MAKE SURE DISCRETIONARY LANGUAGE IS ALWAYS IN THE PLAN DOCUMENTS, NOT JUST THE SPD

A new case out of the Ninth Circuit U.S. Court of Appeals reminds plan administrators once again that discretionary language in an ERISA plan must be clear and should be contained in the actual plan documents, not just in the summary plan description (“SPD”).

In Prichard v. Metropolitan Life Ins. Co., No. 12-17355, 2015 WL 1783507 (9th Cir. Apr. 21, 2015), the Ninth Circuit reversed the district court’s grant of summary judgment in favor of MetLife because it determined that the district court’s review should have been under the de novo standard rather than under the arbitrary and capricious standard because the only document that contained the discretionary language was the SPD, which it determined was not a plan document.

The case involved the review of a denial of long-term disability benefits to Prichard under an employee welfare benefit plan based on a 24-month limitation on benefits for nervous and mental disorders. In the district court, MetLife argued that the review should be under the arbitrary and capricious standard based on language contained in the SPD because it asserted that the SPD and the plan were “one and the same.” Prichard argued that, under the Supreme Court’s decision in Cigna Corp. v. Amara, — U.S. –, 131 S. Ct 1866 (2011), the court was required to review the decision de novo because the only document in the record that granted discretion was the SPD. The district court determined that the SPD was the governing plan document, reviewed the decision under the arbitrary and capricious standard and granted summary judgment to MetLife.

The Ninth Circuit determined that the SPD and the plan were not “one and the same.” It looked to the insurance certificate, which it stated was the only document in the record that contained a clear indication that it was a plan document. That document stated that the plan consisted only of: 1) the group policy and its exhibits; 2) the plan sponsor’s application; and 3) any amendments and/or endorsements to the group policy. The policy also contained an integration clause that stated that those documents constituted the entire contract. The court seized on this and held that since the SPD was “conspicuously absent” from the integration clause’s list of documents, the SPD could not be relied upon to grant discretion. The court did concede that the plan appeared to consist of more than just the insurance certificate and that it was possible that other plan documents outside the record may have contained a grant of discretion but if that was the case, it was MetLife’s burden to place that evidence before the district court. Because the court found that there was no grant of discretion in the plan documents that were in evidence, it vacated the district court’s decision and remanded the case to be reviewed under the de novo standard.

This case is yet another reminder that plan documents have to clearly grant discretionary authority to the plan administrator in order to be effective. Doing so would have alleviated the problem altogether. It is also a reminder to administrators and practitioners alike to ensure that all the evidence supporting a discretionary review is before the court.

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