably dicta, the Supreme Court itself has indicated that the standard of review should be affected by a fiduciary's conflict of interest: Of course, 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.' Bruch, 489 U.S. at 115, 109 S.Ct. at 957 (quoting Restatement (2d) of Trusts § 187, Comment d (1959)). 22 In sum, we conclude that the heightened arbitrary and capricious standard of review for decisions by a conflicted ERISA fiduciary applies equally to determinations of fact as to determinations of plan interpretation. Consequently, the district court erred in granting summary judgment for the Insurers based on the more deferential, pure arbitrary and capricious standard.