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Northwest OH Legal Blog

Wednesday, March 2, 2016

Court Refuses to Apply Deferential Review Without Clear Statement of Claims Administrator’s Discretionary Authority

A federal trial court in California has ruled that it will apply the “de novo” standard of review, taking a new look at a participant’s claim without deferring to the plan’s denial, because the plan documentation did not clearly establish that the claims administrator had discretionary authority to interpret plan provisions. The case is Noah U. v. Tribune Co. Medical Plan, 2015 WL 5999897 (C.D. Cal. 2015)]

The case involves a participant who was enrolled in one of the plan’s self-insured medical options.  The claims administrator (an insurance company acting under an administrative services agreement (ASA)) denied his initial claim and appeal. The participant sued. The claims administrator and the employer asked the court to apply the deferential standard of review (under which a court generally upholds a plan’s exercise of duly-authorized discretion, so long as it was not an abuse of discretion).

The court examined a variety of provisions in various documents cited by the employer and the claims administrator before concluding that, even if taken together (adopting the most generous interpretations of several poorly drafted attempts at incorporation by reference), these provisions still did not amount to the requisite grant of discretionary authority. For example, the plan document stated that a claims administrator (for a particular benefit) “may” have authority to exercise discretion in initial claim determinations and “certain” appeals. An SPD included similar language, as well as a reservation of the employer’s “sole authority” to exercise discretion “except to the extent such authority has been delegated.” Finally, the ASA, which the court reasoned might be relevant in interpreting ambiguous plan language, stated that the employer, and not the claims administrator, had “full and final authority” to interpret the plan. Thus, the plan did not contain the unambiguous grant of discretionary authority to the claims administrator required to avoid de novo review.  In essence the provisions were too vague.

The case will be heard by the court on the merits and the court will apply its own interpretation of the plan’s terms to determine coverage of the claim without deferring to the interpretation of the plan administrator. Not being entitled to deferential review can have a real impact because the court might interpret terms, such as medical necessity, differently from the claims administrator.

This case highlights the importance of clarity in making, documenting, and adhering to grants of discretionary authority. Some of the ambiguity in this case was due to the patchwork of documentation for the plan’s various benefit options.  The procedures and designated persons making decisions for different benefits should be spelled out explicitly. 


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