In ERISA cases, a lot can come down to the standard of review that a court applies to a plan administrator's decision. In this case, the Tenth Circuit holds that the plan required the court, not the plan administrator, to decide ultimately whether the participant should have been classified as a "sales personnel" entitled to a higher level of disability benefits.
Hodges v. Life Insurance Co., No. 18-1279 (10th Cir. Apr. 2, 2019): A company can draft a plan to confer a high-level of discretionary authority on the administrator, which a court must respect. But where the plan does not clearly do so, the court's task is then to interpret the plan itself without deference to the plan. (The short-hand for this idea in case law is Firestone deference, based on a prior Supreme Court ruling.)
Here, the participant Hodges "worked for Endo Pharmaceuticals, Inc. as a cryotherapy technician." In 2012, "a degenerative eye condition forced him to retire" and he applied for long-term disability coverage under the company's group LTD insurance policy (the Policy) with Life Insurance Company of North America (LINA). LINA was designated as the plan fiduciary.
How one was classified for benefits mattered. Class 2 "sales personnel" could include (for purposes of calculating the benefit) payments "received from bonuses or target incentive compensation." Class 1 employees did not get that boost.
Here, the plan administrator deemed Hodges to be Class 1. Hodges "objected to this classification, arguing that he 'sold products while out in the field' and that the classification would significantly reduce his benefits," because some "70% of Hodges's earnings came from his base salary, and about 30% came from sales-driven compensation, including bonuses."
After exhausting his internal plan appeals, Hodges filed this action in 2014. The district court remanded the claim back to the plan administrator for more factual development. When it returned to court, the judge reopened the case ruled (in 2018)
"that LINA had once again failed to adequately investigate Hodges's employment classification. Concluding that a second remand would be futile, the district court determined that Hodges was a salesperson under the ordinary meaning of that term, reversed LINA's contrary decision, and awarded Hodges Class 2 benefits 'retroactive to the date his long term disability benefits commenced.'"
The Tenth Circuit affirms. LINA's principal argument on appeal is that the district court should have deferred to the plan administrator's determination, applying a minimal "arbitrary and capricious" review standard that typically results in the plan winning. The panel instead holds that the plan did not grant the administrator discretionary power to decide the claim.
As the panel notes, "[t]o enjoy deferential judicial review of its benefits decision, the administrator of an ERISA plan must reserve its discretion 'in explicit terms' in the plan document." And while the Tenth Circuit tends to be "comparatively liberal in construing language to trigger the more deferential standard of review under ERISA," there was no language in this plan that "suffices[d] to give the administrator discretion to determine facts relating to a disability."
The only language that appeared to tilt in the plan's direction were several references to the adminstrator having to "determine" the benefit. The panel finds that in each of the cases cited by LINA, the plan explicitly "identified a specific issue that the administrator retained discretion to determine" (emphasis in original). Here, though, LINA did not identify "any language that grants it discretion over any specific determination" and "we have never allowed such vague language" as in this plan "to encompass all decisions that go into the claims process."
As the panel summarizes:
"The plan language that LINA quotes simply directs who makes the initial benefits decision-in this case, the plan administrator, rather than the employer or employee-but we cannot stretch that language into a conveyance of any discretionary authority. If LINA wanted to reserve discretion to decide other aspects of a claim (such as whether an employee qualifies as a salesperson), then it should have done so explicitly."
Accordingly, the panel holds that the participant was entitled to de novo review of the claim, with no deference to the plan administrator. And because there were no contested issue of facts, the panel upholds the district court's determination that Hodges ought to have been classified as "sales personnel" entitled to Class 2 coverage.
Applying standard dictionary definitions of "salesperson," the panel holds de novo that a significant part of Hodges' job was sales. "It is true that Hodges derived a majority of his income from non-sales activities, namely performing cryotherapy services. But without selling the company's products, Hodges could not continue cryotherapy, and the Policy does not define how much selling one must do to be considered 'sales personnel.' We therefore agree with the district court that a reasonable person in Hodges's position would have believed himself to be a salesperson."