JOHN MCKEEHAN, v. CIGNA LIFE INSURANCE COMPANY LIFE INSURANCE COMPANY OF NORTH AMERICA,

Citations: 344 F.3d 789; 2003 U.S. App. LEXIS 19428; 2003 WL 22150722Docket: 02-3638

Court: Court of Appeals for the Eighth Circuit; September 19, 2003; Federal Appellate Court

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John McKeehan filed a lawsuit seeking judicial review of the Life Insurance Company of North America’s (LINA) decision to terminate his long-term disability benefits under his employer's employee welfare benefit plan governed by ERISA. LINA, acting as the claims administrator, determined that McKeehan, while unable to perform his former job, was not completely disabled from all work, which led to the discontinuation of his benefits. The district court upheld LINA's decision under an abuse-of-discretion standard. McKeehan contended that the court should have applied a de novo standard of review and that the claims record justified the continuation of his benefits even under the deferential standard. The Eighth Circuit Court agreed with McKeehan regarding the de novo review and remanded the case for the district court to reevaluate the benefits denial accordingly.

McKeehan initially applied for benefits in November 1996 after suffering a herniated disc. The Plan allowed up to twenty-four months of benefits for employees unable to perform the material duties of their occupation, with further benefits contingent upon a determination of being disabled from all occupations. Initially, Standard Insurance Company, the previous claims administrator, approved McKeehan's claim but later notified him that benefits would cease unless he was deemed disabled from all occupations. Following a review of his medical records, Standard Insurance concluded that McKeehan could perform sedentary work, prompting the search for an orthopedic evaluation.

After LINA took over as claims administrator in December 1998, it conducted a Physical Ability Assessment, a Transferrable Skills Analysis, and a Labor Market Survey, ultimately concluding that McKeehan was not disabled from all occupations and discontinuing benefits in May 1999. McKeehan appealed this decision twice, providing additional medical evidence and vocational assessments, but LINA rejected his appeals and stated that his remedies under the Plan were exhausted. Subsequently, McKeehan initiated the present lawsuit under 29 U.S.C. 1132(a)(1)(B) contesting the denial of benefits.

In reviewing ERISA benefits denial, courts apply a deferential abuse-of-discretion standard if the plan grants the administrator discretionary authority to determine eligibility or interpret terms; otherwise, the review is de novo (Firestone Tire & Rubber Co. v. Bruch). McKeehan contends that the district court incorrectly applied the deferential standard regarding LINA's denial of benefits. The question of whether an ERISA plan confers discretionary authority is reviewed de novo (Walke v. Group Long Term Disability Ins.).

The November 1, 1990 Plan explicitly states that the Plan sponsor is solely responsible for Long-Term Disability Benefits and has full authority to manage the Plan, administer claims, and interpret the Plan. This grants the sponsor discretionary authority, triggering the deferential review standard for benefit decisions (Walke).

Additionally, the Plan allows the sponsor to contract with an independent third party for claims processing. At the time of McKeehan's initial claim, Standard Insurance was retained for this role, and its processing function was limited, as indicated by a notation on the claims form stating that it acted in an administrative capacity, with the sponsor being ultimately responsible for claims decisions. Thus, if Standard Insurance had continued its role, the deferential review standard would apply to the sponsor's denial of benefits.

However, during McKeehan's claim review, his employer changed ownership, leading to LINA replacing Standard Insurance. Despite the Plan remaining unchanged, LINA acknowledged in its response that it acted as the Insurer of the Plan and made the decision to terminate benefits. This indicates that LINA's role in claims processing was significantly different from that of Standard Insurance.

An ERISA plan can allow the plan sponsor to delegate discretionary authority regarding eligibility and plan interpretation, as outlined in 29 U.S.C. 1105(c)(1) and relevant case law. However, in this instance, despite LINA being the insurer, there is no evidence of an agreement granting LINA discretionary authority from the current Plan sponsor. The lack of explicit discretion-granting language in the policy or plan documents means that LINA's claims processing predecessor did not possess such authority. Consequently, the district court incorrectly applied an abuse-of-discretion standard rather than a de novo review. Unlike the precedent in Bounds, where the issue was not raised, McKeehan contested the standard of review here, with evidence showing conflicting medical opinions. Under de novo review, the district court can consider additional evidence and may conduct a bench trial or review stipulated facts instead of limiting itself to summary judgment. Thus, the court's judgment is reversed, and the case is remanded for proceedings consistent with this opinion.