You already know that denials of ERISA-governed disability benefits are reviewed under a de novo standard unless the benefit plan gives the administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan.

But courts sometimes override this grant of discretionary review and apply de novo review when there is a conflict of interest (the administrator both decides and funds the benefit) and there were procedural irregularities in the claims process.

So, what is a “procedural irregularity,” and how bad does the procedural irregularity have to be to change the standard of review from discretionary review to de novo review? The circuits are not consistent on this.

This new case highlights the point: McIntyre v. Reliance Standard Life Ins. Co., 2020 WL 4951028 (8th Cir. August 25, 2020)(Even though there was evidence of “conflict of interest”, Reliance Standard’s procedural irregularity of failing to issue the appeal decision within ERISA regulation timelines did not justify applying de novo standard. “[A]n administrator [d]eciding an appeal after a prescribed deadline is obviously not a wholesale failure to act on an appeal.” (Emph. added))(Other circuits recognize “decisional delay” as a factor justifying application of de novo review).

FACTS: McIntyre, a long-time nurse employed by the Mayo Clinic, suffered from a degenerative neurological disorder. From 2011-2016 she received ERISA-governed disability benefits, until Reliance Standard concluded she could perform sedentary jobs, and discontinued benefits under the “Any Occupation” provision. The plan had discretionary language.

McIntyre filed an administrative appeal. Reliance Standard denied the appeal 154 days later, well beyond the 45 day timeframe under the old [pre-2017] ERISA regulations. 29 CFR 2560.503-1(i)(2009).

McIntyre sued and argued the de novo standard should apply due to conflict of interest and procedural irregularities — “decisional delay.”

District Court Held: De novo standard applies because of a “palpable conflict of interest,” and because there were “procedural irregularities.”

8th Circuit Court of Appeals HELD: REVERSED — District Court incorrectly applied the de novo review standard.

  1. “The district court erred in treating a [mere] conflict of interest as a trigger for de novo review rather than simply as a factor in determining whether Reliance abused its discretion.” Op. at 11.
  2. “The district court erred in relying on the [mere] presence of a conflict of interest to justify de novo review.” Op. at 5.
  3. With regard to whether the conflict of interest changes the standard of review, the district court incorrectly relied on Woo v. Deluxe Corp., 144 F.3d 1157, 1160 (8th Cir. 1998) in light of Metro Life Ins. v. Glenn, 554 U.S. 105, 115-6 (2008).
  4. Reliance Standard failed to issue its benefit denial within the prescribed 45-day regulatory timeframe. BUT this “procedural irregularity” of “decisional delay” alone does not justify changing from the abuse of discretion standard to de novo standard. Op. at 13.
  5. An administrator’s wholesale failure to act on an appeal can trigger de novo review….” Op. at 13.  But “an administrator [d]eciding an appeal after a prescribed deadline is obviously not a wholesale failure to act on an appeal.” Op. at 13. (Emph. added).