Blogging Employee Benefits

March 15, 2006

SPD at Disablement Sets Standard of Review

Filed under: Disability, Litigation — Fuguerre @ 11:26 pm

There is no doubt in our minds that a right that may be denied by an administrator’s incorrect, but not arbitrary, interpretation of the plan is substantively diminished as compared with one not subject to erroneous decisions.

The SPD in effect when an individual became disabled and entitled to disability benefits, not an amended SPD in effect later upon benefit denial, establishes the appropriate standard of judicial review of a plan administrator’s benefits determination, according to a 2nd Circuit ruling reversing a district court decision. [Gibbs v. Cigna, No. 05-3879]

The SPD in effect when the claimant became disabled did not include language granting the plan administrator discretionary authority. The SPD in effect when claim for additional benefits was denied had been modified to grant the administrator sole discretion over the determination of eligibility for and amount of benefits. Observing that the issue of which SPD governed for purposes of establishing the review standard, the appellate court ruled that the amended SPD was inapplicable to the claim since the right to the disability benefits had vested upon disablement, based on the terms of the plan. The 2nd Circuit respectfully disagreed with the premise of the 3rd’s Smathers decision to the effect that the amendment granting discretion had not affected the substance of the claimant’s benefits, distinguishing that and other decisions holding claim denial timing to decide the controlling SPD as involving benefit rights that had not yet vested.

Accordingly reviewing the benefit denial de novo, the appellate court ruled that the district court had erred in disregarding the plan administrator’s admission that the claimant was not classified within a particular group of employees specifically identified under plan terms, relying instead on contrary evidence to conclude the claimant to be in that class, and on that basis to not be entitled to the claimed additional benefits. Finding sufficient evidence to support each side’s interpretation of compensation to be taken into account for the disability benefit determination, the appellate court ruled the grant of summary judgment inappropriate, and returned the case to the district court for further proceedings.


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