Employment: Preserving The Discretionary Clause of an ERISA Plan
Many ERISA plans contain a clause granting the claims administrator discretion to make benefit decisions. This grant of discretion is significant if a benefit decision winds up in court. If the claims administrator had discretion in making the benefit determination, a court will give deference to the administrator's decision and the decision will be upheld unless the administrator acted arbitrarily and capriciously. On the other hand, if the plan does not grant the administrator discretion to make the benefit decision, a court will review the decision "de novo" and will not grant any deference to the administrator's decision.
But even though a plan may grant the plan administrator discretion in determining benefits, the administrator, by its conduct, may lose that discretion. That is what recently occurred in a case decided by the Tenth Circuit Court of Appeals - the court which hears appeals from federal district courts in Oklahoma.
Mark LaAsmars obtained both life insurance and accidental death and dismemberment ("AD&D") insurance through an ERISA plan sponsored by his employer, Phelps Dodge. Phelps Dodge contracted with Met Life to provide these benefits, and Met Life was the claims administrator under the ERISA plan. The AD&D coverage provided coverage if the insured died "as the result of an accident." The accident had to be "the sole cause of the injury" and "the sole cause of the covered loss."
LaAsmars was driving a pickup when it crashed, killing both he and a passenger. A toxicology report indicated LaAsmars had a blood alcohol content nearly three times the legal limit. His death certificate indicated the "immediate cause" of his death was head and internal injuries due to blunt force trauma as a consequence of a motor vehicle accident.
When LaAsmars' parents filed a claim for benefits with Met Life, Met Life paid the life insurance benefits but denied the AD&D benefits. Met Life - which was granted discretion under the plan to make benefit determinations - interpreted the AD&D language to preclude coverage based on LaAsmars' intoxication.
LaAsmars' parents administratively appealed Met Life's denial of benefits. The plan gave Met Life 60 days to decide the appeal, tracking the time limit contained in regulations implementing ERISA. However, Met Life took 170 days to deny the appeal.
LaAsmars' parents then filed a lawsuit challenging Met Life's denial. The Tenth Circuit determined Met Life's 110 day delay in deciding the administrative appeal constituted a procedural irregularity which disqualified Met Life from obtaining the benefit of the discretionary language of the plan. Therefore, the court gave no deference to Met Life's interpretation of the AD&D policy, and, interpreting the policy de novo, reversed the plan administrator's decision and held that LaAsmars' death was an accident covered under the plan.
Thus, in order to preserve the benefit of the discretionary clause of an ERISA benefit plan, administrators must act within the time periods set forth in the plan and regulations governing the plan, as well as comply with all other obligations the plan and regulations may impose upon the administrator in making benefit decisions.