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Abuse of Discretion Or Arbitrary and Capricious Standard Under ERISA

LTD and ERISA Lawyers: Riverside, Orange & San Bernardino Counties

Abuse of Discretion or Arbitrary and Capricious

Courts usually equate the "abuse of discretion" standard and the "arbitrary and capricious" standard, holding that, in either instance, the court need only be satisfied that "substantial evidence" supports the plan administrator's benefit denial decision.

Substantial evidence means more than a mere scintilla; it means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Adamson v. Unum Life Ins. Co. of America, 455 F.3d 1209, 1212 (10th Cir. 2006).

Under the "abuse of discretion" standard, a reviewing court cannot reverse a plan's benefit denial decision, absent a definite and firm conviction that the plan administrator committed a clear error of judgment in the conclusion it reached upon a weighing of relevant factors.

While most courts tend to use these standards interchangeably, the Administrative Procedure Act, 5 U.S.C. 7062(A) and (E), allowing for a measure of deference to governmental determinations, identifies and distinguishes these standards.

For agency decisions, the "arbitrary and capricious" standard generally requires only that there be a "rational" foundation, meaning that an agency decision will be upheld as long as there is a rational connection between the facts found and the conclusions drawn. Motor Vehicle Mfgrs. Ass'n v. State Farm Mutl. Auto. Ins. Co., 463 U.S. 29, 42-43 (1983).

The aforementioned case involved regulations that required passive restraints in cars, where the U.S. Supreme Court struck down an order by the National Highway Traffic Safety Administration rescinding regulations that required either airbags or automatic seat bets in new cars. The court held that the agency action to rescind the rule was "arbitrary and capricious" because it failed to consider the alternative of requiring all cars to have airbags and that the agency had too quickly dismissed the safety benefits of automatic seat belts.

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