A concurrence to a Sept. 22 opinion issued by the U.S. Court of Appeals for the Fifth Circuit[1] in a case involving a health insurance raises serious concerns about the manner in which courts review benefit claim denials under the Employee Retirement Income Security Act.

The case, Michael J. P. v. Blue Cross and Blue Shield of Texas, involved the medical necessity for inpatient psychiatric hospitalization of a minor who had made multiple suicide attempts.

Although the first days of hospitalization were covered, the insurer refused to reimburse charges for the balance of the hospitalization on the claimed ground that the patient was no longer at imminent risk of suicide or self-harm.

Applying a deferential standard of review, the Fifth Circuit determined that the insurer’s reliance on the Milliman Care Guidelines to determine the appropriate level of care was supported by substantial evidence and was not an abuse of discretion.

The court maintained that under a deferential standard of review, none of the plaintiff’s arguments proved that the determination was arbitrary and capricious.

While the court’s ruling was unanimous, U.S. Circuit Judge Andy Oldham wrote a concurrence addressing the scope of review applied by the court in this case and questioning its use in other ERISA cases. What Judge Oldham wrote was an indictment of the way federal judges decide ERISA cases and has the potential to dramatically change all future ERISA litigation involving benefit claim denials.

Judge Oldham explained that the application of the substantial evidence standard in ERISA cases continues to be used “even after the Supreme Court told us it lacked a sound justification.”

He added that the substantial evidence standard as applied in ERISA cases “is notably more deferential than ordinary substantial-evidence review” in cases arising under administrative law.

Thus, he questioned whether the standards used by courts to review ERISA cases is justifiable.

Tracing the history of litigation involving benefit denials, Judge Oldham explained that prior to ERISA’s enactment, courts adjudicated pension denials under the Labor Management Relations Act[2] utilizing a standard and scope of review that examines whether the plan’s trustees

have acted arbitrarily, capriciously or in bad faith; that is, is the decision of the Trustees supported by substantial evidence or have they made an erroneous decision on a question of law.[3]

Following the passage of ERISA in 1974, courts continued to use the same standard, although it was referred to as either an arbitrary and capricious standard or substantial evidence standard.[4]

However, in 1989, in Firestone Tire and Rubber Co. v. Bruch in 1989,[5] the Supreme Court rejected the use of the LMRA standard, explaining:

Unlike the LMRA, ERISA explicitly authorizes suits against fiduciaries and plan administrators to remedy statutory violations, including breaches of fiduciary duty and lack of compliance with benefit plans. Thus, the raison d’être for the LMRA arbitrary and capricious standard — the need for a jurisdictional basis in suits against trustees — is not present in ERISA. Without this jurisdictional analogy, LMRA principles offer no support for the adoption of the arbitrary and capricious standard insofar as § 1132(a)(1)(B) is concerned.[6]

Firestone’s holding was that the default standard of judicial adjudication for ERISA benefit denials was de novo, but recognized that some plans might grant discretion to the plan administrator to interpret the plan and render eligibility decisions.

In doing so, the court implied that if discretion were reserved, plan decisions would be reviewed for abuse of discretion.[7]

Following Firestone, despite paying lip service to an abuse of discretion standard of review, that standard morphed into a different standard — arbitrary and capricious.

Thus, as the concurrence noted, courts now commonly recite the formula set forth by the Fifth Circuit in Meditrust Financial Services Corp. v. Sterling Chemicals Inc. in 1994 at the outset of their decisions:

When reviewing for arbitrary and capricious actions resulting in an abuse of discretion, we affirm an administrator’s decision if it is supported by substantial evidence.[8]

In his Blue Cross concurrence, Judge Oldham then observed:

Oddly, the upshot of it all is that we’re still purporting to apply the same standard of review from 1960s LMRA cases even after the Supreme Court explained the problems with that approach in Firestone.

He added:

It’s not just how we got here that’s strange. Equally odd is the way we apply substantial-evidence review in ERISA cases. Our ERISA cases purport to review a plan administrator’s decision for “substantial evidence.” But ERISA’s “substantial evidence” is radically different from “substantial evidence” elsewhere in law.

Judge Oldham then turned to the Supreme Court’s “canonical substantial-evidence case from 1951,” Universal Camera Corp. v. National Labor Relations Board.[9] In that case, the Supreme Court rejected a minimalist view that would uphold an administrative ruling so long as substantial evidence supporting the outcome could be found in the record.

Instead, the court found substantial-evidence review required a more holistic assessment that requires courts, Judge Oldham writes, to

give serious consideration to “the record as a whole,” “taking into account contradictory evidence or evidence from which conflicting inferences could be drawn.”[10]

Judge Oldham complained that courts have significantly departed from that view of substantial evidence, and supplanted it with a standard that places greater value on the substantial evidence in support of the plan administrator’s decision.[11]

He added, quoting the Fifth Circuit’s 2019 decision in Foster v. Principal Life Insurance Co.:

Applying this formulation, we often decline to engage in a holistic review of the evidence, because we can readily find that there is some—”more than a scintilla” even if “less than a preponderance,” — evidence that supports the administrator’s decision. And once we conclude that the evidence meets this low “substantial evidence” threshold we need not consider how substantial the plaintiff’s evidence is, because it doesn’t matter—the administrator has carried their burden.

The result, which is driven by Judge Oldham’s belief that the current way in which courts adjudicate ERISA cases is aimed at what he described as a desire to avoid particularly complex or technical inquiries into the reasonableness of plan administrator decisions, means that courts uphold decisions if they “fall somewhere on a continuum of reasonableness — even if on the low end,”[12] as articulated by the Fifth Circuit in its 1999 Vega v. National Life Insurance Services Inc. ruling.

Judge Oldham then pointed out, quoting Universal Camera:

In practice, any plan administrator in any case will point to some quantum of evidence which arguably puts their decision on at least the “low end” of a reasonableness spectrum. So in almost every case, we quickly approve the administrator’s decision as supported by substantial evidence, without “taking into account contradictory evidence or evidence from which conflicting inferences could be drawn.”[13]

The concurrence expressed concern that courts have “wandered far astray” by ignoring Firestone’s admonition not to apply LMRA principles resulting in “a flavor of substantial-evidence review that bears little resemblance to one we’d use in an administrative-law case.”

Consequently, according to the concurrence:

All of this makes it particularly difficult for ERISA beneficiaries to vindicate their rights under the cause of action created by Congress. And it does so with no apparent support in law, logic, or history.

Judge Oldham deserves credit for recognizing that the manner in which courts apply a deferential standard of review in ERISA cases is both misplaced and creates a near-impossible burden for claimants to meet.

The same point was hinted at by Justice Stephen Breyer in Metropolitan Life Insurance Co. v. Glenn in 2008,[14] which focused on the structural conflict faced by ERISA plan administrators who determine claimants’ eligibility to receive benefits and also fund the benefit payments.

The Supreme Court’s Glenn opinion reiterated Firestone’s reliance on trust law principles, and even agency law requirements, for abuse of discretion review. It cited Universal Camera as a road map for how courts should review benefit denials “by taking account of several different, often case-specific, factors, reaching a result by weighing all together.”[15]

By citing Universal Camera, the court issued a reminder that judges have a responsibility, when reviewing agency decisions, to weigh and evaluate all of the evidence presented to the tribunal, and not just uphold a decision if there is any evidence supporting the agency’s finding.[16]

With those principles in mind, Judge Oldham offered a timely reminder that ERISA litigation deserves a wholesale reexamination by the courts to protect claimants’ rights to a comprehensive and fair adjudication of their benefit claims.

Mark D. DeBofsky is a shareholder at DeBofsky Law.

This article was first published by Law 360 on October 5, 2021.

[1] Michael J. P. v. Blue Cross and Blue Shield of Texas, 2021 U.S. App. LEXIS 28704, 2021 WL 4314316 (5th Cir. September 22, 2021) (non-precedential).

[2] 29 U.S.C. § 186(c).

[3] Danti v. Lewis, 312 F.2d 345, 348, 114 U.S. App. D.C. 105 (D.C. Cir. 1962); see also Giler v. Bd. of Trustees of Sheet Metal Workers Pension Plan of S. Cal., 509 F.2d 848, 849 (9th Cir. 1974); Brune v. Morse, 475 F.2d 858, 860 n.2 (8th Cir. 1973); Miniard v. Lewis, 387 F.2d 864, 865, 128 U.S. App. D.C. 299 (D.C. Cir. 1967); Kosty v. Lewis, 319 F.2d 744, 747, 115 U.S. App. D.C. 343 (D.C. Cir. 1963).

[4] See, e.g., Dennard v. Richards Grp., Inc., 681 F.2d 306, 313 (5th Cir. 1982); Bayles v. Central States, Se. and Sw. Areas Pension Fund, 602 F.2d 97, 99-100 (5th Cir. 1979).

[5] Firestone Tire and Rubber Co. v. Bruch in 1989, 489 U.S. 101, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989).

[6] Firestone, 489 U.S. 953-54 (citations omitted).

[7] Id. at 957; also see Kathryn J. Kennedy, Judicial Standard of Review in ERISA Benefit Claim Cases, 50 Am. U.L. Rev. 1083, 1096-1107 (2001) (discussing the various standards of review applied to ERISA claims).

[8] Meditrust Fin. Servs. Corp. v. Sterling Chemicals, Inc., 168 F.3d 211, 215 (5th Cir. 1999).

[9] Universal Camera Corp. v. National Labor Relations Board, 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456 (1951).

[10] Citing Universal Camera at 487, 490; accord Dish Network Corp. v. NLRB, 953 F.3d 370, 377-78 (5th Cir. 2020).

[11] “Even if an ERISA plaintiff supports her claim with substantial evidence, or even with a preponderance, he will not prevail for that reason. Rather, it is the plan administrator’s decision that must be supported by substantial evidence, and, if it is, the administrator’s decision must prevail.” Citing Foster v. Principal Life Ins. Co., 920 F.3d 298, 304 (5th Cir. 2019).

[12] Citing Corry v. Liberty Life Assurance Co. of Bos., 499 F.3d 389, 398 (5th Cir. 2007) (quotation omitted).

[13] Citing Universal Camera, 340 U.S. at 487.

[14] Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008).

[15] 554 U.S. at 117.

[16] Universal Camera held:

[C]ourts must now assume more responsibility for the reasonableness and fairness of Labor Board decisions than some courts have shown in the past. Reviewing courts must be influenced by a feeling that they are not to abdicate the conventional judicial function. Congress has imposed on them responsibility for assuring that the Board keeps within reasonable grounds. That responsibility is not less real because it is limited to enforcing the requirement that evidence appear substantial when viewed, on the record as a whole, by courts invested with the authority and enjoying the prestige of the Courts of Appeals. The Board’s findings are entitled to respect; but they must nonetheless be set aside when the record before a Court of Appeals clearly precludes the Board’s decision from being justified by a fair estimate of the worth of the testimony of witnesses or its informed judgment on matters within its special competence or both.

340 U.S. at 490.

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