A new bill just introduced to Congress could drastically level the playing field for claimants who have been denied group disability, health insurance, and retirement benefits. The “Employee Retiree Access to Justice Act” was introduced in the U.S. House of Representatives, together with a companion measure in the Senate, on May 12, 2022. The bill intends to ban discretionary authority in employer-sponsored group plans, which are subject to the Employee Retirement Income Security Act of 1974 (ERISA).
Although the banning of discretionary authority would change a very technical aspect of ERISA, it would have a very large impact on how ERISA claims are litigated in Court. Currently, if an employee benefit plan grants discretionary authority, a Court will review the plaintiff’s claim under the very stringent arbitrary and capricious standard of review. This means that in order to prevail, the plaintiff must establish that the plan administrator’s or insurance company’s determination was not just incorrect, but that it was without reason, unsupported by substantial evidence, or erroneous as a matter of law. This is a very difficult burden to overcome.
Under existing law, if a plan does not grant the plan administrator discretionary authority, the Court will apply the more plaintiff-friendly de novo standard of review. Under a de novo review, a Court gives no deference to the plan administrator’s decision – giving claimants the fairest possible shake. In order to prevail, the plaintiff only needs to establish that the claim is supported by a preponderance of the evidence. That means if the plaintiff can establish that, upon weighing the evidence, it is more likely than not that liability is established, the plaintiff will prevail.
The new Employee Retiree Access to Justice Act is needed because most ERISA cases are decided under the arbitrary and capricious standard of review rather than the de novo standard. This gives plan administrators and insurance companies an unfair advantage. The Supreme Court’s decision in 1989, in a case named Firestone Tire & Rubber Co. v. Bruch made it easy for plan administrators and insurance companies to obtain the arbitrary and capricious standard of review. All they had to do was include a clause in the plan language granting the plan administrator or insurance company discretionary authority to interpret the terms of the plan and to decide eligibility for benefits.
As you would expect, following the Firestone case, almost all plans were amended to include a clause that set forth discretionary authority.
If the Employee Retiree Access to Justice Act is passed into law, courts will no longer give claim administrators the benefit of discretion in reviewing benefit denials. Any existing discretionary language would become unenforceable. The de novo review will always apply – meaning more wins for plaintiffs, and higher liabilities and exposure for administrators offering group benefits.
The impact of the Employee Retiree Access to Justice Act would be enormous. An influx of ERISA benefit lawsuits would follow because claimants would be far more likely to challenge benefit denials in court. Where plaintiffs’ attorneys were reluctant to pursue these cases facing the arbitrary and capricious standard, they would not be under a de novo standard. Courts would be more skeptical of administrators’ decisions in these lawsuits, making reversal of denials and terminations much more likely. The result would be greater access to justice for ERISA beneficiaries, coupled with higher accountability, exposure, and liability for ERISA plan administrators.
The unfairness of the arbitrary and capricious review has been recognized ever since the Firestone case was issued in 1989. The problem was what to do about it. Because the standard was endorsed by the Supreme Court, potential solutions remained limited.
Over the years, attempts were made to change this via an act of Congress or a Department of Labor regulation. These efforts were stymied, however, due to opposition by both the insurance lobby and labor unions. Labor unions who maintained employee benefit plans for their membership considered the arbitrary and capricious standard an effective way to reduce their benefit costs.
Because action was stymied at the federal level, efforts were made at the state level. One of the interesting aspects of ERISA is that it preempts all other law (meaning it is the only law permitted to impact employee benefit plans). However, it does not preempt State insurance laws. This allowed individual states to ban discretionary clauses in employee benefit plans.
The movement to ban discretionary clauses at the State level has only been partially successful. Currently, at least 23 states ban enforcement of discretionary language, meaning rights under employee benefit plans are unequal depending on state in which you live. Should the Employee Retiree Access to Justice Act become law, discretionary clauses will be banned throughout the country – a much broader solution to eliminating the arbitrary and capricious standard.
We are hopeful that the current bill before Congress has a better chance of success than prior attempts. As it stands, the Employee Retiree Access to Justice Act excludes labor union plans, which could lower opposition from labor unions and pave the way for Congress to pass the bill.
The attorneys at Riemer Hess will continue to follow developments on this important issue.