Every so often a bit of legal synchronicity seems to occur. Sometimes its personal, like when you have several cases with the same uncommon issue, or multiple cases in the same rarely visited court. In 2013, there appears to be a larger force at work that has caused three circuits to address the question whether a plan that requires proof to be satisfactory to the insurer confers discretion.
It has long been clear that a plan document must give discretionary authority to an insurer in order to require courts to conduct an arbitrary and capricious review. It is also well-established that no “magic words” are required to give discretion. However, the vast majority of plans intending to grant discretion use the magic words anyway, and say that the insurer has “discretionary authority to determine claims and construe the plan” or some variant.
But what happens when a plan does not use the magic words?
Initially there was a general consensus that the words satisfactory proof, by themselves, were ambiguous enough not to confer discretion. The reasoning was that proof that was satisfactory proof could imply either an objective standard (in which the insurer did not have discretion) or a subjective standard (in which it did have discretion), depending on the context. Accordingly, the placement of a prepositional phrase ended up being critical in many circuits.
If a claimant had to provide satisfactory proof to the insurer, the circuits generally held that the plan required objectively satisfactory proof to be provided to the insurer (i.e., the phrase to the insurer referred merely to the entity to whom proof needed to be submitted). See Kinstler v. First Reliance Standard Life Ins. Co., 181 F.3d 243, 251-52 (2d Cir.1999) (no discretion where policy requires insured to “submit[ ] satisfactory proof of Total Disability to us”); Perugini-Christen v. Homestead Mortgage Co., 287 F.3d 624, 626-27 (7th Cir.2002) (no discretionary review when policy stated applicant must submit “satisfactory proof of Total Disability to [the insurer]”); Walke v. Group Long Term Disability Ins., 256 F.3d 835, 839-40 (8th Cir.2001) (no discretion where benefits would be paid if insured “submits satisfactory proof of Total Disability to [insurer]”); Kearney v. Standard Ins. Co., 175 F.3d 1084, 1089-90 (9th Cir.1999) (en banc) (no discretion where policy stated that insurer would pay disability benefits “upon receipt of satisfactory written proof that you have become DISABLED”).
However, if the plan required the submission of proof satisfactory to the insurer, several circuits held that the insurer had discretion, because it got to determine, subjectively, whether the proof was satisfactory. See Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir.2000) (describing the “satisfactory to us” language as “indicat[ing] with the requisite if minimum clarity that a discretionary determination is envisaged”); Ferrari v. Teachers Ins. and Annuity Ass’n, 278 F.3d 801, 806 (8th Cir.2002) (describing plan as stating that “proof must be satisfactory to [the insurer]”); Nance v. Sun Life Assur. Co. of Canada, 294 F.3d 1263, 1267-68 (10th Cir.2002) (“‘Satisfactory to Sun Life’ … adequately conveys to the Plan participants and beneficiaries that the evidence of disability must be persuasive to Sun Life.”).
There were some early dissenters to this breakdown. On the one side, Sixth Circuit held en banc that a requirement of satisfactory proof equaled a grant of discretion even if it did not state that the proof must be satisfactory to the insurer. Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556-57 (6th Cir. 1998) (“We agree with Aetna that this ‘right to require as part of the proof of claim satisfactory evidence’ means, semantically, that the evidence must be satisfactory to Aetna, the only named party with the right to request such evidence”).
On the other side, the Second Circuit, in Kinstler, noted in dictum that the word satisfactory just might not be enough, no matter how it was used:
But a more fundamental point than this fine distinction about wording is that the word “satisfactory,” whether in the phrase “satisfactory proof” or the phrase “proof satisfactory to [the decision-maker]” is an inadequate way to convey the idea that a plan administrator has discretion. Every plan that is administered requires submission of proof that will “satisfy” the administrator. No plan provides benefits when the administrator thinks that benefits should not be paid! Thus, saying that proof must be satisfactory “to the administrator” merely states the obvious point that the administrator is the decision-maker, at least in the first instance. Though we reiterate that no one word or phrase must always be used to confer discretionary authority, the administrator’s burden to demonstrate insulation from de novo review requires either language stating that the award of benefits is within the discretion of the plan administrator or language that is plainly the functional equivalent of such wording. Since clear language can be readily drafted and included in policies, even in the context of collectively bargained benefit plans when the parties really intend to subject claim denials to judicial review under a deferential standard, courts should require clear language and decline to search in semantic swamps for arguable grants of discretion.
About ten years ago, the consensus began to shift in the direction outlined by the Second Circuit in Kinstler. Specifically, between 2005 and 2011,the Third, Seventh and Ninth Circuits adopted the rule that requiring proof satisfactory to the insurer was not clear enough to confer discretion. Viera v. Life Ins. Co. of N.A., 642 F.3d 407, 414–417 (3d Cir.2011); Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, 639–40 (7th Cir.2005); Feibusch v. Integrated Device Tech., Inc. Emp. Benefit Plan, 463 F.3d 880, 884 (9th Cir.2006). Notably, the Seventh Circuit, which previously had suggested that satisfactory to the insurer was sufficient, now clearly held that it was not.
That brings us to 2013
The First Circuit tackled the satisfactory to the insurer question in Gross v. Sun Life Assur. Co. of Canada, — F.3d –, 2013 WL 1305006 (1st Cir. Aug. 13, 2013). Sun Life believed it had helpful First Circuit precedent on its side, because Brigham v. Sun Life of Canada, 317 F.3d 72, 81 (1st Cir.2003), considered comparable language and noted that it was “an indicator of subjective, discretionary authority on the part of the administrator.” Alas for Sun Life, Gross noted that this statement in Brigham actually was dictum, because the plaintiff in that case had not raised the argument that de novo review was required until the appeal, and thus waived it. And, Gross then observed that the consensus on satisfactory to the insurer had been shifting since Brigham, justifying a fresh look at the issue.
That fresh look led the First Circuit to decide that satisfactory to the insurer was not clear enough to grant discretion:
Our acknowledgment in Brigham of an increasing recognition of the need for the clearest signals of administrative discretion foreshadowed the insistence on greater precision that has surfaced in the later cases. … Having now fully considered the issue, we agree with those courts holding that the “satisfactory to us” wording, without more, will ordinarily fail to meet the requisite if minimum clarity necessary to shift from de novo to deferential review. … We are persuaded primarily by the ambiguity of the phrase, which reasonably may be understood to state Sun Life’s right to insist on certain forms of proof rather than conferring discretionary authority over benefits claims. Indeed, in the present context, the language more naturally supports the former reading, as the phrase appears following a listing of the required information and appropriate types of evidence to prove a claim. We reiterate that no precise words are required. Yet, to secure discretionary review, a plan administrator must offer more than subtle inferences drawn from such unrevealing language. To conclude otherwise would negate our requirement of a clear grant of discretion. [quotation marks omitted]
Next, the Fourth Circuit joined the emerging consensus that satisfactory to the insurer was not enough in Cosey v. Prudential Ins. Co. of America, — F.3d –, 2013 WL 5977151 (4th Cir. Nov. 12, 2013). Like the First Circuit, it appeared that the Fourth Circuit had previously found the contrary. Specifically, in Gallagher v. Reliance Standard Life Ins. Co., 305 F.3d 264, 269 (4th Cir. 2002), the court had ruled that a requirement to submit satisfactory proof to the insurer did not confer discretion, but stated, by way of explanation, that requiring proof satisfactory to the insurer would be sufficient.
Also like the First Circuit, Cosey held that Gallagher was merely dictum, and that it would consider the question as one of first impression. Cosey then found that the words were “inherently ambiguous,” they did not give sufficient notice to participants that the administrator will have discretion, and that ambiguities in an insurance policy must be construed against the drafter. Accordingly, Cosey held:
For these reasons, we now join the circuits that decline to impose an abuse-of-discretion standard of review based solely on a plan’s requirement that claimants submit “proof … satisfactory to [the plan administrator].” This conclusion complements our holding in Gallagher, by requiring clear plan language expressly conferring decision-making discretion on a plan administrator before permitting judicial review of that administrator’s decision under an abuse-of-discretion standard. Accordingly, we hold that the district court erred in reviewing the plan administrator’s denial of Cosey’s claim for LTD benefits under an abuse-of-discretion standard.
Bucking this trend, however, was the Sixth Circuit, in Frazier v. Life Ins. Co. of N. Am., – F3d –, 2013 WL 3968766 (6th Cir., August 5, 2013). Unlike the First and Fourth Circuits, there was binding precedent (en banc, no less) establishing that a requirement of satisfactory proof was enough to confer discretion. That was the Perez case, discussed above. So, the Sixth Circuit found no need to revisit the issue:
Frazier argues the Policy fails to expressly grant LINA discretionary authority to review claims. She fails, however, to distinguish this Court’s precedent finding language similar to that contained in the Policy sufficiently clear to invoke the arbitrary and capricious standard. The Policy requires claimants to “provide the Insurance Company, at his or her own expense, satisfactory proof of Disability before benefits will be paid.” This Court has found “satisfactory proof,” and similar phrases, sufficiently clear to grant discretion to administrators and fiduciaries. See, e.g., Perez, 150 F.3d at 556 [.] … Although the Policy could have more clearly expressed this grant of discretion, the mere fact that language could have been clearer does not necessarily mean that it is not clear enough. [quotation marks omitted].
There still remains a circuit split, with the Sixth, Eighth and Tenth Circuits holding that proof satisfactory to the insurer will confer discretion. But now the First, Third, Fourth, Seventh and Ninth Circuits have clearly held that the language is insufficient. Will this be the next ERISA procedural issue that the Supreme Court takes? Or will it watch while the consensus continues to shift away from the notion that proof satisfactory to the insurer is enough to confer discretion? Time will tell.