Benefit Denials Should Be Reviewed Under a 'Heightened Standard'

The heightened standard of review – outlined in   Brown v. Blue Cross and Blue Shield of Alabama –should apply to both factual and plan interpretation determinations made by a fiduciary that is operating under a conflict of interest, rather than the deferential arbitrary and capricious standard, the US 11 ^th Circuit Court of Appeals ruled.   With this determination, the appellate court reversed a lower court’s earlier opinion that only the lower level of review should apply and remanded the case back to the district court to be considered using the heightened standard.

The differentiation made by the appeals court was based on the fact that in a case where   the benefits determination would be made by the same party that would also have pay for the cost of coverage, as was the situation in the present case, the fiduciary is operating under a conflict of interest.    Thus, a deferential standard of review would be inappropriate and a heightened standard should apply.

“Even more significant than the language of the Brown opinion is its underlying rationale: the notion that a fiduciary’s duty of loyalty to the beneficiaries might be compromised by the fiduciary’s own self-interest,” the court wrote. “Common sense tells us that this rationale is applicable to both decisions involving plan interpretation and to decisions involving factual determinations,” the appeals court added in its opinion.

Case History

Perry Torres was a salesman with Pittson Co. subsidiary Brinks Home Security and was covered by his employer’s personal accident plan.   After being involved in a car accident that resulted in significant injuries, the employee was awarded Social Security disability benefits. In addition, the employee filed a claim for benefits under the employer’s plan claiming he was returning from a work-related training session, a claim disputed by the company.   Ultimately, Perry’s claim for benefits was denied by the plan.

After being denied benefits, Torres filed a claim in state court in February 2001, which was removed to federal district court on the basis that his claim had been deemed denied on review.   The US District Court for the Middle District of Florida granted Pittston summary judgment, finding that the administrator’s claims denial was not arbitrary and capricious.