FIFTH CIRCUIT’S PIERRE DEFERENCE IN ERISA CASES TRUMPS TEXAS’S ANTI-DISCRETIONARY LANGUAGE STATUTE

In Ariana M. v. Humana Health Plan of Texas, Inc., No. 16-20174, 2017 U.S. App. LEXIS 7072 (5th Cir. Apr. 21, 2017), which involved a claim for benefits under an ERISA-governed health insurance policy, the Fifth Circuit held that Texas’s statutory ban on the inclusion of discretionary clauses in such policies was not applicable to the case and, therefore, did not require de novo review of the administrator’s denial of the claim.

As ERISA administrators and practitioners know, under the Supreme Court’s ruling in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), an administrator’s coverage decision is reviewed de novo unless the plan grants the administrator discretion, in which case, it is reviewed for abuse of that discretion. Unique among the circuits however, is the Fifth Circuit’s rule, first articulated in Pierre v. Connecticut General Life Insurance Co., 932 F.2d 1552 (5th Cir. 1991), that all factual conclusions made by an ERISA administrator are reviewed for an abuse of discretion regardless of whether the plan contains discretionary language.

In Ariana M., the plaintiff had been in and out of medical facilities over several years for the treatment of mental illness, eating disorders and engaging in self-harm. Humana initially found that the treatment was medically necessary and approved a partial hospitalization for a total of 49 days but denied further treatment at the expiration of that time because it determined that the treatment was no longer necessary and plaintiff filed suit. Humana eventually filed a motion for summary judgment, and the district court, using the abuse of discretion standard in reviewing the administrator’s decision, granted Humana’s motion and plaintiff appealed.

Like many states in recent years, Texas, at Texas Insurance Code Section 1701.062(a), enacted a ban on the inclusion of discretionary language in insurance policies and most federal courts that have reviewed those statutes have held that they are not preempted by ERISA. On appeal, plaintiff argued that the Texas statute prevented the district court from using the abuse of discretion standard in reviewing Humana’s denial but the Fifth Circuit disagreed. In effect, the Fifth Circuit ruled that the statute was not applicable in this case because Pierre mandated deference to the administrator’s decision regardless of whether a policy contains discretionary language. It stated “[t]he plain text of [Section 1701.062(a)] provides only that a discretionary clause cannot be written into an insurance policy; it does not mandate a standard of review.” (emphasis added). As such, it held that the statute simply addresses the language that can be contained in a policy, not what the required standard of review in court is, and since the district court’s deferential review was required pursuant to Pierre and not the policy language, the district court’s ruling was correct.

It is worth noting however that all three members of the panel joined in a concurrence that calls into question the continued validity of Pierre and the Fifth Circuit’s lone-wolf position, ending with “[t]he lopsided split that now exists cries out for resolution.” It will be worth following to see if the Fifth Circuit addresses this issue in the near future and joins the other federal courts in requiring discretionary language in the plan documents for the application of the abuse of discretion standard.

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