You already know that many state laws ban the “abuse of discretion” standard of review in denials of ERISA-governed long term disability benefits.

But self-funded ERISA plans may still apply the discretionary standard of review.

And “incorporating by reference” the Summary Plan Description (SPD) is effective in making the SPD part of the ERISA plan.

Here’s the recent case of Sorger v. Norvatis, __ Fed. Appx. __ (9th Cir. August 25, 2021)(Pre-existing condition case: Abuse of discretion standard of review applied to self-funded plan and employee-purchased supplemental benefit).

FACTS:  Sorger sought ERISA-governed long term disability (LTD) benefits from a self-funded plan. Participants could also purchase supplemental LTD coverage that added 17% more to the disability benefit. Funds from purchases by employees were held in a Voluntary Employee Benefit Association (VEBA) trust. The operative ERISA plan conferred discretion to Met Life to construe plan terms and decide eligibility.

Sorger argued the pre-existing condition clause was not valid because the plan stated that Met Life would establish the pre-existing condition limitations, but argued that Met Life had not created the relevant limitation.

Ninth Circuit Court of Appeals Held:

  1. The abuse of discretion standard applied. The VEBA Trust was not a separate ERISA plan because the trust was used only as a funding mechanism for the plan’s supplemental LTD benefit. Op. at 4. Since there was only one ERISA plan, and it clearly conferred discretion, the abuse of discretion standard applied. Op. at 4-5.
  2. “[T]he pre-existing condition clause in the Summary Plan Description was valid.” The plain language of the Plan expressly incorporates, in its entirety, the Summary plan Description prepared by Novartis.  Accordingly, Met Life had discretion to construe and enforce the Summary Plan Description.  Op. at 6-7.
  3. Sorger had a pre-existing condition, justifying denial of the claim. During the look back period, but prior to when a definitive diagnosis was reached,  Sorger received treatment for a variety of unrelated conditions and “underlying conditions” related to his ultimate medical diagnosis. Consequently, Sorger ‘received medical treatment, consultation, care or services’ for his pre-existing condition.” Op. at 9.
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Photo of Mike Reilly Mike Reilly

Mike Reilly is a nationally recognized labor, employment and employee benefits attorney, named one of the “Top 100 Most Powerful Employment Attorneys in the Nation” for the past five consecutive years by Human Resource Executive®. He has decades of experience providing strategic employment…

Mike Reilly is a nationally recognized labor, employment and employee benefits attorney, named one of the “Top 100 Most Powerful Employment Attorneys in the Nation” for the past five consecutive years by Human Resource Executive®. He has decades of experience providing strategic employment advice, and has represented clients in more than 75 jury trials, arbitrations, bench trials and claims before the EEOC and Washington State Human Rights Commission.

Small and large employers retain Mike for his strategic advice and decades of experience in employment issues and litigation, business decisions and litigation avoidance. Mike provides advice in claims involving discrimination, retaliation, wrongful discharge, disability accommodation, ERISA and non-ERISA employee benefit claims, and wage/hour claims. He served as lead counsel in an employee raiding/trade secret case as reported in the Wall Street Journal, and defends employers in class action claims.

Mike’s remarks on employment issues have been quoted in NewsweekCorporate Legal TimesSeattle TimesEmployee Relations Law JournalPuget Sound Business JournalCFO.com, and other professional journals and management publications. Chambers USA’s Guide to America’s Leading Lawyers for Businessrates Mike in the top ranking (band one) for his work in labor and employment law, and has described him as “one of Seattle’s top-rate attorneys” who is “truly phenomenal [with] superb legal instincts” and “an amazingly assertive litigator.” His clients include Nordstrom, Seattle Seahawks, Home Depot, KeyBank, Starbucks, Fred Hutchinson Cancer Research Center, Red Robin and Seattle Chamber of Commerce, among others.