ERISA-Third Circuit Rules That Administrator’s Decision To Deny Life Insurance Benefits Is Not Entitled To A Deferential Review; It Also Offers “Safe Harbor” Language For Providing Discretion To An Administrator

Viera v. Life Insurance Company of North America, No. 10-2281 (3rd Cir. 2011), arose out of the 2008 death of Frederick Viera (“Viera”) in a head-on motorcycle accident. At the time of his death, Viera was covered under an employer-provided accidental death and dismemberment policy (“Policy”), which was issued and administered by Life Insurance Company of America, and which was subject to ERISA. Viera’s wife and the executrix of his estate, Hetty Viera (the “Plaintiff”), submitted a claim for death benefits under the Policy following his death. LINA denied Plaintiff’s claim, both initially and on appeal. Subsequently, Plaintiff filed suit, but the district court granted summary judgment to LINA. In granting this judgment, the district court had concluded that the Policy gave LINA discretionary authority to determine eligibility, and had reviewed LINA’s decision to deny the Plaintiff’s claim for a death benefit under a deferential standard. The Third Circuit Court of Appeals (the “Court”) ruled that deferential review was not appropriate, given the language of the Policy. The Court overturned the district court’s decision, and remanded the case for further proceedings.

In reviewing the Plaintiff’s claim for the death benefit, LINA concluded that a certain medicine which Viera was taking-namely Coumadin-was a contributing factor to his death, so that the claim must be denied based on the terms of the Policy. The Court said that this conclusion must be reviewed de novo, unless the Policy gives LINA, as administrator, discretionary authority to determine eligibility for benefits or to construe the terms of the plan. The relevant language at issue in the Policy is the “Proof of Loss” provision, which provides: “Written or authorized electronic proof of loss satisfactory to Us must be given to Us at Our office, within 90 days of the loss for which claim is made (emphasis added).” The Court concluded that this language is ambiguous, and therefore does not confer discretion on LINA. It said that, to be entitled to a deferential review, a plan must communicate the idea that the administrator not only has broad-ranging authority to assess compliance with pre-existing criteria, but also has the power to interpret the rules, to implement the rules, and even to change them entirely. A phrase such as “satisfactory to us” is not likely to convey enough information to permit a plan participant to determine whether the plan confers discretion on the administrator.

Based on the foregoing, the Court concluded that a de novo review of LINA’s decision to deny the Plaintiff’s claim for a death benefit is required. Therefore, it overturned the district court’s summary judgment in LINA’s favor, and remanded the case back to the district court to determine whether LINA had properly denied the Plaintiff’s claim. The Court added that, if an administrator wishes to insulate its decision to deny benefits from de novo review, the plan should contain the following “safe harbor” language: “Benefits under this plan will be paid only if the plan administrator decides in its discretion that the applicant is entitled to them.”

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