On March 1, 2018, the Fifth Circuit reversed its long-standing but much criticized holding on the appropriate standard of review in ERISA disputes. See Ariana M. v. Humana Health Plan of Tex, Inc., No. 16-20174, (5th Cir. Mar. 1, 2018) (en banc). The genesis of the decision was the enactment of a Texas statute in 2011 which prohibits the use of discretionary clauses, i.e., clauses delegating discretionary authority to a plan administrator, in accident, health, and life insurance policies (among others). See Tex. Ins. Code § 1701.062. That law in turn was a response to the ubiquitous inclusion of such clauses in ERISA policies following the United States Supreme Court’s decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). In Firestone, the Supreme Court held that the default standard of review in ERISA benefits dispute is de novo unless the plan gives the administrator discretionary authority. Id. at 115. The Fifth Circuit’s interpretation of Firestone was to limit it to legal interpretations; thus, regardless of whether an ERISA Plan included a delegation clause, factual determinations were reviewed for abuse of discretion. See Pierre v. Connecticut Gen. Life Ins. Co., 932 F.2d 1552, 1562 (5th Cir. 1991). Twenty-six years later, the court has revisited the resulting “bifurcated standard of review for challenges in our circuit to the denial of ERISA benefits.” Ariana M., slip opinion at p.2.
In the initial three-judge panel decision now overruled, the court held that the Texas anti-discretionary clause statute does not mandate a standard of review and “does not change this court’s normal Pierre deference.” See Ariana M. v. Humana Health Plan of Tex, Inc., 2017 WL 1423765 *2-3 (5th Cir. Mar. 1, 2018), rev’d en banc. However, all three judges filed a special concurrence in which the court acknowledged the significance of Pierre deference and its lack of support among the other circuits. See id. at *7.
The Court subsequently agreed to rehear the appeal en banc, during which notable amici including the U.S. Department of Labor and the Texas Department of Insurance, weighed in to oppose continued Pierre deference. See Ariana M., slip opinion at p.6. On rehearing, the court overruled Pierre’s holding that an abuse of discretion standard applied to review of factual determinations absent a discretionary clause.
The court first held that the Texas statute rendered discretionary clauses unenforceable, but did not mandate the standard of review for federal courts. Id. The court did not address whether the statute was preempted, which was not raised as a defense by Humana, although it noted that “[e]ach court to decide this issue has concluded that ERISA does not preempt state antidelegation statutes.” Id. at p.7, n.2. Thus, “[w]ith the delegation clause out of the picture and federal ERISA law providing the standard of review, this case presents us with an opportunity to reconsider Pierre.” The majority made the following relevant observations:
• “No other circuit agrees that Firestone’s default de novo standard is limited to the construing of plan terms.” Ariana M., slip opinion at p.7.
• Pierre parsed the language used in Firestone to distinguish factual and legal determinations which was not supported by the decision as a whole or more recent cases including Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 117 (2008). Ariana M., slip opinion at p.10. The majority acknowledged that “[o]ther courts have also questioned the support Pierre found in trust law for its factual/legal dichotomy” and critiqued its analogy “to the deference that reviewing courts afford agency decisions.” Id. at p. 10, 12.
• Moreover, “[t]here is no indication that ERISA trials have depleted plan funds or overrun courts in [the other eight] circuits, which are still able to grant summary judgment when the record warrants it.” Id. at p.13. The majority concluded:
Considering these cases and without having to endorse all the critiques other circuits have made of Pierre, on balance we conclude that they warrant changing course and adopting the majority approach—an approach the federal and Texas governments also support. We are also influenced by ERISA’s strong interest in uniformity. See Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936, 943–44 (2016). Being on the lonely side of the lopsided split means that ERISA denials involving nondiscretionary plans are reviewed with more deference in Texas, Louisiana, and Mississippi than they are in the rest of the country. It even means that employees working for the same company with the same health or retirement plan may suffer different fates in court depending on the circuit where they reside. Although sometimes there is virtue in being a lonely voice in the wilderness, in this instance we conclude that one really is the loneliest number. See Three Dog Night, One, on THREE DOG NIGHT (Dunhill 1969). We overrule Pierre and now hold that Firestone’s default de novo standard applies when the denial is based on a factual determination.
Id. at p.15-16.
The court, however, maintained the scope of the record in ERISA cases outlined in Vega v. National Life Ins. Servs., Inc., 188 F.3dd 287 (5th Cir. 1999) and held that de novo review did not justify expansion of the administrative record. Id. at p.16. The court vacated the judgment in favor of Humana and remanded for a de novo determination of medical necessity. Several justices dissented in dissenting opinions.
The Ariana M. decision reflects the growing trend of states attempting to curtail discretion by plan administrators—a total of 26 states have enacting anti-discretionary clause legislation or regulations according to the Court, see Ariana M., slip opinion at p.2, n.1—and is significant in ending the circuit split that had existed under Pierre.
Laura J. Grabouski is with Tully Rinckey, PLLC, Austin, Texas.
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