A recent decision issued by the U.S. Court of Appeals for the Fifth Circuit illuminates the importance of the standard of judicial review applied to resolution of cases seeking benefits under ERISA. In Ariana M v. Humana Health Plan of Texas, Inc., 2017 WL 1423765 (5th Cir. April 21, 2017), although the court of appeals upheld the benefit plan’s denial of coverage for a continued partial hospitalization for mental health treatment, the court issued a concurring opinion that suggested the Fifth Circuit should grant an en banc rehearing to determine the proper standard of judicial review, which, if granted, could very well change the outcome of this case.
The Fifth Circuit has maintained since it issued Pierre v. Connecticut General Life Insurance Co./Life Insurance Co. of North America, 932 F.2d 1552 (5th Cir. 1991) that ERISA benefit plans’ factual determinations were always to be reviewed under an abuse of discretion standard irrespective of the presence of a discretionary clause in the benefit plan.The plaintiff argued that Pierre deference should not be applied due to Texas’s anti-discretionary clause law.According to Texas Insurance Code Section 1701.062, policies of health insurance may not include discretionary clauses.The same holds true according to 28 Tex. Admin. Code §§ 3.1201-3.1203. Without discretionary clauses, other than in the Fifth Circuit, both factual and legal determinations are reviewed de novo.
Because the panel felt constrained by Pierre, though, the court determined that while the law precludes insurers from incorporating discretionary clauses into their policies, “it does not mandate a standard of review.”Thus, the Texas law was found ineffective to alter the Fifth Circuit’s Pierre deference.
Addressing the merits, the court concluded that the benefit denial was not an abuse of discretion.The court deemed it reasonable for the benefit plan to rely on a set of criteria (Mihalik criteria) to assess the medical necessity of continued partial hospitalization over the plan’s terms or the American Psychiatric Association’s Practice Guidelines.The court determined that no abuse of discretion occurred so long as the criteria were not inconsistent with plan terms.The court further found the Mihalik criteria were not inconsistent with national standards; and further found that two file reviews performed by medical consultants retained by the plan supported the insurer’s lack of medical necessity determination.
However, despite its decision, all three judges on the panel signed on to a special concurrence addressing the standard of review, acknowledging that the Fifth Circuit is the only circuit that applies deference to ERISA benefit factual determinations irrespective of plan language.The concurrence further recognized that Pierre’s automatic deference is “in doubt” in view of the specific holdings of other circuits that were issued following the Pierre decision’s efforts to interpret Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). The court further observed:
Pierre had to decide whether the de novo standard of review discussed in Firestone applies only to interpretations of plan terms or also includes factual determinations of benefit eligibility. Pierre, 932 F.2d at 1556 (noting conflicting language in Firestone on this question). In addition to every other circuit reading Firestone differently, a more recent Supreme Court decision–even if it does not “unequivocally direct[ ]” us to overrule our precedent–counsels against Pierre‘s reading. Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), lists the following as one of the “principles of review” that Firestone set forth: “Principles of trust law require courts to review a denial of plan benefits ‘under a de novo standard’ unless the plan provides to the contrary.” Id. at 110-111 (quoting Firestone, 489 U.S. at 115). A “denial of plan benefits” may and often does encompass a denial based on fact finding. Glenn treats de novo review as the general standard without limiting it to denials “based on plan term interpretations,” the phrase that appeared in one Firestone passage on which Pierre placed much importance. Pierre, 932 F.2d at 1556 (quoting Firestone, 489 U.S. at 108).
The concurrence also recognized that analyses of trust law have found that under the common law there is no distinction made between legal and factual determinations.Moreover, according to a scholarly article, even if common law trust law did assume a grant of discretion in rendering factual decisions unless the trust document says otherwise, the Firestone ruling reversed that presumption by deeming the de novo standard the default rule. John H. Langbein, The Supreme Court Flunks Trusts, 1990 SUP. CT. REV. 207, 219. The concurrence thus found, “The pillars supporting Pierre may have thus eroded.”Because the standard of review applied in ERISA benefit determinations “potentially affects the millions of Fifth Circuit residents who rely on ERISA plans for their medical care and retirement security,” the concurrence found Pierre ripe for reconsideration.
Given the manner in which the court analyzed this case, the standard of review obviously matters a great deal – this case could very well have come out the other way if the treating doctors’ opinions were weighed de novo against the opinions of the insurer’s reviewing doctors.And as the concurrence acknowledged, Pierre deference is contrary to every other circuit that has addressed this issue.It is thus high time for the Fifth Circuit to re-examine that ruling and determine, as every other circuit has concluded, that the absence of discretionary language in a benefit plan means that both legal and factual determinations are to be reviewed de novo.