As was set forth in our post of October 15, resolution of the critical “standard of review” issue is linked to the presence (or absence) of “magic” language in the plan — that is, language conferring upon the decision-maker discretion to determine benefit eligibility. If the “magic” language is present, then “arbitrary and capricious” review results; if not, then the review standard is “de novo.”
But even under circumstances where it is conceded that the plan contains language conferring discretionary authority, there are a handful of potential arguments for the court to pursue “de novo” review nonetheless. One such argument, explored by the Second Circuit in Nichols v. Prudential Ins. Co. of Am., 406 F.3d 98 (2d Cir. 2005), comes into play when the benefit determination in focus did not come about as a result of an exercise of the decision-maker’s discretion (as where, for example, an ERISA appeal was denied by operation of law because the decision-maker never actually rendered a decision or because the decision came too late). Another focuses on the fact that some jurisdictions have, by statute, rendered discretionary clauses unenforceable. See, e.g., California Insurance Code 10110.6 (effective January 1, 2012). Still another, highlighted in a recent District Court decision, is predicated on the common sense requirement that the entity responsible for the benefit determination and the entity vested with discretion must be one and the same.
In the case, discretionary authority was vested in First Unum Life Insurance Company (“First Unum”), but the individuals who actually made (and subsequently upheld) the adverse benefit determination were employees of Unum Group (a holding company of various subsidiaries, including First Unum). Deciding that the decision-makers were not agents of First Unum (because the “general service agreement” between First Unum and Unum Group defined Unum Group as an “independent contractor”), and that First Unum had not validly delegated its discretionary authority to Unum Group (because the power to delegate is not inherent, and no authority or procedure for doing so existed in the plan), the District Court held that “de novo” review was appropriate.
McDonnell v. First Unum Life Ins. Co., 2013 WL 3975941 (S.D.N.Y. Aug. 5, 2013)