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ERISA standard of review - Big change in the 9th Circuit
August 17, 2006 by Ross Runkel at LawMemo
In Abatie v. Alta Health and Life Insurance (en banc 9th Cir 08/15/2006) Abatie sought life insurance under an employee welfare benefit plan governed by the Employee Retirement Income Security Act (ERISA). She was denied benefits, and sought judicial review. The trial court upheld the plan administrator's decision. Sitting en banc, the 9th Circuit reversed.
"We took this case en banc to reconsider our approach to ERISA cases in which a plan administrator denies benefits and (1) the wording of the plan confers discretion on the plan administrator; and (2) the plan administrator has a conflict of interest."
The court concluded that its earlier opinion in Atwood v. Newmont Gold. Co., 45 F.3d 1317 (9th Cir 1995) "misinterprets" the United States Supreme Court's decision in Firestone Tire & Rubber Co. v. Bruch, 489 US 101 (1989).
Abandoning the analysis set forth in Atwood, the court stated:
"We now establish a more comprehensive approach to ERISA cases in which a conflict of interest exists."
"We read Firestone to require an abuse of discretion review whenever an ERISA plan grants discretion to the plan administrator, but a review informed by the nature, extent, and effect on the decision-making process of any conflict of interest that may appear in the record."
"This standard applies to the kind of inherent conflict of interest that exists when a plan administrator both administers the plan and funds it, as well as to other forms of conflict."
The court also noted that
"this case requires us to consider how a court is to review an ERISA plan administrator's decision when the procedure that produced the decision did not follow all statutory requirements."
The court concluded that
"when a decision by an administrator utterly fails to follow applicable procedures, the administrator is not, in fact, exercising discretionary powers under the plan, and its decision should be subject to de novo review."
"Lesser irregularities ... do not remove the decision from abuse of discretion review, but rather should be factored into the calculus of whether the administrator abused its discretion."
The court ultimately concluded that the trial court erred under the principles established in this en banc opinion, and reversed.
Other commentary on this case:
- En Banc 9th Sets New Conflict Approch for Review Standard from Pensions & Benefits Weblog.
- 9th Cir. En Banc Formulates New Standard for ERISA Denial of Benefits Standard of Review from Workplace Prof Blog.
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Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
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