When an ERISA long term disability case is brought to court, one of the most important questions raised by long term disability lawyers is what legal standard must the judge use to decide the case. In essence, “the standard of review” is the level of scrutiny that the court will apply when reviewing a decision by an insurance company or a disability plan administrator.
In many cases, your chances of winning, depends greatly on which standard the court uses. For this reason, it is very important for disability claimants to have a basic understanding of this issue. Learning the basic legal concepts regarding this question will provide you with a better understanding of the strengths and weaknesses of your case.
In every ERISA long term disability case, the court must pick one of two standards to review the disability claim: 1) “the de novo” or, 2)“abuse of discretion”. The definitions of these two standards can be summarized as follows:
- When using the “de novo” review, the court decides the case without any deference to the prior denial by the insurance company or plan administrator.
- The “Abuse of discretion” standard of review is self explanatory. Under this criteria, the court will only reverse the prior denial by the insurance company if a clear error has been made or if the decision was arbitrary and capricious.
Obviously, the de novo standard of review is by far a much more favorable standard for disabled plaintiffs in ERISA LTD cases. However, it is not always possible for your long term disability lawyer to convince the court to apply this standard. The decision on how the court reviews a case is based in large part on the laws that apply to your particular case and the specific language contained in the long term disability policy.
Courts are required to review long term disability denials on a de novo basis, unless the disability plan documents contain a specific provision giving the plan administrator discretion to determine benefit eligibility or to interpret the plan (policy). If the plan or policy contains language giving discretion to the administrator, then the abuse of discretion standard applies. As a result of this situation, it has been common practice for insurance companies to insert “discretionary clauses” in most of their ERISA long term disability policies.
Fortunately, there is now a growing movement among some states to ban discretionary clauses from long term disability insurance policies. So far, approximately 24 states have moved to ban discretionary clauses. In many cases, appellate courts have found these discretionary bans to be legal. Therefore, a discretionary clause in your LTD policy might be illegal depending on which state it was issued. If the ban is applicable to your particular policy, the court will be required to review your case on a de novo basis.
