Hampton v. Nat’l Union Fire Ins. Co., 2020 WL 5946967 (N.D. Ill. 2020)
This case considered whether a benefits committee had properly delegated discretionary authority to a service representative to make an adverse benefit determination for accidental death benefits, so that the court could apply a deferential standard of review. It was undisputed that the committee (and named fiduciary) was granted complete administrative and discretionary authority over the plan. The plan document authorized the committee to delegate its responsibilities “in whatever manner and extent” it chose, and required that any such delegation be in writing, approved by majority vote. The summary plan description (SPD) identified the service representative and described its role as providing insurance coverage and, among other things, making benefit decisions, paying claims, and processing appeals. Although these are generally fiduciary acts, it was not clear whether the service representative was properly authorized to exercise fiduciary authority—that is, whether the committee effectively delegated discretionary authority to the service representative.
After determining that the service representative was a functional fiduciary with respect to the claim, the court focused on whether the delegation of authority was valid under the plan’s governing documents. The service representative argued that the committee was free to delegate authority however it saw fit, and that, although discretionary authority was not expressly addressed, SPD language describing the representative’s role authorized it to make benefit determinations. But the court noted that the plan set forth a procedure for delegating discretionary authority, and provided that when the plan and SPD conflict, the plan controls. Because the committee was “bound to follow the plan’s procedures,” and failed to do so, the court concluded there was no effective delegation of authority. Therefore, the court held that the adverse benefit determination was subject to the nondeferential (de novo) standard of review.
EBIA Comment: Plan sponsors should carefully and clearly draft their plan documents and delegation of authority procedures, and then follow them. If an ERISA plan confers discretionary authority and allows delegation of that authority, claims decisions by a third party to whom discretionary authority has been appropriately delegated generally will be reviewed under the deferential arbitrary and capricious standard. To increase the likelihood of deferential review by a court, delegation of discretionary authority should be done clearly and in accordance with the terms of the plan, and final decisions should be made only by parties to whom discretionary authority has been appropriately delegated. For more information, see EBIA’s ERISA Compliance manual at Sections XI.B (“Discretionary Authority to Interpret Plan and Determine Facts”), XXIX.F (“Delegation of Plan Administrator Duties to Others”), and XXXVI.C (“Standard of Judicial Review Applied to Benefit Decisions Under ERISA Plans”). See also EBIA’s Self-Insured Health Plans manual at Section XXVI.J (“Litigation Issues”).
Contributing Editors: EBIA Staff.
