What is Discretion Granting Language?
We all know that if an ERISA plan document grants discretion to a person or entity to interpret the terms of an ERISA plan or to determine eligibility for benefits, an ERISA fiduciary’s decision on those points will not be reversed by a court unless it is arbitrary and capricious. Unless the decision is completely unreasonable, it will be upheld by a court. That is a tough mountain for plaintiffs to climb and is a significant reason so few lawyers handle ERISA cases for plan beneficiaries. In the alternative, if no discretionary language is in the ERISA plan document, a court reviews the decision for whether it is correct or not, without deferring to any degree to the ERISA fiduciary’s decision.
But what language is sufficient to "grant discretion?" For years insurers have argued that boilerplate clauses in policies such as "you must present proof satisfactory to Insurer" or "Insurer will determine if you are entitled to benefits" is sufficient to confer discretionary authority on an insurer and trigger a very deferential standard of review by a court. It wouldn’t matter that no reasonable person reading these innocuous phrases would realize the effect of this language is to largely prevent any court from reversing all but the most outrageous or baseless denials.
Fortunately, more and more courts are rejecting this overreaching argument. Today’s case is Schwartz v. Prudential, another great result from Mark DeBofsky out of Chicago. In Schwartz the Seventh Circuit makes clear that the requirement for an insured to submit "proof satisfactory to Prudential" of a disability is language that will not provide the insurer with an arbitrary and capricious standard of review in court. Schwartz also holds that if the master plan document and the separate summary plan document that ERISA requires be distributed to plan participants are inconsistent in any significant way, the provision that is more generous to the insured will be enforced.