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Source: Pension & Benefits Daily: News Archive > 2013 > November > 11/14/2013 > Legal News > Standard of Review: Fourth Circuit: No Deferential Review Despite Plan's Satisfactory to Us' Language

Standard of Review

Fourth Circuit: No Deferential Review Despite Plan's Satisfactory to Us' Language

By Jacklyn Wille Nov. 13 Language in a Prudential Insurance Co. of America disability policy requiring claimants to submit proof of disability that is satisfactory to Prudential didn't constitute an unambiguous grant of discretionary authority that would entitle Prudential to deferential judicial review of an adverse benefit determination, the U.S. Court of Appeals for the Fourth Circuit ruled (Cosey v. Prudential Ins. Co. of Am., 2013 BL 312282, 4th Cir., No. 12-2360, 11/12/13). Citing a gradual but unmistakable change in the precedential landscape, the court said that it joined five of our sister circuits in holding that such language does not unambiguously confer such discretionary authority. Judge Barbara Milano Keenan's Nov. 12 opinion came three months after the U.S. Court of Appeals for the First Circuit changed course to reject similar satisfactory to us language in a disability policy. In Gross v. Sun Life Assurance Co. of Canada, 2013 BL 217761 (1st Cir. 2013) (161 PBD, 8/20/13; 40 BPR 2007, 8/20/13), the First Circuit reconsidered its 2003 decision in Brigham v. Sun Life of Canada, 317 F.3d 72, 29 EBC 2694 (1st Cir. 2003) (19 PBD, 1/30/03; 30 BPR 274, 2/4/03), in the course of vacating and remanding a district court decision applying deferential judicial review to uphold a disability plan's denial of benefits. In the Gross ruling, the First Circuit also cited a change in the precedential landscape surrounding satisfactory to us plan language. Benefit Denial Beth A. Cosey worked for bioMerieux Inc. and participated in employer-sponsored short- and long-term disability benefit plans. Prudential acted as claims administrator for both plans.

BNA Snapshot
Cosey v. Prudential Ins. Co. of Am., 2013 BL 312282, 4th Cir., No. 122360, 11/12/13 Key Holding: Disability plan language requiring proof of disability that is satisfactory to Prudential is insufficiently clear grant of discretionary authority and doesn't entitle insurer to deferential judicial review. Key Takeaway: Fourth Circuit joins First, Second, Third, Seventh and Ninth circuits to find that satisfactory to us language in disability plan doesn't entitle plan administrator to deferential judicial review.

Cosey filed claims under both plans in March 2009 after experiencing fatigue, sleep disorder, dysautonomia, dizziness and fibromyalgia. Prudential approved Cosey for short-term benefits but suspended those benefits in May 2009, pending receipt of additional medical documentation. Prudential terminated Cosey's short-term benefits July 6, 2009, and denied her long-term benefits claim after concluding that the medical documentation she submitted didn't support any continuing impairment. Cosey sued under the Employee Retirement Income Security Act after exhausting administrative remedies. The U.S. District Court for the Middle District of North Carolina found that Prudential didn't abuse its discretion in handling Cosey's benefits. In so ruling, the district court determined that a deferential judicial review standard applied to Prudential's denial of long-term disability benefits, because the long-term plan required participants to submit proof of continuing disability satisfactory to Prudential. This was a sufficient grant of discretionary authority to warrant deferential judicial review, the district court found (194 PBD, 10/9/12; 39 BPR 1969, 10/16/12; 55 EBC 1161). The district court also found that the short-term benefits decision was entitled to deferential judicial review. In reaching this conclusion, the district court applied North Carolina law after determining that ERISA didn't govern the short-term plan. Court Considers Gallagher On appeal, the Fourth Circuit considered whether the district court erred in determining that the relevant plans conferred sufficient discretionary authority on Prudential to warrant the application of deferential judicial review. Looking to Gallagher v. Reliance Standard Life Ins. Co., 305 F.3d 264, 29 EBC 1963 (4th Cir. 2002) (189 PBD, 9/30/02; 29 BPR 2628, 10/1/02), the Fourth Circuit said that no specific words or phrases are required to confer discretion; however, a grant of discretionary authority must be clear, with any ambiguities construed against the drafter of the plan. In Gallagher, the Fourth Circuit found that plan language requiring a claimant to submit satisfactory proof of [t]otal [d]isability to us was ambiguous and therefore didn't entitle the plan administrator to deferential judicial review. The Gallagher court also said that hypothetical plan language requiring proof that is satisfactory to [the plan administrator] would be sufficient to warrant abuse-of-discretion judicial review. Although Prudential argued that this discussion in Gallagher required the court to apply deferential review, the Fourth Circuit disagreed, explaining that the example used in Gallagher was hypothetical and therefore not binding. The Fourth Circuit therefore went on to consider the discretionary nature of the Prudential plan's satisfactory to us language as a matter of first impression.

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Satisfactory to Us.' On that point, the Fourth Circuit began by observing that five circuit courts of appealsthe First, Second, Third, Seventh and Ninthrecently held that satisfactory to us language does not unambiguously confer such discretionary authority. Joining those courts, the Fourth Circuit found that satisfactory to us was an inherently ambiguous phrase, because such language could be construed as simply stating the truism that the administrator is the decision-maker who initially must be persuaded that benefits should be paid before any amounts are actually paid. Alternatively, it could be read as requiring a level of proof that satisfied the plan administrator's subjective criteria for eligibility or disability, the Fourth Circuit said. Given these ambiguities, the Fourth Circuit concluded that a ruling in favor of Prudential would violate our requirement of clear plan language that expressly confers discretionary authority on the plan administrator. Moreover, the Fourth Circuit expressed concern that insured employees who read Prudential's ambiguous plan language are not given sufficient notice whether their plan administrator has broad, unchanneled discretion to deny claims,' (quoting Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, 36 EBC 1249 (7th Cir. 2005) (183 PBD, 9/22/05; 32 BPR 2088, 9/27/05) ). [W]ithout clear language notifying employees that an administrator's denial of benefits is insulated from plenary judicial review, employees who file claims for benefits may not be fully aware of the gravity of administrative proceedings or the necessity of developing as complete a record as possible early in the claims process, the Fourth Circuit said. Finally, the Fourth Circuit said that its decision was supported by the well-settled principle that ambiguities in ERISA-governed plans must be construed against the administrator responsible for drafting the plan. The Fourth Circuit reasoned that drafters of ERISA plans have had every opportunity to avoid adverse rulings on this issue, especially in light of the gradual but unmistakable change in the precedential landscape of federal appellate decisions. In fact, the Prudential policy in question was dated May 1, 2007, which the Fourth Circuit said was well after the Second, Seventh and Ninth Circuits rejected similar satisfactory to us language in other rulings. Fourth Circuit Vacates After concluding that the district court erred in applying deferential judicial review, the Fourth Circuit vacated and remanded the district court's decision with instructions to reconsider Prudential's denial of long-term disability benefits using de novo judicial review. The Fourth Circuit reached the same conclusion with respect to Cosey's short-term benefits. Looking to North Carolina contract law, the Fourth Circuit concluded that the language of the short-term plan was similarly ambiguous and should be construed in favor of Cosey. Judges Andre M. Davis and Henry F. Floyd joined in the decision. Cosey was represented by Norris A. Adams II of Essex Richards PA, Charlotte, N.C. Prudential was represented by Patrick C. DiCarlo of Alston & Bird LLP, Atlanta, and Nancy B. Pridgen of Monnolly Pridgen LLC, Atlanta. To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

For More Information

Text of the opinion is at http://www.bloomberglaw.com/public/document/Beth_Cosey_v_The_Prudential_Insurance_Co_Docket_No_1202360_4th_Ci.

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