Court Opinion

ID: 9846690
Source: CourtListenerOpinion
Date Created: 2023-09-24 03:45:31.182966+00
Date Added: 2024-06-11T09:19:43.627750
License: Public Domain

ROGERS, Circuit Judge,
concurring in part and concurring in the judgment.
The district court should have used an arbitrary and capricious standard to review Majestic’s decision denying the claim at issue; however, Majestic’s decision was arbitrary and capricious and thus I concur in affirming the district court’s award of benefits and prejudgment interest to the Med.
I. Standard for Reviewing ERISA Fiduciaries and Their Agents
Majestic, as a fiduciary with discretionary authority to construe the terms of the Plan, is entitled to have its decisions reviewed under an arbitrary and capricious standard. This court should follow the well-reasoned approach set out by the Tenth Circuit in Geddes v. United Staffing Alliance Employee Medical Plan, 469 F.3d 919, 927 (10th Cir.2006), holding that “[i]f a plan administrator has been allotted *379discretionary authority in the plan document, the decisions of both it and its agents are entitled to judicial deference.” Geddes is a sound application of the Supreme Court’s holding in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), that arbitrary and capricious review applies where “the benefit plan gives the administrator or fiduciary discretionary authority ... to construe the terms of the plan.” It is undisputed that there was a grant of discretionary authority to Majestic, which generally establishes an arbitrary and capricious standard of review for Majestic’s decisions.
Majestic’s use of BAS as an agent in exercising its fiduciary duty does not change the applicable standard of review. ERISA, the law of trusts, and the plan at issue here all provide for the use of agents by plan administrators. ERISA provides that “[t]he instrument under which a plan is maintained may expressly provide for procedures ... (B) for named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities ... under the plan.” 29 U.S.C. § 1105(c)(1). This same conclusion is supported by the trust law upon which current ERISA doctrine is based. The Supreme Court in Firestone noted that, “[i]n determining the appropriate standard of review for actions under § 1132(a)(1)(B), we are guided by principles of trust law” and cited the Restatement (Second) of Trusts § 187 (1959). 489 U.S. at 111, 109 S.Ct. 948. Indeed, “ERISA is, in its most important dimension, federal trust law.” Geddes, 469 F.3d at 925 (quotation omitted). Trust law can thus provide additional guidance in this context as to the permissibility, and limits thereto, of hiring agents. The use of agents by Majestic is supported by the Restatement (Second) of Trusts, which provides that a trustee may delegate authority, and that such delegation is proper “when it is reasonably intended to further sound administration of the trust.” Restatement (Second) of Trusts § 171 cmt. Further, in this case the Plan clearly granted Majestic power to hire agents: the Plan lists, as a duty of the plan administrator, the duty “[t]o delegate to any person or entity such powers, duties and responsibilities as it deems appropriate.” Such an explicit grant of authority to use agents is also supported by the Restatement. Restatement (Second) of Trusts § 171 cmt. i. Finally, the inclusion of the “as it deems appropriate” language in this grant suggests that the plan administrator was given discretion in the use of this power, in accordance with the Restatement rule that “the trust terms may broaden the degree of the trustee’s discretion in matters of delegation.” Id. Thus any court review of how Majestic used its delegation authority should apply an arbitrary and capricious standard.
Applying that standard, it was not arbitrary and capricious for Majestic to employ BAS or to rely upon BAS as Majestic did when making the final benefits decision at issue in this case. Arbitrary and capricious review of a plan administrator’s actions is “highly deferential.” Yeager v. Reliance Standard Life Ins. Co., 88 F.3d 376, 380 (6th Cir.1996). Even if, as the district court found, Majestic adopted BAS’s recommendation to deny coverage “without engaging in any independent fact-finding,” this is not by itself arbitrary and capricious action. Majestic, under the Plan, could reasonably have determined that it was “appropriate” for BAS to have primary fact-finding responsibility for benefits claims and to rely generally on its advice when making final benefit determinations. Cf. Restatement (Second) of Trusts § 171 cmt. c (regarding trustees seeking advice and consultation). This conclusion is also in harmony with that of *380the Tenth Circuit in Geddes, which held that arbitrary and capricious review was applicable so long as “all decisions were made by [the plan administrator] or by its agent,” regardless of which party undertook any specific duties. Geddes, 469 F.3d at 927 n. 3. Absent any allegation that Majestic was unreasonable in selecting BAS, that Majestic improperly granted unreviewable authority to BAS, or that Majestic otherwise violated the terms of the Plan in its employment of BAS as an agent, there is no justification for condemning Majestic’s use of BAS or for applying a de novo, rather than arbitrary and capricious, standard of review to its benefits decisions.
Cases limiting the role that third parties can play in making benefits decisions under ERISA do not apply to this case. Indeed, each of these cases stands for the uncontroversial — and presently inapplicable — proposition that plan administrators cannot violate plan terms and retain the benefits of arbitrary and capricious review.
Sanford v. Harvard Industries, 262 F.3d 590 (6th Cir.2001), is not applicable because Majestic made the final determination in this case. Sanford holds that decisions made by third parties unrelated to the plan administrator are not entitled to arbitrary and capricious review. Id. at 596. The company in that case, rather than the plan administrator, made the decision to deny benefits. Id. Similarly, Sharkey v. Ultramar Energy Ltd., 70 F.3d 226, 229 (2d Cir.1995), holds that arbitrary and capricious review would be inapplicable if company executives, rather than the authorized fiduciary, made the benefits decision. The rule from these cases is not applicable here, where the issue is not whether the correct party made the final decision, but whether that party was too deferential to its agent when making its determination.
Anderson v. Unum Life Insurance Co. of America., 414 F.Supp.2d 1079 (M.D.Ala. 2006), and like cases do not apply because Majestic retained and exercised its final review authority and because its delegation of some responsibilities to BAS was in accordance with, rather than in violation of, the plan Majestic was administering. In Anderson, the plan administrator entered into agreement with a third party granting that party an “exclusive right to exercise discretion and control” and providing that the third party was “not ... [an] agent of [the plan administrator].” Id. at 1087 (internal quotation marks and citations omitted). This delegation of complete authority to the third party violated the agreements of the plan in that case and thus triggered de novo review. See id. at 1100. In the present case, by contrast, Majestic retained and exercised its final review authority, in compliance with the terms of the Plan. Unlike in Anderson, the Plan provided clearly that BAS “does not exercise any of the discretionary authority and responsibility granted to [Majestic].” Before sending the final benefits denial letter, BAS sent the letter to Majestic for approval. That communication indicated Majestic’s final authority, as the BAS employee stated that BAS “needfed] [Majestic] to review and approve before sending [the letter] out.”1 The district court found that Majestic actually did adopt the recommendation of BAS. Further, the final denial letter sent by BAS stated that BAS was “responding to [the] appeal on behalf of the Plan Administrator” and that the decision BAS was report*381ing was “the Plan Administrator’s final decision.”
Shane v. Albertson’s Inc. Employees’ Disability Plan, 381 F.Supp.2d 1196 (C.D.Cal.2005), and Culp, Inc. v. Cain, 414 F.Supp.2d 1118 (M.D.Ala.2006), similarly involve delegations of final authority to third parties in violation of plan agreements and are thus similarly not applicable. In Shane, a third party made a final benefits decision even though the plan administrator had never delegated any authority to that third party. See 381 F.Supp.2d at 1203. In Culp, the plan administrator apparently allowed a third party to make independent decisions, not subject to its own control or ratification and in violation of the plan terms. See 414 F.Supp.2d at 1126-27. The court there refused to infer, “after the fact,” that the plan administrator adopted the conclusions of the third party. Id. at 1127. This refusal to allow an after-the-fact adoption was important exactly because a concurrent adoption by the plan administrator, such as Majestic’s approval in this case, would have meant that the benefits denial was not in violation of the plan documents. Majestic’s retention of final control ensured that it was in compliance with the plan it was administering and thus distinguishes this case from Anderson, Shane, and Culp.
A fixed allocation of responsibilities between Majestic, the fiduciary, and BAS, the agent, was not required for Majestic to retain the benefits of arbitrary and capricious review. ERISA requires that a plan fiduciary retain ultimate control, and ultimate responsibility for, all final decisions. ERISA does not, however, require any particular division of fact-finding duties between the fiduciary and its agent. There is an important difference between a plan administrator who allows an unauthorized third party to make a decision and an administrator who validly employs an agent to assist it in making benefit determinations. The former may lose the benefit of arbitrary and capricious review because the administrator has violated the terms of its plan and committed a breach of its fiduciary duty; the latter is entitled to deferential review exactly because the administrator has committed no such breach. Because Majestic is in the second of these categories, its decision to deny benefits is subject to arbitrary and capricious review.
II. Application of Arbitrary and Capricious Review to This Case
Majestic’s decision to deny coverage on the bases it cited was, however, arbitrary and capricious because neither driving without a license nor driving without insurance increases any relevant risks to the driver. The Plan excluded “any loss caused by, incurred for or resulting from ... [cjharges for or in connection with an injury ... arising out of the participation in, or in consequence of having participated in, ... an illegal ... act.” The losses in this case were certainly incurred for charges in connection with an injury, so the relevant question is whether the injuries to Weatherspoon arose out of the participation in, or in consequence of having participated in, an illegal act. Majestic, in its final review letter, relied upon two illegal activities when denying benefits: driving without a license and driving without insurance. Neither of these allegations has any relationship to the valid rationale for illegal activity exclusions. Such exclusions in insurance contracts are justified because dangerous illegal activities both increase insurance costs and have negative social value. See Monticello Ins. Co. v. Ky. River Cmty. Care, Inc., No. 98-5372, at *3, 1999 WL 236190, 1999 U.S.App. LEXIS 7487, at *10 (6th Cir. Apr. 14, 1999) (“[I]t is perfectly sensible to exclude *382coverage for ... illegal acts to avoid moral hazard problems.”). Given this rationale, it would be arbitrary and capricious to conclude, as Majestic in this case apparently did, that any injury occurring while the insured party was engaged in any illegal activity was not covered, regardless of the risks of the illegal activity or the connection between the activity and the injury. Any activity which could fit within even the broadest permissible interpretation of the exclusion clause would have to increase the relevant risks to the insured; otherwise the injury would not arise out of the participation in, or in consequence of having participated in, an illegal act.
A tort analogy suggests strongly that driving without a license is not the type of illegal action that can reasonably be read to preclude coverage. Cf. Lennon v. Metro. Life Ins. Co., 504 F.3d 617, 621 (6th Cir.2007) (using tort law to inform question of whether a crash caused by drunk driving was an “accident”). Under the majority rule of modern tort law, neither driving without insurance nor driving without a license is by itself even negligent. Fed.R.Evid. 411 (“Evidence that a person was or was not insured against liability is not admissible upon the issue whether the person acted negligently or otherwise wrongfully.”); Miss. R. Evid. 411 (same); Waugh v. Suburban Club Ginger Ale Co., 167 F.2d 758, 759 (D.C.Cir.1948) (lack of a D.G. driver’s license is not relevant to question of negligence); Myrick v. Holifield, 240 Miss. 106, 126 So.2d 508, 511 (1961) (holding that the lack of a driver’s license is “totally irrelevant” to the issue of negligence); R.P. Davis, Lack of Proper Automobile Registration or Operator’s License as Evidence of Operator’s Negligence, 29 A.L.R.2d 963 (2009) (“The overwhelming weight of authority ... is to the effect that failure to have an operator’s license ... is not evidence of negligence .... ”). Without evidence, I will not presume that Weatherspoon was not a competent driver simply because he did not have a valid driver’s license. That being so, it was arbitrary and capricious for Majestic to deny benefits because Weatherspoon lacked insurance and a license.
It is not enough to say that the insured’s participation in the illegal activity was a “cause” of the injury. The fact that Weatherspoon drove, even though he lacked both a license and insurance, was a cause of his injuries. To pick a different example, it would be arbitrary and capricious for an insurance plan to refuse coverage to someone whose injuries were caused by a tire blowout when his car hit a nail lying on the white outside line of the road when he — in violation of traffic laws — drifted onto the white line. See Miss.Code Ann. § 63-3-603(a) (requiring vehicles on roads with three or more lanes to be driven “as nearly as practical entirely within a single lane”). Again, the illegal activity in such a case could as a matter of propositional logic be the cause of the injuries. But it would still be arbitrary and capricious for a plan to determine that the injury in this case arose out of the participation in, or in consequence of having participated in, the illegal driving because the illegal driving did not increase any relevant risk to the insured. Any sensible reading of an illegal-activity exclusion would have to exempt such non-negligent illegal activities even where technical causation is present.
Denying benefits on the basis that Weatherspoon was driving under the influence, in contrast, might not have been arbitrary and capricious, because such illegal activity obviously increases the risk. Majestic cannot rely on this ground, however, because it affirmatively disclaimed such reliance in its final benefits denial letter. Drunk driving is, at least in some *383circumstances, not only negligent but reckless. See Lennon, 504 F.3d at 621. In this case, however, we need not decide whether negligence or recklessness is the appropriate standard — or whether the DUI in this case meets those standards'— because Majestic disclaimed reliance on the DUI allegations. In its initial denial, Majestic relied upon the accident report to conclude that Weatherspoon was engaged in an illegal activity when he sustained his injuries. The Med argued in its appeal letter that “an accident report is not conclusive evidence of the commission of an illegal act.” In its final review determination, Majestic agreed with this contention, but only with respect to the DUI:
A pending [DUI] charge on an accident report is not proof of evidence of a commission of an illegal act, however, driving without a license or automobile insurance coverage under Mississippi law, is an illegal act; neither of which require a conviction to be considered illegal.
I agree with the lead opinion that Majestic is thus precluded from relying upon the DUI charge to justify its benefits denial. See Kellogg v. Metro. Life Ins. Co., 549 F.3d 818, 828 (10th Cir.2008).
Finally, one additional issue not presented in this case is whether a plan administrator can ever avoid plan rules regarding appeal time limits for good cause. Under the Plan, Majestic was required to respond to the claims appeal in this case within 60 days, and thus it had to respond to the appeal before the blood alcohol level tests were concluded. This limit thus could have placed Majestic in the predicament of either having to make a final benefits decision without full evidence or having to violate the Plan rule mandating a reply within 60 days. It may be that plan administrators deserve some deference when deciding how to proceed in the face of such a dilemma. Whatever the correct response is, however, it is certainly not proper to disclaim reliance on the plausibly appropriate ground for benefits denial while claiming reliance on the clearly inappropriate ground.
I thus concur with the conclusion that Majestic’s denial of coverage in this case cannot withstand judicial scrutiny. I further concur with Parts III, IV, V, and VI of the majority opinion, and I thus concur in the result.

. Majestic apparently provided the approval of the letter quickly; such quick turnaround was necessary because, as the email from BAS to Majestic pointed out, "the deadline to send the letter [was] Tuesday, November 22nd.”