Opinion ID: 793591
Heading Depth: 2
Heading Rank: 1

Heading: Standard of Review of a Denial of Benefits

Text: 15 We must first decide what standard of review the District Court should have applied when examining CIGNA's calculation of Gibbs's eligible earnings. Unlike the District Court, we find the standard of review to be highly relevant and indeed dispositive of this appeal. 16 In an action brought pursuant to section 502(a)(1)(B) of ERISA, a district court reviews a plan administrator's denial of benefits 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. Kinstler v. First Reliance Standard Life Ins. Co., 181 F.3d 243, 249 (2d Cir. 1999) (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989)). Where the plan reserves discretionary authority for the administrator, however, denials are subject to the more deferential arbitrary and capricious standard, and may be overturned only if the decision is without reason, unsupported by substantial evidence or erroneous as a matter of law. Kinstler, 181 F.3d at 249 (quoting Pagan v. NYNEX Pension Plan, 52 F.3d 438, 442 (2d Cir. 1995) (internal quotation marks omitted)). CIGNA, as the party arguing for the more deferential standard of review, bears the burden of proving that the arbitrary and capricious standard of review applies. Kinstler, 181 F.3d at 249. 17 Gibbs and CIGNA disagree on whether the plan provides discretionary authority to the Plan Administrator. Each position finds support in a different version of the SPD. 7 CIGNA claims that the 1997 SPD, which contains language vesting sole discretion in the Plan Administrator to determine whether [a participant is] eligible for benefits . . . and the amount of any benefit controls because it was in effect at the time when Gibbs's claim for additional benefits was denied. Gibbs contends that the 1995 SPD, which does not provide the Plan Administrator with discretion, applies because it was in effect at the time he became disabled. For the reasons set forth below, we agree with Gibbs that the amendment to the SPD granting discretionary authority to the Plan Administrator does not apply to Gibbs's claim because his right to disability benefits vested prior to CIGNA's amendment of the Plan. 18 The issue of which version of the SPD applies when determining the standard of review of an administrator's denial of disability benefits is one of first impression in our Circuit. Long-term disability plans fall within ERISA's definition of an employee welfare benefit plan. 29 U.S.C. § 1002(1); Kunstenaar v. Connecticut General Life Ins. Co., 902 F.2d 181, 181 (2d Cir. 1990). It is well settled that `ERISA does not create any substantive entitlement to employer-provided health benefits or any other kind of welfare benefits. Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans.' Devlin v. Empire Blue Cross and Blue Shield, 274 F.3d 76, 82 (2d Cir. 2001) (quoting Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78, 115 S.Ct. 1223, 131 L.Ed.2d 94 (1995)). Under the principle that an employee benefit plan is effectively a unilateral contract, a benefit becomes `vested' if the employer has promised not to amend or terminate it, and the employee has accepted this offer by beginning or continuing in employment. Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202, 1211 (2d Cir. 2002). 8 In short, if an employer promises vested benefits, [under ERISA] that promise will be enforced. Am. Fed. of Grain Millers v. Int'l Multifoods Corp., 116 F.3d 976, 980 (2d Cir. 1997) (emphasis added). Once the employee's rights have vested, an employer's subsequent unilateral adoption of an amendment which is then used to defeat or diminish the [employee's] fully vested rights . . . is . . . ineffective. Feifer, 306 F.3d at 1211 (quoting Kemmerer v. ICI Americas Inc., 70 F.3d 281, 287 (3d Cir. 1995) (internal quotation marks omitted)); cf. Frommert v. Conkright, 433 F.3d 254, 264 (2d Cir. 2006) (holding that an amendment to an employee pension benefit plan was ineffective because a later-adopted plan cannot be applied to reduce already-earned pension benefits). 19 Whether an employee's benefits have vested under an ERISA welfare plan is a matter of contract interpretation. Feifer, 306 F.3d at 1211. Disability plans are treated somewhat differently than other welfare plans for purposes of vesting. In Feifer, we held as a matter of law that, absent explicit language to the contrary, a plan document providing for disability benefits promises that these benefits vest with respect to an employee no later than the time that the employee becomes disabled. Feifer, 306 F.3d at 1212. The holding in Feifer flows from both the fact that ambiguity in a plan should be construed against the interests of the party that drafted the language and from the nature of disability benefits. Id. (internal quotation marks omitted); see also id. (noting that disabled employees neither can reject the terms offered by their employers and secure work elsewhere, nor predict the date of separation from their employer and plan accordingly). 20 In this case, the 1995 SPD does not contain explicit language reserving CIGNA's right to terminate or alter a disabled employee's benefits. Indeed, the 1995 SPD states quite the contrary: Any modification or termination will not affect your right to benefits from a covered disability that occurred before the termination or modification (emphasis added). Without an explicit reservation of CIGNA's right to alter disability benefits after a beneficiary became disabled, Gibbs's right to benefits vested when he became disabled. Therefore, CIGNA's attempt to alter the terms of the SPD was ineffective with respect to Gibbs's benefits. 21 CIGNA, relying on the Third Circuit's decision in Smathers v. Multi-Tool, Inc./Multi-Plastics, Inc. Employee Health and Welfare Plan, argues that the grant of discretion to the Plan Administrator only alters a procedural provision of the Plan and did not affect Gibbs's coverage under the plan or substance of [his] benefits or his entitlement to them. 298 F.3d 191, 195 (3d Cir. 2002); see also id. at 196 (holding that the amendment granting the administrator discretion was only a signal to the district court . . . as to how it is to review the administrator's decision and not a substantive change to benefits). We find this argument unavailing. Unlike the plaintiff in Smathers, see id. (holding that employee's motorcycle accident did not created a vested right to healthcare benefits), Gibbs was vested in his right to disability benefits prior to the amendment of the Plan. 9 22 Moreover, we respectfully disagree with a basic premise of the Smathers decision that granting the Plan Administrator sole discretion to determine benefits — thus altering the District Court's standard of review — does not affect the substance of Gibbs's benefits. See Smathers, 298 F.3d at 195 (stating that granting discretion to the administrator did not change the coverage under the plan or substance of Smathers' benefits or his entitlement to them). As the Seventh Circuit explained in the context of holding that the plan language must clearly confer discretion in order to trigger deferential review under Firestone: The very existence of `rights' under such plans depends on the degree of discretion lodged in the administrator. The broader that discretion, the less solid an entitlement the employee has and the more important it may be to him, therefore, to supplement his ERISA plan with other forms of insurance. Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000); see also Johnson v. Allsteel, Inc., 259 F.3d 885, 888 (7th Cir. 2001) (An increased amount of discretion opens up to the administrator administering the plan a greater range of permissible choices. This expanded range renders `less solid' the participant's benefits by shifting risk to the participant.). There is no doubt in our minds that a right that may be denied by an administrator's incorrect, but not arbitrary, interpretation of the plan is substantively diminished as compared with one not subject to erroneous decisions. 23 Thus, we hold that the grant of discretion to the Plan Administrator in the 1997 SPD would affect Gibbs's vested right to benefits, and therefore cannot be applied to Gibbs's claim. 24