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Employment – ERISA – Disability Claim – De Novo Standard

A Wendy’s manager gets another chance to win long-term disability benefits because the district court erred in applying an abuse-of-discretion standard instead of the more claimant-friendly de novo review standard, the 4th Circuit holds.

We conclude the plan before us does not clearly vest discretionary authority in its administrator and the district court erred in engaging in an abuse-of-discretion review. We vacate the district court judgment and remand for further proceedings.

Claimant sought long-term disability benefits after an auto accident.

Although the Plan’s language vests authority in Prudential, it does not create any discretionary authority, as required by Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). As we indicated in Gallagher v. Reliance Std. Life Ins. Co., 305 F.3d 264 (4th Cir. 2002), discretionary authority is not conferred by the mere fact that a plan requires a determination of eligibility or entitlement by the administrator. Almost all ERISA plans designate an administrator who, in order to carry out its duties under the plan, must determine whether a participant is eligible for benefits. Yet this authority to make determinations does not carry with it the requisite discretion under Firestone unless the plan so provides. Firestone itself is based on this distinction.

ERISA plans are to be construed in accordance with the reasonable expectations of the insured when ambiguous, and are to enable plan beneficiaries to learn their rights and obligations at any time by reliance on the fact of written plan documents. A plan that simply conveys authority to an administrator creates the expectation only that such authority will be exercised, not that the administrator will enjoy wide discretion in wielding its authority as well as freedom from searching judicial scrutiny.

In reaching this conclusion, we find ourselves in substantial accord with the 7th Circuit’s decision in Herzberger v. Standard Ins. Co., 205 F.3d 327 (7th Cir. 2000): We hold that the mere fact a plan requires a determination of eligibility or entitlement by the administrator does not give the employee adequate notice the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary.

Here, nothing in the phrases “when Prudential determines” or “determined by Prudential” implies the conferral of discretion, as opposed to mere authority, on Prudential. A contrary conclusion – that the bare assignment of authority to Prudential creates Firestone-type discretion – would lead to an abuse-of-discretion (rather than a de novo) review whenever an administrator is vested with authority to make eligibility determinations. Thus, because an administrator always possesses such authority (the responsibility to make eligibility determinations being inherent in the office of administrator), Prudential’s argument would lead to an abuse-of-discretion review in nearly every ERISA benefits case, thereby jettisoning Firestone’s distinction between authority and discretionary authority.

Denial of claim vacated and case remanded.

Woods v. Prudential Ins. Co. of America (Shedd, J.) No. 07-1580, June 11, 2008; USDC at Newport News, Va. (Friedman) Gregory E. Camden for appellant; Walter L. Williams for appellee. VLW 008-2-101, 6 pp.

VLW 008-2-101

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