ERISA-Seventh Circuit Uses A Deferential Review To Uphold An Insurer’s Decision to Terminate LTD Benefits

In Fischer v. Liberty Life Assurance Company of Boston, No. 08-2617 (7th Cir. 2009), the Seventh Circuit was faced with a decision by an insurer to terminate a participant’s long term disability benefits.

In this case, a participant in an insured long term disability benefit plan sued the insurer to reinstate his benefits under the plan, after the insurer had decided to terminate the benefits. The insurer, who paid the benefits, was the plan administrator with respect to the determination of benefit eligibility and continuation. The Court said that where, as here, the plan confers discretionary authority to determine benefit eligibility and continuation, judicial review of the plan administrator’s decision to terminate the benefits is deferential, and thus made according to the arbitrary and capricious standard. Further, under Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008), where, again as here, the person who pays the benefits is the same person who determines benefit eligibility and continuation, the Court is required to take this obvious conflict of interest into consideration–along with all of the other relevant factors– in determining whether the person’s decision to terminate the benefits was arbitrary and capricious.

The Court continued by saying that a plan administrator’s decision will be upheld, so long as it is possible to offer a reasoned explanation for the decision, based on the evidence, plan documents, and relevant factors that encompass the important aspects of the problem. Thus, to be upheld, when a plan administrator decides to terminate benefits, the specific reasons for this decision must be communicated to the participant and the participant must be afforded an opportunity for full and fair review of the matter by the plan administrator.

Using the arbitrary and capricious standard of review, in the manner discussed above, the Court concluded that participant cannot prevail. The insurer/plan administrator’s decision to terminate the participant’s benefits finds rational support in the record. The record indicates that the insurer based its decision on 13 expert opinions, some of which supported the decision very strongly, so the decision is not arbitrary. The Glenn conflict-of interest factor-which acts as a tiebreaker in a close case- does not play an important role here.

Note for employers and plan administrators: This case illustrates the importance of the plan administrator developing a detailed record which supports its decision to terminate benefits. The Court felt that this type of record is important, even when the arbitrary and capricious standard of review is applied by a court to examine the plan administrator’s decision.

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