In Prichard v. Metropolitan Life Ins. Co., the US Court of Appeals for the Ninth Circuit addressed the appropriate standard of review in a benefits dispute under an employer's long-term disability plan (No. 12–17355, (9th Cir. Apr. 21, 2015)).

The participant in this case was covered under his employer's insured long-term disability plan. After approving the participant's claim for disability benefits, the plan's insurer concluded that the duration of those benefits would be limited to 24 months under a restriction involving mental or nervous disorders (see generally Practice Note, Mental Health Parity). The insurer denied the participant's claim to continue receiving benefits beyond the 24-month limit and the participant, after several unsuccessful appeals, sued the insurer in district court under the Employee Retirement Income Security Act of 1974 (ERISA).

In district court, the parties disagreed regarding the standard of review that should apply to the insurer's decision to terminate benefits. Relying on discretionary language in the plan's summary plan description (SPD), the insurer argued that the deferential abuse of discretion standard should apply (see Standard Clause, SPD Language, Firestone Plan Interpretation). The participant, however, argued that the Supreme Court's decision in CIGNA Corp. v. Amara required the district court to review the insurer's decision de novo (131 S.Ct. 1866 (2011)). In Amara, the Supreme Court concluded that "the terms of statutorily required plan summaries … may [not] be enforced … as the terms of the plan itself" (see Expert Q&A on the Impact of CIGNA Corp. v. Amara). In the participant's view, the district court was required to apply de novo review because:

Ruling for the insurer, the district court found that the SPD was the controlling plan document and that the SPD granted the insurer discretionary authority to determine benefits eligibility. The district therefore applied abuse of discretion review and upheld the insurer's decision to deny the participant additional benefits.

On appeal, the Ninth Circuit concluded that the district court should have applied de novo review. The Ninth Circuit rejected the insurer's assertion that the SPD was the only formal plan document in the administrative record and that, as a result, the SPD and the plan were one and the same. Rather, the Ninth Circuit concluded that the only document in the record that was clearly a plan document was an insurance certificate stating that the plan consisted of:

The insurance certificate stated that these documents (a list that did not include the SPD) constituted the entire contract between the employer and the insurer. Limiting its review to these documents, the Ninth Circuit observed that the insurance certificate, which contained the plan's relevant terms and provisions, failed to grant discretion to the insurer. (The Court noted that if any other official plan documents outside the record contained discretionary language, it had been the insurer's burden to bring forward that evidence.)

As a result, the Ninth Circuit:

The standard of review in a litigated benefits dispute can have a significant impact on whether a court upholds a plan's decision, and it's at least possible that the insurer's decision will not be upheld when the district court reviews the dispute on remand applying the de novo standard. As a result, this case may have employers with insured health plan arrangements in the Ninth Circuit reaching for their group policies and insurance certificates to see what those documents say by way of granting Firestone discretionary authority. They may discover, as was the case here, that the governing insurance policies do not contain the language necessary to confer Firestone discretion. As the Ninth Circuit has previously acknowledged, some states have adopted a model act from the National Association of Insurance Commissioners (NAIC) (the organization that establishes standards and best practices for the insurance industry) that prohibits health or disability insurance policies from including provisions that attempt to reserve discretion. Such a prohibition may place insurers in a difficult position if a grant of discretion in the plan's SPD, by itself, is inadequate to confer discretion.