ERISA-Third Circuit Upholds The Plan Administrator’s Interpretation Of A Clause In An Insurance Policy Which Limits The Insured’s Death Benefit

In Bauer v. Reliance Standard Life Insurance Company, No. 10-1601 (3rd Cir. 2011) (nonprecedential opinion), E. Belinda Bauer, as Trustee of the Craig E. Bauer Insurance Trust (“Bauer”), brought suit against Reliance Standard Life Insurance Company (“Reliance”) under ERISA. She was suing to recover a death benefit in excess of the $250,000, plus interest, that Reliance had awarded Bauer in such capacity. The award was made under her late husband’s employer’s accidental death insurance policy (the “Plan”), for which Reliance was the insurer and plan administrator. Bauer claimed that the Plan’s terms entitled her to five times that amount, or $1,250,000, plus interest. The district Court granted summary judgment to Reliance, and Bauer appealed.

In analyzing the case, the Court said that Reliance’s decision to limit the death benefit to $250,000, plus interest, was entitled to a deferential review. Under this review, the Court will uphold Reliance’s decision if it finds that the decision was reasonable. The relevant Plan language states that the “Principal Sum” payable in the event of accidental death is “5 times Base Annual Earnings to a maximum of $250,000.” Reliance determined that the “maximum of $250,000” refers to the highest payable Principal Sum under the Plan, and awarded Bauer that amount. Bauer contends that $250,000 is the maximum “Base Annual Earnings” amount that may be used to calculate the Principal Sum; because her husband’s Base Annual Earnings were more than $250,000 at the time of his death, she argues that she is entitled to a Principal Sum of 5 times $250,000, or $1,250,000.

The Court felt that the foregoing Plan language is ambiguous. The question becomes whether Reliance’s interpretation of this language was reasonable. To answer this question, the Court considered the following factors:(1) whether the interpretation is consistent with the goals of the Plan; (2) whether it renders any language in the Plan meaningless or inconsistent; (3) whether it conflicts with the substantive or procedural requirements of the ERISA statute; (4) whether the relevant entities have interpreted the provision at issue consistently; and (5) whether the interpretation is contrary to the clear language of the Plan. Based on these factors, the Court concluded that Reliance’s interpretation of the Plan language was reasonable, and it therefore affirmed the summary judgment granted by the district court.

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