Let’s say you are applying for long-term disability (LTD) benefits through your insurance company. First, you will apply for benefits and then the insurance company will approve or deny your claim. The insurance company wrote the plan, it decides whether or not you are disabled, and it is the party who pays if you are granted a favorable decision. It is in the insurance company’s best interest to deny your claim so it can save some money. After your initial denial you will have a right to appeal. We have seen some plans that allow one right to an appeal and some that allow two appeals. After you have exhausted your administrative remedies and you are no longer able to appeal within the insurance company, you will finally be able to look for help from the court system.
The court will apply one of two standards when deciding whether the insurance company was correct in its denial of the claim or whether its denial was wrongful. The first standard is the abuse of discretion standard. If the insurance policy states that the insurance company has complete discretion to determine benefits, the courts will defer to the insurance company’s findings and it will be more difficult for you to be successful in court. Basically, you will have to prove to the judge that the insurance company’s decision was arbitrary and capricious.
The second standard of review is called the de novo standard. This standard of review will be used if the insurance company does not add in the magic words which grant itself the discretion to determine benefits. De novo means the court will decide whether the insurance company made the correct decision without providing a presumption of correctness to the insurance company. This is always the standard you want. A new case out of the Sixth Circuit (McKenna v. Aetna Life Ins. Co., Court of Appeals, 6th Circuit 2015) recently applied the de novo standard and was willing to overturn the insurance company’s decision to deny a claimant benefits.
Here is some of the court’s language when it wrote the decision. “[B]oth the district court and this court review de novo the plan administrator’s denial of ERISA benefits, unless the benefit plan gives the plan administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 613 (6th Cir.1998) (citation omitted). As neither party argues the plan administrator had discretionary authority with respect to interpretation of the Plan, we review this case de novo. Our role on de novo review is to determine whether Aetna “made a correct decision.” Perry v. Simplicity Eng’g, 900 F.2d 963, 966 (6th Cir.1990). “In other words, we consider whether Aetna properly interpreted the Plan and whether Appellant was entitled to benefits under the Plan, and in doing so, we do not provide deference or a presumption of correctness to Aetna’s decision.” McKenna v. Aetna Life Ins. Co., No. 14-2445, 2015 WL 4880042 (6th Cir. Aug. 14, 2015).