In Melissa A. McIntyre v. Reliance Standard Life Insurance Company, Plaintiff suffered her entire life from Charcot Marie Tooth Syndrome (CMT), a degenerative neurological condition which affects the peripheral nerves like those in the hands and feet. She worked as a nurse at Mayo Clinic Health Care System from 2003 to 2011 when she stopped working due to the severity of her health condition.

Plaintiff’s application for short-term disability (STD) benefits under her employer-sponsored benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) was granted. The Plan was administered by Reliance Standard Life Insurance Company (Reliance). To qualify for STD benefits, Plaintiff proved that she was unable to perform the material duties of her own occupation.

After 24-months, the definition of disability changed, and in 2013, Reliance began evaluating Plaintiff’s eligibility for long-term disability (LTD) benefits. This required Plaintiff to prove that she was unable to perform the duties of any occupation for which she was “reasonably suited based upon [her] education, training, or experience.” Reliance’s disability policy also stated that “Reliance was the ‘claims review fiduciary’ and had ‘the discretionary authority to interpret the Plan and the insurance policy and to determine eligibility for benefits.’”

In February 2016, Reliance notified Plaintiff that she was not eligible for LTD benefits and she filed an appeal on May 31, 2016. In December 2016, Reliance commissioned a physician to conduct an independent medical exam (IME). The doctor concluded that Plaintiff was “capable of working full time in a sedentary position.” Later in December 2016, based on that report, Reliance informed Plaintiff that she was not eligible for LTD benefits. Although the appeal had been timely filed on May 31, 2016, the December response by Reliance was well past the maximum 90-day ERISA response requirement.

Having exhausted her administrative remedies, Plaintiff filed an ERISA lawsuit in the United States District Court for the District of Minnesota. That court conducted a de novo review of the administrative record and ruled against Reliance, finding that Plaintiff was entitled to LTD benefits.

Reliance appealed to the United States Court of Appeals for the Eighth Circuit. The Circuit Court held that the District Court erred by conducting de novo review and remanded the case to that Court with instructions that it should evaluate the case by using the abuse of discretion standard.

Eighth Circuit Holds District Court Erroneously Determined De Novo Review was Triggered by Reliance’s Conflict of Interest and Procedural Irregularity

The Appellate Court noted that many lower courts were misinterpreting Eighth Circuit precedent concerning when de novo review could take the place of the usual abuse of discretion standard in ERISA cases. The Court of Appeals went to great lengths to discuss and clarify how lower courts were misunderstanding the Court’s previous opinions.

The Court of Appeals analyzed two actions of the District Court which the District Court erroneously believed triggered de novo review. First, the District Court found that Reliance had a conflict of interest since it “both determines and pays claims” and ostensibly has a “history of biased claims administration.” Second, the lower Court determined that it took too long for Reliance to decide Plaintiff’s administrative appeal which created a procedural irregularity.

The District Court found that, based on these two acts, Reliance “breached its fiduciary duty” to Plaintiff which triggered de novo review instead of review under the abuse of discretion standard.

The Court of Appeals said the District Court was wrong because:

  • In order to show a conflict of interest, the Plaintiff must “present material, probative evidence demonstrating that” there is a “palpable conflict of interest.” Additionally, a conflict of interest does not trigger de novo review but should be treated as “simply a factor in determining whether Reliance abused its discretion.”
  • An ostensible “serious procedural irregularity” is not a trigger for de novo review but should instead be a factor for a court to consider when applying the abuse of discretion standard of review.

Even if a procedural irregularity is “egregious,” it still does not trigger de novo review but requires the record to contain “substantial evidence bordering on a preponderance to uphold [Reliance’s] decision.”

The Court of Appeals concluded that, “Because the district court erred in reviewing Reliance’s benefits denial de novo rather than for an abuse of discretion, we vacate its judgment and remand this case for further proceedings.”

Opinions of Other Circuits Do Not Change the Precedent Set by the Eighth Circuit

Based on Reliance’s “’decisional delay’ beyond the deadline prescribed in ERISA’s implementing regulations or the plan itself,” Plaintiff argued that the Eighth Circuit should adopt the approach of other circuits, which permit district court’s to apply de novo review under these circumstances.

Although Plaintiff provided quite a few cases from other circuits that agreed with her argument, the Eighth Circuit Court of Appeals noted that, “Such a rule, however, is not the law of our circuit.” The Eighth Circuit only allows de novo review if the administrator totally fails to act, not when the administrator simply delays acting.

The Court concluded, “In short, under circuit law, the administrator’s delay in deciding an appeal is not a trigger for de novo review. It is, rather, a factor to be considered by the district court when reviewing the administrator’s decision for an abuse of discretion…. We are bound by our circuit’s law on this point…. Accordingly, we vacate the judgment of the district court and remand for the district court to review Reliance’s benefits decision for an abuse of discretion…”.

This case was not handled by our office, but we believe it can be instructive to clients who may be facing a similar issue with their disability insurance company. At Dell & Schaefer, we offer a free consultation to let you know if we can help. We have clients nationwide and look forward to discussing your case with you.