D. Mass Discusses Split Re Standard of Review for Denial of Benefits Challenged under ERISA

Per Kieft v. American Exp. Co., 451 F.Supp.2d 289 (D. Mass. 2006)

The critical issue left for this Court's consideration is the correct standard of review to apply to defendants' denial of Long Term Disability (LTD) and Life Insurance benefits to Kieft. The plaintiff argues that de novo review is appropriate while defendants press for application of the "arbitrary and capricious" standard.

The United States Supreme Court has held that denials of benefits challenged under 29 U.S.C. § 1132(a) are to be reviewed de novo unless the plan under consideration gives the administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan, in which case an arbitrary and capricious standard applies. See Gritzer v. CBS, Inc., 275 F.3d 291, 295 (3d Cir.2002) (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989)). Here, American Express funds the LTD Plan and that Plan gives it unfettered discretion to interpret the Plan and to determine entitlement to its various benefits. But this case is unique in that American Express, and MetLife as administrator of the LTD Plan, never made any effort to analyze Kieft's claim. Thus, there is no analysis or reasoning to which this Court can defer under the arbitrary and capricious standard.

There is a split among the circuit courts on the question now facing this Court, specifically whether a "deemed denied" claim is entitled to review de novo or under an "arbitrary and capricious" standard. See Nichols v. Prudential Ins. Co. of Am., 406 F.3d 98, 109 (2d Cir.2005) (surveying the cases). A majority of circuits have held that, absent substantial evidence of compliance with the deadlines, de novo review applies on the grounds that inaction is not a valid exercise of discretion and leaves the court without any decision or application of expertise to which to defer. See, e.g., id.; Jebian v. Hewlett-Packard Co. Employee Benefits Org. Income Prot. Plan, 349 F.3d 1098, 1106-07 (9th Cir.2003); Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 632-33 (10th Cir.2003); Gritzer, 275 F.3d at 295-96. The Fifth Circuit Court of Appeals followed a different path, holding that a "deemed denied" claim is still entitled to deferential review on the grounds that a decision to deny is the same whether accomplished formally or by inaction. S. Farm Bureau Life Ins. Co. v. Moore, 993 F.2d 98, 101 (5th Cir.1993). The First Circuit has not provided guidance on this unique issue.

Having surveyed the various approaches, this Court is persuaded by the reasoning offered by the Eighth Circuit Court of Appeals. That court held that where an ERISA plan administrator denies a participant's initial application for plan benefits but fails to act on the participant's properly filed appeal, the administrator's decision is subject to judicial review de novo "rather than for abuse of discretion if the review panel's inaction raises serious doubts about the administrator's decision." Seman v. FMC Corp. Ret. Plan for Hourly Employees, 334 F.3d 728, 733 (8th Cir.2003). However, [when] a plan administrator fails to render any decision whatsoever on a participant's application for benefits, it leaves the courts with nothing to review under any standard of review, so the matter *296 must be sent back to the administrator for a decision. Id.