When an ERISA plan delegates authority to the plan administrator to interpret the plan documents for benefit determinations, the plan administrator typically is entitled to a deferential standard of judicial review, and courts will look for abuse of discretion rather than impose a de novo standard of review. In Lyn M. v. Premera Blue Cross, – F.3d –, 2020 WL 4249129 (10th Cir. Jul 24, 2020), the U.S. Court of Appeals for the Tenth Circuit limited the deferential standard of review, holding that a de novo review applied when the plan administrator did not adequately disclose to the plan participants the instrument delegating discretionary authority to the plan administrator.
In Premera, Lyn and David M. sought medical benefits for their minor child. The plan administrator, Premera Blue Cross, denied the claim as not medically necessary, and the parents appealed. After exhausting the administrative appeal process, the parents filed suit in the U.S. District Court for the District of Utah. The district court held in favor of Premera under the abuse of discretion standard, after finding that the plan conferred the requisite discretionary authority to the plan administrator. Specifically, the “Plan Instrument” for the medical plan, a document that was not provided to the plaintiffs, included language describing the plan administrator’s discretionary authority to interpret the plan and make benefit determinations.
Although the plan documents that were provided to the plaintiffs (including the summary plan description) did not include discretionary authority language, they referenced the existence of the “Plan Instrument.” The district court found that this was sufficient to put plan participants on notice that a deferential standard of judicial review would apply to the plan administrator’s benefit decisions.
In a split decision, the Tenth Circuit reversed the district court’s decision, disagreeing with the district court’s opinion that reference to the “Plan Instrument” was sufficient notice of the delegation of discretionary authority to the plan administrator. The Tenth Circuit held that the plan administrator could not rely on a “secret” document in order to argue that it was entitled to deferential judicial review; rather, the district court should have engaged in de novo review of the plan administrator’s benefit determination. The Premera court also found that the plan administrator’s denial of benefits was based on the incorrect standard of “medical necessity” under the plan documents – an error that the court stated would have required reversal even if the “arbitrary and capricious” standard of judicial review had applied. Although the plaintiffs asked the court to issue a decision on the merits, the court remanded to the district court to review the benefits denial de novo.
Lyn M. v. Premera Blue Cross serves as a warning for plan administrators – relying on a single plan instrument that confers discretionary authority to the plan administrator may not be enough to ensure a deferential standard in federal court if that plan instrument is not provided to plan participants. Plan administrators should consider the ERISA notice requirements and review whether the plan documents that are provided to participants adequately describe (or otherwise put plan participants on notice of) any grant of discretionary authority that has been made to the plan administrator.