The most critical issue in Employee Retirement Income Security Act benefits litigation is the standard of judicial review applied by the courts. Under the deferential arbitrary and capricious standard of review, the court reviews a claim record compiled by the insurance company to determine whether a claim denial was “downright unreasonable” and not merely wrong.
Because the court will uphold a benefit denial so long as there is reasonable support for the conclusion reached, it is no exaggeration to view the arbitrary and capricious standard to mean, as the U.S. Court of Appeals for the Seventh Circuit observed in 2000, that the “broader that discretion, the less solid an entitlement the employee has.”
The other potential judicial standard is de novo review, which, absent discretion-granting language in the governing benefit plan, is the default judicial standard in ERISA litigation according to the U.S. Supreme Court. Under de novo review, the court conducts an independent evaluation of the evidence to determine whether the claimant is entitled to benefits.
Benefit claimants typically seek de novo review, while insurers and plan administrators press for the arbitrary and capricious standard, otherwise known as the abuse-of-discretion standard, for obvious reasons.
A recent ruling issued by the U.S. Court of Appeals for the Eighth Circuit is the latest flashpoint in the ongoing battle by claimants to mitigate the harsh impact of the arbitrary and capricious standard of review.
In McIntyre v. Reliance Standard Life Insurance Co., the U.S. District Court for the District of Minnesota stripped the defendant of the discretion it otherwise would have been granted based on an inherent conflict of interest, along with the defendant’s violations of the ERISA claim regulations issued by the U.S. Department of Labor, and ordered the reinstatement of the plaintiff’s disability benefits. The court of appeals overturned that ruling.
The case involved Melissa McIntyre, a former Mayo Clinic Health System nurse who became disabled due to a degenerative neurological disorder known as Charcot Marie Tooth Syndrome. After reaching the point in 2011 where she could no longer work, McIntyre qualified for long-term disability under the Mayo Clinic’s disability plan. For the first two years of her claim, McIntyre received benefits on account of her inability to perform the duties of her regular occupation.
However, after 24 months of benefit payments, for benefits to continue, McIntyre was required to prove her inability to perform the duties of any occupation. That term was defined by the policy to mean “an occupation normally performed in the national economy for which an Insured is reasonably suited based upon his/her education, training or experience.”
Although Reliance Standard began evaluating whether McIntyre requalified as disabled from any occupation in 2013, the evaluation process lasted two years before benefits were terminated in December 2015. McIntyre submitted a timely appeal, but its resolution was delayed until December 2016 after Reliance Standard required McIntyre to attend an examination with a physician of its choosing and upheld its denial based on the results of that examination.
The court of appeals, citing its 1998 opinion in Woo v. Deluxe Corp., explained the district court mistakenly applied the de novo standard under a rationale that “less deferential review” should be applied where
(1) either the administrator faces a “palpable conflict of interest” or a “serious procedural irregularity” arose in the review process, and (2) either the conflict or the procedural irregularity “caused a serious breach of the plan administrator’s fiduciary duty” to the claimant.
The district court found that Reliance Standard operated under a palpable conflict of interest because it “both determines and pays claims” and ostensibly has a “history of biased claims administration.” The district court also determined that the “long delay in deciding McIntyre’s appeal” constituted a serious procedural irregularity.
The court of appeals pointed out the Woo case was abrogated in part by the Supreme Court’s 2008 opinion in Metropolitan Life Insurance Co. v. Glenn, which held that even though a plan administrator may be operating under a conflict of interest, it nonetheless retains discretionary authority. Thus, the first ground for the district court’s ruling was easily rejected.
Glenn did not, however, address whether serious procedural irregularities could alter the standard of review. Nor had the Eighth Circuit decided that issue prior to this ruling. Even in Woo, though, the Eighth Circuit did not apply the de novo standard — it utilized a sliding-scale approach giving less deference based on the degree to which the irregularity affected the outcome.
However, one sentence of dictum in the Woo ruling suggested that “egregious circumstances” required that no deference be given to the plan administrator’s decision. The court of appeals deemed that language nonbinding, though, and held that even a serious procedural violation would not trigger de novo review.
The court then addressed an alternative argument made by the plaintiff in support of de novo review — that the Eighth Circuit should follow other circuits in holding that a decisional delay beyond the deadline required by the ERISA regulations permits de novo review.
For example, in Fessenden v. Reliance Standard Life Insurance in 2019, the U.S. Court of Appeals for the Seventh Circuit “held that when an administrator ‘fail[s] to issue a decision’ in an internal appeal of a benefits denial ‘within the timeline mandated by the regulations,’ a de novo standard of review applies notwithstanding a grant of discretion to the administrator in the ERISA plan.” The U.S. Courts of Appeal for the Second and Tenth Circuits also issued similar rulings.
The Eighth Circuit refused to alter its existing jurisprudence with respect to tardy claim decisions, though, and ruled that an untimely claim determination would merely be “a factor to be considered by the district court when reviewing the administrator’s decision for an abuse of discretion.”
There has been a growing trend in ERISA litigation to find that the ERISA regulations require strict compliance; and the failure to comply to the letter of the regulations’ requirements triggers de novo review. The lead ruling on this issue is the U.S. Court of Appeals for the Second Circuit‘s 2016 opinion in Halo v. Yale Health Plan, which held that strict compliance with the regulations was required and any deviation triggered a deferential standard of review.
Although the Seventh Circuit in its Fessenden ruling declined to go as far as the Second Circuit in Halo, it did reiterate that noncompliance with the decisional deadline requirements triggered de novo review. Both Fessenden and Halo derived that conclusion from the Department of Labor’s regulations and their stated intent that “a decision made in the absence of the mandated procedural protections should not be entitled to any judicial deference.”
Under the ERISA claim regulations, a decision on McIntyre’s appeal was due no later than 90 days after she submitted her appeal. The Seventh Circuit was harshly critical in Fessenden of the insurer’s delay in deciding the claimant’s disability benefit appeal based on the language of the regulations.
The Department of Labor has made it clear that while it did “not intend to establish a general rule regarding the level of deference that a reviewing court may choose to give a fiduciary’s decision interpreting benefit provisions in the plan’s governing documents,” the legal effect of a tardy claim appeal denial suggests “that de novo review is appropriate because of the regulation that determines as a matter of law that no fiduciary discretion was exercised in denying the claim.”
Certainly, if it had been McIntyre who had submitted her appeal late, Reliance Standard would have been able to dismiss any ensuing litigation for failure to exhaust mandatory claim appeals. Allowing Reliance Standard to retain its prized deferential standard of review hardly seems fair when the shoe was on the other foot.
Interestingly, the presence of a circuit split on the issue of whether a late appeal decision forfeits deferential review may invite Supreme Court review. However, given the Supreme Court’s jurisprudence favoring the abuse-of-discretion standard of review, it is hard to envision an outcome that would benefit McIntyre who has already been waiting five years for her benefits to be reinstated.
It is also somewhat surprising that the Eighth Circuit would buck a growing trend among the circuits to find gateways to de novo review. However, as the saying goes, it is what it is.
As a result, there are lessons to be drawn for practitioners in the field from the McIntyre ruling. For plan administrators, efforts need to be taken to strictly comply with the requirements of the claim regulations. While tardiness was excused in this instance, that may not happen the next time.
And claimants need to always anticipate they will be faced with the daunting arbitrary and capricious standard of review. Recent amendments to the ERISA claim regulations help in that regard since plan administrators are required to provide claimants with new evidence and new rationales during the claim process and permit an opportunity for rebuttal.
Consequently, no evidence or assertion can go unchallenged and every effort must be made to convincingly establish the plan’s decision is not only erroneous, but also unreasonable.
This article was originally published in Law 360, September 9, 2020.
Disclosure: DeBofsky represented the plaintiffs in the Herzberger and Edwards cases cited in this article.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
 Perlman v. Swiss Bank Corp. , 195 F.3d 975, 981-2 (7th Cir. 1999). Although ERISA cases are not cases involving court reviews of federal administrative agency decisions, the insurer’s claim file is often referred to as the “administrative record.” Id.
 See, Pokratz v. Jones Dairy Farm , 771 F.2d 206, 209 (7th Cir. 1985), which remarked:
Although it is an overstatement to say that a decision is not arbitrary or capricious whenever a court can review the reasons stated for the decision without a loud guffaw, it is not much of an overstatement. The arbitrary or capricious standard is the least demanding form of judicial review of administrative action. Any questions of judgment are left to the agency, or here to the administrator of the Plan. Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86, 42 L. Ed. 2d 447, 95 S. Ct. 438 (1974); cf. Center for Auto Safety v. Peck, 243 U.S. App. D.C. 117, 751 F.2d 1336, 1342-43 (D.C. Cir. 1985). Before condemning a decision as arbitrary or capricious a court must be very confident that the decision maker overlooked something important or seriously erred in appreciating the significance of the evidence.
 Herzberger v. Standard Ins. Co. , 205 F.3d 327, 331 (7th Cir. 2000).
 Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101 (1989).
 Krolnik v. Prudential Ins. Co. , 570 F.3d 841 (7th Cir. 2009).
 McIntyre v. Reliance Standard Life Ins. Co. , 2020 WL 4951028 (8th Cir. August 25, 2020).
 Woo v. Deluxe Corp. , 144 F.3d 1157, 1160 (8th Cir. 1998).
 Metropolitan Life Insurance v. Glenn , 554 U.S. 105, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008).
 Woo, 144 F.3d at 1161-62.
 Fessenden v. Reliance Standard Life Insurance , 927 F.3d 998, 999-1000 (7th Cir. 2019).
 LaAsmar v. Phelps Dodge Corp. Life, Accidental Death & Dismemberment & Dependent Life Ins. Plan , 605 F.3d 789, 798-99 (10th Cir. 2010) and Nichols v. Prudential Ins. Co. of Am., 406 F.3d 98, 109 (2d Cir. 2005).
 Halo v. Yale Health Plan , 819 F.3d 42 (2nd Cir. 2016).
 65 Fed. Reg. 70246, 70255 (November 21, 2000) (preamble to the 2002 ERISA claim regulations).
 29 C.F.R. § 2560.503-1(i)(3).
 Fessenden explained that permitting a delay would
run afoul of § 2560.503-1(i)(1)(i), which says that “in no event” can a deadline be extended further. That language excludes nothing—no event, however reasonable or harmless—from its scope. Substantial compliance with a deadline requiring strict compliance is a contradiction in terms. Cf. Burns, 657 F.3d at 575 (holding that the doctrine of substantial compliance “cannot cure” the violation of an “explicit statutory requirement” in ERISA’s text). The very point of a deadline is to impose a hard stop. Cf. United States v. Marcello, 212 F.3d 1005, 1010 (7th Cir. 2000) (“Foreclosing litigants from bringing their claim because they missed the filing deadline by one day may seem harsh, but courts have to draw lines somewhere … .”). Because the administrator lacks discretion to take longer than the regulations allow, its tardy decision is not entitled deference.
927 F.3d at 1004.
 81 Fed. Reg. 92316, 92327-28 (December 19, 2016).
 Indeed, that is exactly what occurred in Edwards v. Briggs & Stratton Retirement Plan , 639 F.3d 355, 360 (7th Cir. 2011). In Fessenden, that reasoning was found to apply “equally to deadlines that bind plan administrators. What’s good for the goose is good for the gander.” 927 F.3d at 1007.
 Firestone, supra.; Glenn, supra.; Conkright v. Frommert , 559 U.S. 506, 176 L.Ed.2d 469 (2010).
 29 C.F.R. § 2560.503-1(h)(4).
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