By: Jim Goodfellow and Ian Morrison
Seyfarth Synopsis: The Fifth Circuit has concluded that Texas’ ban on discretionary language in insurance policies does not alter the standard of review related factual determinations made by ERISA administrators. In so holding, the Court has suggested that Texas’ ban on discretionary language does not apply to non-insurance policy plan documents, which could create a circuit split on this issue.
In Ariana M. v. Humana Health Plan of Texas, Inc., No. 16-20174 (5th Cir. Apr. 21, 2017), the Firth Circuit concluded that Texas’ ban on discretionary clauses in certain insurance policies did not require a de novo review of the defendant administrator’s factual determinations in an ERISA claim for benefits.
In the Fifth Circuit, an ERISA administrator’s factual conclusions are reviewed for an abuse of discretion regardless of whether the plan contains Firestone discretionary language. See, e.g., Green v. Life Ins. Co. of N. Am., 754 F.3d 324, 329 (5th Cir. 2014) (noting that the standard of review for factual determinations is abuse of discretion regardless of the presence of a discretionary clause); Dutka ex rel. Estate of T.M. v. AIG Life Ins. Co., 573 F.3d 210, 212 (5th Cir. 2009) (“with or without a discretion[ary] clause, a district court rejects an administrator’s factual determinations in the course of a benefits review only upon the showing of an abuse of discretion.”).
Texas has enacted a ban on discretionary language in insurance policies: Texas Insurance Code Section 1701.062(a). In Ariana, the plaintiff argued that this ban precludes deference to and mandates a de novo review of the administrator’s factual findings. The Fifth Circuit rejected this argument, stating that “[t]he plain text of [Section 1701.062(a)] provides only that a discretionary clause cannot be written into an insurance policy; it does not mandate a standard of review.” Thus, “[Section 1701.062(a)], by its terms, does not mandate a standard of review.” Instead, it provides only that an insurer “may not use a document if the document contains a discretionary clause.” The Fifth Circuit interpreted Section 1701.062(a) to mandates what language can and cannot be put into an insurance contract in Texas, but stated that “[i]t does not mandate a specific standard of review for insurance claims.”
This decision preserves the abuse of discretion review of factual findings, but also suggests that the Fifth Circuit would find that Texas’ discretionary ban does not apply to non-insurance policy plan documents, and does not apply to insurance policies issued in states other than Texas.