Most of the time you make benefit decisions based on the application of contested facts on uncontested plan terms.

But what happens when decisions are made based upon contested plan terms? When does a plan administrator abuse its discretion when construing plan terms?

Read this case, issued this week: D&H Therapy, LLC and Dolan v. Boston Mutual Life Ins. Co., __F.3d__(1st Cir., April 20, 2011). This case summarizes how courts will review cases involving contested plan terms, and explains the tests applied in various circuits.

FACTS: Dolan was part owner and employee of a chain of physical therapy clinics. She sought ERISA disability benefits. The plan had discretionary language. The plan provided that principals and employees were eligible for benefits if they were “not able to perform the material and substantial duties of their regular occupation” and had “at least a 20% loss in their pre-disability earnings.” The plan defined “pre-disability earnings” as “earnings for the prior calendar year . . .on form W-2, excluding commissions.”

Dolan began receiving benefits, but she failed to disclose monthly ownership income, which placed her above the her pre-disability earnings. With those profits included, the Plan administrator concluded Dolan’s post disability monthly earnings were about $2000 higher than pre-disability earnings, discontinued benefits. The Plan sought reimbursement for about $163,000. A lawsuit followed.


  1. What test is applied in determining if a plan administrator abused its discretion in construction of a plan term?
  2. What are “earnings” as defined by the plan?


1st CIRCUIT COURT OF APPEALS:  Plan Administrator abused its discretion in applying plan terms.


  1. The Supreme Court has not spoken directly as to how courts should assess whether an administrator’s construction of a plan term is so unreasonable as to constitute an abuse of discretion. Op. at 20.
  2. In review of a plan’s construction of plan terms, the Seventh, Ninth and District of Columbia Circuits look to the language and purpose of the plan. Op. at 23.
  3. Other circuits apply specific standards in reviewing a plan’s construction of plan terms. Op. at 23-25.
  4. The First Circuit refuses to adopt any specific test. It rejects the plan’s construction of the terms here because:
    • the terms as constructed cannot be used consistently within the entire plan language. Op. at 25-8;
    • the plan’s interpretation renders meaningless other plan language definitions. Op. at 29;
    • the plan did not advocate its present construction of the terms until “more than four years after it had been paying Dolan benefits.” Op. at 30-31; and,
    • If the plan wanted to offer a plan that determine plan eligibility by comparing pre-disability W-2 income with post disability income deriving from employment, it could have drafted much clearer plan language. Op. at 31.