When a lawsuit is brought under the Employee Retirement Income Security Act, 29 U.S.C. 1001 et seq., ("ERISA") the defendant often times will attempt to limit the scope of discovery to the "claims file" or the "administrative record." However, whether discovery can be so limited will largely depend upon the standard of review. In this regard, federal courts have recognized three distinct standards of review: (1) de novo; (2) arbitrary and capricious; and (3) heightened arbitrary and capricious.
The United States Supreme Court has held that the denial of benefits challenged under ERISA is to be reviewed under a de novo standard, unless the plan provides the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan. See Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Courts have tended to apply the de novo standard when the plan confers upon the administrator the authority to make initial eligibility determinations "according to the terms of the Plan." Importantly, under the de novo standard of review, the court is not confined to the administrative record and may pursue whatever further inquiry it finds necessary or proper to the exercise of the court’s independent judgment. In this regard, when courts apply the de novo standard of review, plaintiffs are generally permitted to engage in discovery and present evidence outside the administrative record on issues of plan interpretation. Thus, the usual discovery parameters will apply for cases subject to the de novo standard of review.
On the other hand, where a plan yields discretionary authority to the decision-maker, a court must review the denial of benefits under the arbitrary or capricious standard. See, e.g., Leggett v. Provident Life and Accident Ins. Co., 2004 WL 291223 (M.D. Fla., Feb. 9, 2004). Courts have tended to apply the arbitrary and capricious standard where a plan includes the following language: "The administrator's determinations shall be final and conclusive so long as they are reasonable determinations which are not arbitrary and capricious," or when the plan confers upon the administrator "full and exclusive authority to determine all questions of coverage and eligibility," or the "full power to construe the provision" of the plan. Courts have, however, refused to apply the arbitrary and capricious standard when the plan language did not grant express discretionary authority. For example, if the decision-maker designated in the plan does not have "the authority to control and manage the operation and administration of the Plan," the arbitrary and capricious standard will not apply. And, even if the plan allows the administrator to promulgate rules and regulations necessary and proper to interpret or administer the plan, without the necessary deference or discretionary language providing the decision-maker with authority to interpret the terms of the plan, the de novo, as opposed to the arbitrary and capricious, standard will be utilized by the court in assessing the administrator’s decision.
In this regard, under the arbitrary and capricious standard, discovery is usually limited to the administrative record as defined by the facts known to the administrator at the time the benefit decision was made. That being said, it is important to note that even under the arbitrary and capricious standard limited discovery outside the administrative record can be allowed. See, e.g., Nagele v. Elec. Data Sys. Corp., 193 F.R.D. 94, 103 (W.D.N.Y. 2000)(review under this deferential standard does not displace using pretrial discovery to determine the actual parameters of the administrative record and whether or not the fiduciary acted arbitrarily and capriciously with respect to a claim for benefits). In this regard, limited discovery has been allowed, even in instances where the arbitrary and capricious standard applies, allowing plaintiffs to evaluate: 1) the exact nature of the information considered by the fiduciary in making the decision; 2) whether the fiduciary was competent to evaluate the information in the administrative record; 3) how the fiduciary reached its decision; 4) whether, given the nature of the information in the record, it was incumbent upon the fiduciary to seek outside technical assistance in reaching a fair and full review of the claim; and 5) to determine whether a conflict of interest existed.
Finally, where a plan provides discretion to a fiduciary or administrator who is operating under a conflict of interest, such case must be reviewed under the heightened arbitrary and capricious standard so that the conflict may be weighed as a factor in determining whether there is an abuse of discretion. In determining whether or not to apply the heightened arbitrary and capricious standard of review, court will need to make a threshold determination of whether the alleged structure of the plan, the interpretation by the administrator and the funding could plausibly present a conflict of interest calling for heightened review. Under this heightened arbitrary and capricious standard, discovery is extended beyond the administrative record to allow the plaintiff to obtain any information that might enable him or her to refute the mandatory showing by the insurer that its decision was free from conflict.
Thus, when defending ERISA benefit claims it is important to initially determine the appropriate standard of review before taking a firm stance on the proper scope of discovery.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
