Why you should be aware of discretion clauses in your ERISA disability insurance policy

Discretion clauses inserted into ERISA plans appear to overwhelmingly favor insurers by enabling the courts to apply the “abuse of discretion” standard of review when courts decide whether benefits were properly awarded or denied to workers. Many employee benefit plans have clauses that give the administrator the right to determine, at its discretion, whether benefits should be awarded.

To overrule an administrator's decision denying worker benefits, a court must find that the determination was unreasonable. In Evans v. Eaton Corp. Long Term Disability Plan, the 4th Circuit appellate court issued a decision that used this standard in overruling a lower court that had found that the administrator had abused its discretion in denying a worker benefits. The appellate court ruled that judicial restraint and deference to the administrator must be exercised in essentially ruling that the administrator always has the benefit of the doubt.

Without going into the facts of the case, the court based its decision on the intent of ERISA and the plan’s language that gives the administrator broad latitude and deference in deciding the fate of workers. The court pointed out that administrators have certain advantages, which must be considered if workers and the integrity of long term benefits are to be preserved, including the following: 

  • Administrators have experience and familiarity with their own plans
  • Their decision-making is based on consistent application of the plan’s terms
  • Their desire for those who establish the ERISA plan to preserve some role in its administration
  • To ensure that the limited funds available go to deserving claimants

Like many court decisions in which a balancing of the competing interests are considered, the court in Evans decided that the need to ensure that deserving claimants received their benefits was protected by the administrator’s need to decide who gets the benefits from a limited source of benefits so long as their determination appears reasonable. The court also cited ERISA’s preamble, which ostensibly enhances the rights of employees by referring to it a number of times.

Further, the court said that Congress could have intervened to presumably change this view but has neglected to do so for more than 30 years since the law was enacted in 1974.

This “delicate balance,” as the court calls it, does not question why many ERISA plans with discretion plans are allowed to escape standard de novo appellate review, which is as if it were hearing the case and its facts in a fresh light to strike down determinations not based on substantial and convincing evidence. So long as the courts interpret ERISA as favoring insurers and permit limited review of denial determinations, employees may continue to suffer at the hands of plan administrators who do not have their best interests in mind.

Ben Glass
Ben Glass is a nationally recognized Virginia injury, medical malpractice, and long-term disability attorney