Deferential Review by Courts

For historical reasons, courts have generally reviewed an ERISA plan’s benefit determination resulting from a full and fair administrative review deferentially. That is, a plan’s benefit determination in such circumstances would only be overturned by the court if the plan’s decision was arbitrary and capricious.

The Supreme Court, in Firestone Tire & Rubber v. Bruch,489 U.S. 101, 111 (1989), held that a court’s review of a claim for benefits must be under a de novo standard, unless the benefit plan gives the appropriate fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan. If the benefit plan grants such authority to the fiduciary, the Court concluded the fiduciary’s decision must be reviewed for abuse of discretion.

"Although it is an overstatement to say that a decision is not arbitrary and capricious whenever a court can review the reasons for its decision without a loud guffaw, it is not much of an overstatement. The arbitrary and capricious standard is the least demanding form of judicial review of administrative action.
Pokratz v. Jones Dairy Farm, 771 F.2d 206, 209 (7th Cir. 1985).

Subsequent courts have found that certain plan provisions adequately grant discretion to a fiduciary to warrant an abuse of discretion standard of review. Other courts have found the plan language inadequate, and apply a de novo standard of review. The Seventh Circuit, in an effort to provide more clarity, offered the following “safe harbor” plan language for plan administrators wishing to invoke the abuse of discretion standard of review:
“Benefits under this plan will be paid only if the plan administrator decides in his discretion that the applicant is entitled to them.”