There are two standards of review that a court can follow in an ERISA case, when reviewing a denial of long-term disability benefits. The two standards are "de novo" and "abuse of discretion."
If you are an insurer defending its denial of disability benefits in court, you want the court to apply the more lenient "abuse of discretion" standard. Under this standard of review, the court is obligated to defer to the insurer's decision unless the insurer abused its discretion in making that denial decision. "A plan administrator's decision will not be disturbed if reasonable. This reasonableness standard requires deference to the administrator's benefits decision unless it is (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record." Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917, 929 (9th Cir. 2012).
If you are a plaintiff suing an insurance carrier to obtain long-term disability benefits under ERISA in federal court, you want the court to adjudicate your claim under a de novo standard of review that does not require deference.
What is a de novo standard of review?
"De novo" literally means a new trial by a different tribunal.
The phrase "de novo determination" allows a court to review the insurer's benefits denial decision in a manner "that accords no deference to any prior resolution of the same controversy." Patton v. MFS/Sun Life Financial Distributors, Inc., 48 F.3d 478, 485-86 (7th Cir. 2007).
Therefore, under de novo review, the court may make its own independent decision on both the legal and factual issues about a claimant's entitlement to disability benefits, without giving deference to the plan administrator prior denial decision. United States v. Raddatz, 447 U.S. 667, 690 1980).
When does the de novo standard apply?
The de novo standard is actually the "default" standard. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,109 S. Ct. 948, 954 (1989), the United States Supreme Court held that, by default, a claimant is entitled to a de novo review of a denial of ERISA benefits.
However, the court also held that if, in its Plan document, an insurer unambiguously grants "discretionary authority" to determine benefits or interpret the Plan's terms, then the more lenient "abuse of discretion" standard of review shall apply.
While ERISA does not require the use of specific language ("magic words") when granting discretionary authority, under controlling Ninth Circuit law, an ERISA benefit plan must use explicit and unambiguous language for a proper grant of discretionary authority in order to obtain the more lenient abuse of discretion standard of review. Kearney,175 F.3d, at 1088-90.
A simple grant of authority to an administrator to pay benefits, Haley v. Paul Revere Life Ins. Co., 77 F.3d 84, 88 (4th Cir. 1996), or determine eligibility, Herzberger v. Standard Ins. Co., 205 F.3d 327, 332 (7th Cir. 2000), is not the same as an unambiguous and explicit grant of discretion over benefit determinations.
If the court denies de novo review.
If a court should decide to not review de novo, and determines that an abuse of discretion review applies, it should nonetheless be a searching review of an insurer's denial decision as the facts and circumstances, including an insurer's conflict of interest, warrant, that balances ERISA's requirements of fiduciary loyalty, 29 U.S.C. 1104 (a)(1), and "full and fair" review of benefit claims, 29 U.S.C. 1132 (2); see 29 C.F.R. 2560.503-1(g), (h), and (j), with the statutory authorization for fiduciaries to serve in dual roles, 29 U.S.C. 1108(c)(3). Woo v. Deluxe Corp., 144 F.3d 1157, 1161 (8th Cir. 1998); see also: Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 106 (2008) ("... ERISA imposes higher than marketplace quality standards on insurers, requiring a plan administrator to discharge [its] duties in respect to discretionary claims processing solely in the interests of the [plan's] participants and beneficiaries ... underscoring the particular importance of accurate claims processing by insisting that administrators provide a full and fair review of claim denials.")