In this ERISA long term disability case, I represented the plaintiff. The decision was originally decided on October 31, 2007, but was later published meaning that it is binding precedent in the federal court system in South Carolina. In this case, my client, Turner, was a participant in the defendant ERISA LTD plan. The plan document unquestionably reserved discretionary authority to Robert Bosch Corporation as the plan administrator, but did not reserve discretionary authority to the claim administrator of the self-funded plan, Metropolitan Life Insurance Company. Robert Bosch Corporation, as plan administrator, never issued a claim decision though. Instead, both claim decisions (initial and final) were issued by MetLife. The administrative services agreement existing between Robert Bosch and MetLife provided that Robert Bosch was the only party which had authority to make the final claim decision. Because MetLife issued the final claim decision, we argued that Robert Bosch never exercised the discretion granted it under the plan and the court agreed. The court, in holding that it would apply a de novo standard, stated:
Plaintiff also asserts that it is clear from the ASA that the power and responsibility for reviewing initial adverse determinations lies solely with Defendant, not MetLife. The record indicates, and neither party denies, that MetLife, not the Defendant, conducted the review of the Plaintiff’s initial adverse determination. Plaintiff was notified that her appeal had been denied on a letter printed on MetLife letterhead and signed by a Procedure Analyst from MetLife Disability. (Pl.’s Mem. in Support of J. at 17-19.) MetLife also sent a letter to Defendant explaining that Plaintiff’s appeal had been denied, but explaining to Defendant that MetLife could not disclose any more “confidential” information. Id. at 16. Defendant does not claim, and no evidence in the record indicates, that Defendant played any role whatsoever in reviewing Plaintiff’s appeal of the initial adverse determination. For this reason, Plaintiff claims that the court should use a de novo standard of review, since MetLife was never given discretion to review its own initial adverse determination.
The court agrees with Plaintiff’s assertion that the ASA does not delegate to MetLife the power to review initial adverse determinations. In fact, the ASA explicitly does not delegate this, and states in no uncertain terms that Bosch retains that power, when it says, “Customer will conduct a review of any Claim denied or terminated in whole or in part upon receipt of an appeal by a Participant. Customer will determine whether the initial Claim determination should be upheld, overturned or modified.” (AR 1062.)
However, there can also be no doubt that the Plan instrument itself explicitly gives Defendant the right to delegate its discretionary powers to another party. By enacting the ASA with MetLife, it did confer some of its discretion. But it did not confer all of its discretionary power, specifically the ultimate responsibility for reviewing adverse determinations. By exercising this very power, then, MetLife was exercising discretion which had never been delegated to it by Defendant. The question, therefore, is whether ERISA only requires that the original instrument itself reserve the power to delegate, or whether it also requires such delegation to be explicit and proper in any subcontract agreements with third parties. In other words, is it enough for Defendant to reserve the right to delegate its discretionary powers, or must it actually explicitly delegate these powers to a third party?
The court is not limited to the Plan document itself in determining whether such a delegation took place. See, e.g., Cagle v. Bruner, 112 F.3d 1510, 1517 (11th Cir. 1997) (per curiam) (examining “plan documents” in determining whether or not discretionary authority had been delegated); Block v. Pitney Bowes, Inc., 952 F.2d 1450, 1453-54 (D.C. Cir. 1992) (same). Administrative Service Agreements similar to the ASA in question here are often considered by courts in determining whether discretion was delegated. See, e.g., Semien v. Life Ins. Co. Of N. Am., 436 F.3d 805, 810 (7th Cir. 2006) (considering ASA in determining whether or not discretion had been delegated); Reich v. Lancaster, 55 F.3d 1034, 1047 (5th Cir. 1995) (same); Abnathya v. Hoffman-La Roche, Inc., 2 F.3d 40, 42 (3d Cir. 1993) (same); Kinser v. Plans Administration Committee of Citigroup, Inc., 488 F.Supp.2d 1369, 1378 (M.D. Ga. 2007) (same); Luck v. Metropolitan Life Ins. Co., 2006 WL 2582939 *6-*7 (C.D. Cal. Aug. 29, 2006) (same); Campbell v. Chevron Phillips Chem. Co., 2006 WL 2380896 *11-*12 (E.D. Tex. Aug. 15, 2006) (same); Constantino v. Washington Post Multi-Option Benefits Plan, 404 F.Supp.2d 31, 39-41 (D.D.C. 2005) (same); Wallace v. Metropolitan Life Ins. Co., 332 F.Supp.2d 1280, 1286-87 (D.S.D. 2004) (same).
“To be an effective delegation of discretionary authority so that the deferential standard of review will apply, . . . the fiduciary must properly designate a delegate for the fiduciary’s discretionary authority.” Rodriguez-Abreu v. Chase Manhattan Bank, 986 F.2d 580, 584 (1st Cir. 1993) (citing Madden v. ITT Long Term Disability Plan, 914 F.2d 1279, 1283-84 (9th Cir. 1990)). “[W]e require ‘explicit discretion-granting language’ in the policy or in other plan documents to trigger the ERISA deferential standard of review.” McKeehan v. Cigna Life Ins. Co., 344 F.3d 789, 793 (8th Cir. 2003) (citation omitted). Cf. Bynum v. Cigna Healthcare of North Carolina, Inc., 287 F.3d 305, 313-14 (4th Cir. 2002) (holding that when construing plans under ERISA, ambiguities are “construed against the drafter of the plan, and it is construed in accordance with the reasonable expectations of the insured.”).
While the court is aware of no courts that have addressed this precise issue, the method in which courts have addressed analogous issues is instructive. In the McKeehan case, for example, a plan provider had explicitly reserved the right and ability to delegate its discretionary powers to third parties. It initially did so to a third party administrator. 344 F.3d at 792. However, before a final decision was reached on the plaintiff’s claim, the provider underwent a change in ownership, and decided to change third party administrators. Id. The plaintiff’s claim for benefits was eventually denied by the new third party administrator. Id. However, the provider and the new third party administrator could produce no agreement between them that delegated the provider’s discretionary powers. Id. at 793. Since there was no evidence of any such delegation ever having formally taken place, the Eighth Circuit concluded that the new third party administrator had never validly received any discretionary powers from the administrator, and therefore reviewed the denial of benefits under a de novo standard of review. Id. (“LINA failed to present evidence that its contractual agreement with the current Plan sponsor included the grant of such discretion.”)
The First Circuit heard a similar case in Rodriguez-Abreu v. Chase Manhattan Bank, 986 F.2d 580 (1st Cir. 1993). In that case, the plan document had reserved to the plan provider the right to delegate its discretionary powers to a third party administrator. Id. at 584. However, the defendant could not produce any evidence that any discretion was ever explicitly delegated to the third party administrator. Id. (“Chase relies on inferences from the circumstances to establish that Smith was the delegate of the Fiduciaries, which we find insufficient to prove delegation of discretionary authority . . .”). Ultimately, the court concluded that “[b]ecause the relevant plan documents did not grant discretionary authority to the Plan Administrator and the Named Fiduciaries did not expressly delegate their discretionary authority to the Plan Administrator, we find that the district court correctly employed the de novo standard of review.” Id.
On the other hand, when ASAs have constituted complete grants of discretionary authority, and the third party administrators make final determinations of benefits claims, courts have applied the abuse of discretion standard. See, e.g., Kinser, 488 F.Supp.2d at 1377-79.
When dealing with the apparently unusual situation of a third party administrator who overstepped a partial delegation of discretionary authority, the court holds that the most basic and essential principles of contract and trust law dictate the application of a de novo standard of review. Simply put, the court cannot apply an abuse of discretion standard of review to a decision made by a decisionmaker who never had the discretion to make that decision. The “Review of Adverse Claim Determination” Section of the ASA could not be more explicit in its reservation to Defendant of the power and responsibility for reviewing adverse claim determinations. When examining the original Plan document and the ASA, “the reasonable expectations of the insured” would surely be that while MetLife may make the initial determination on benefits claims, an appeal from this adverse initial determination would have to be considered and handled by Defendant. Bynum, 287 F.3d at 313-14.
Accordingly, the court finds that the discretionary authority to review initial adverse determinations on benefits claims was never delegated to MetLife, and thus the appropriate standard of review for MetLife’s decision to terminate Plaintiff’s disability benefits is de novo.
