Dallas Fort Worth Insurance Lawyer Blog
Attorneys who handle Employee Retirement Income Security Act (ERISA) cases need to be able to explain to potential clients how ERISA cases are handled / looked at, by the Courts. This is explained in a 2020 opinion from the Western District, San Antonio Division, case. The case is styled, Ramon Hernandez v. Life Insurance Company of North America, Schlumberger Group Welfare Benefits Plan.
The case needs to be read to grasp an understanding of the underlying facts. Here, we are looking at the law the Court used in reaching its determination.
In this case, the Court granted summary judgment against Hernandez. In reaching the decision, the Court restated law as it relates to ERISA cases. The Court looks at these cases under an “abuse of discretion” standard, not a de novo standard.
Pursuant to 29 U.S.C., Section 1132(a)(1)(B), a beneficiary may bring a lawsuit to “recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” Where an ERISA plan grants discretionary authority to the administrator with respect to the benefits determination, as the parties agree it does here, courts review the denial of ERISA benefits for an abuse of discretion. When a plan does not include such a delegation clause, a denial of benefits challenged under Section 1132(a)(1)(B) is reviewed under a de novo standard.
In the ERISA context, the “abuse of discretion” standard is synonymous with an “arbitrary and capricious” standard of review. A decision is arbitrary and capricious if it is made without a rational connection between the known facts and the decision or between the found facts and the evidence. The United States 5th Circuit has stated that when an administrator terminates disability benefits, the law requires that substantial evidence support the decision. Substantial evidence is more than a scintilla, less than a preponderance, and is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. In general, the only evidence a district court may consider when reviewing a denial of benefits is the evidence made available for fair review to the administrator before the lawsuit was filed.
Usually, the application of the abuse of discretion standard is a two-step process, wherein a court first determines the legally correct interpretation of the Plan,and second, if the administrator did not apply the legally correct interpretation, determines whether the administrator’s actions constituted an abuse of discretion. However, in cases not involving sophisticated Plan interpretation issues, the reviewing court is not rigidly confined to this two-step analysis.
Despite the parties’ agreement that the Plan contains a delegation clause granting the administrator discretionary authority, Hernandez argues this Court should apply a de novo standard of review because Texas Insurance Code, Section 1701.062 prohibits discretionary clauses of the type contained in the Plan by statute. A “discretionary clause” is defined by the statute as a clause that “purports or acts to bind the claimant to, or grant deference in subsequent proceedings to, adverse eligibility or claim decisions or policy interpretations by the insurer. Hernandez maintains this statute governs the plan at issue here and therefore the discretionary clause contained therein is unenforceable and Firestone’s default de novo review standard is applicable.
Hernandez provides no argument as to why Section 1701.062 would apply to the ERISA plan at issue in this case. As Defendants point out, the Plan is a self-funded welfare-benefit plan, not a policy of insurance issued by an insurer governed by the Texas Department of Insurance. A self-funded plan is one in which the employer funds,but a third party administers,the plan, versus a fully funded plan in which an insurer both fully insures and administers the plan. Hernandez has not provided the Court with authority for his position that Section 1701.062 applies to a plan created, sponsored, and funded by Schlumberger, an entity that is not a Texas insurer.
Section 1701.062 by its own terms prohibits “an insurer” from using certain documents if the document contains a discretionary clause. This can be seen in Section 1701.003(a). The chapter in which Section 1701.062 is contained only applies to insurers, such as life, accident, health, casualty, or mutual life insurance companies, not employers funding welfare benefit plans. Tex. Ins. Code § 1701.003(a).
Moreover, even if Section 1701.062 would theoretically apply to render the discretionary clause in the Plan unenforceable, the undersigned agrees with Defendants that ERISA likely preempts this Texas law in the context of a self-funded plan.
Pursuant to 29 U.S.C., Section 1144(a), ERISA pre-empts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA.