In Gross v. Sun Life
Assurance Company of Canada, the First Circuit Court of Appeals
held that a so-called "satisfactory to us" clause contained
in a plan's long term disability ("LTD") insurance contract
was not sufficient to give the plan's insurer the discretionary
authority that would justify a deferential judicial review of the
insurer's decision to deny benefit payments.
In the First Circuit, the
default standard of review for benefit denials in an ERISA-covered
plan is a de novo review, which means that a court will independently
review a claim and not defer to the plan administrator's, or
insurer's, decision. However, if the plan document (or insurance
contract) grants discretionary authority to determine benefit
entitlement, the court applies a less demanding arbitrary and
capricious standard of review, which means that the plan's or
insurer's decision will be upheld unless it is determined to be
arbitrary and capricious.
An employee was placed on
disability leave and proceeded to apply for long term disability
benefits. The insurer denied the claim, asserting that it found
"insufficient objective evidence to substantiate" that she
had a disability.
The First Circuit first
ruled that the LTD coverage was part of an ERISA-covered plan, even
though the employer did not contribute towards LTD coverage. The
court found that the employer had established and maintained the plan
to provide multiple types of benefits to its employees, treated its
various benefit programs, including LTD coverage, as a
"unit," and provided unified benefit communications to
The insurer maintained that
it was entitled to the arbitrary and capricious review standard
because the insurance contract said that "benefits are payable
when [the insurer] receives satisfactory proof of claim."
However, the court noted that several other Circuits had ruled that
this type of "satisfactory to us" language was insufficient
to confer discretion onto the plan or insurer.
Breaking with its prior
decisions, the First Circuit first noted that the grant of
discretionary authority had to be clearly reflected in the plan
documents or contracts. It then ruled that the "satisfactory to
us" language was not sufficient for purposes of shifting to the
arbitrary and capricious standard because the language lacked
sufficient clarity that the plan, and insurer, had discretionary
The First Circuit then
remanded the case to the lower court for further consideration
consistent with its ruling.