ERISA Trumps Common Sense

When an ERISA plan gives the administrator broad discretion to interpret the plan, the administrator has the ability to interpret claims to the point where common sense doesn’t count for beans.

The unlucky husband of an unlucky woman working for Lowe’s Companies found that out when he sued Lowe’s and its insurance company to collect ERISA life insurance benefits after his wife was killed in a car crash.

The story in a nutshell:

* Elizabeth Porter was a manager at a Lowe’s store.
* She was on her way home from work when she received a call that the store alarm had been actuated.
* Mrs. Porter turned around to head back to the store to take care of the alarm when she was blasted by another car, killing her and her unborn child.

The ERISA life insurance policy specifically did not cover an injury sustained during travel to and from work. The question here: Was Mrs. Porter’s turnaround to head back to the store travel to and from work? This fact makes the meaning of the words travel to and from work ambiguous.

In his ruling, the administrator found that Mrs. Porter was traveling to work to perform her regular job duties (ignoring the fact that she had to turn around from her trip home to go back to the store). Her Workman’s Comp claim was approved even though Comp, too, doesn’t pay for claims arising from travel to and from work. Mr. Porter sued.

In ruling in his favor, the District Court applied a common sense interpretation to the administrator’s decision, and held that the phrase applied only to her ordinary daily commute and that her turnaround to return to the store was outside of her ordinary commute.

The District Court rejected as an abuse of discretion the administrator’s finding that Mrs. Porter’s turnaround and return was “traveling to work to perform her regular job duties”. The Court therefore ordered the insurance company to pay the life insurance benefits to Mr. Porter. The insurance company appealed.

The Circuit Court of Appeals for the 5th Circuit reversed and entered judgment for the defendants, holding that when a plan gives the administrator broad power to interpret its terms, the administrator has that power even if there are ambiguities in the wording of the insurance policy. So long as there is any reasonable basis upon which the administrator’s ruling may be upheld, it is not arbitrary and capricious and must be upheld, the Appeals Court said.

This ruling means that ERISA gives a properly authorized administrator the right to resolve policy ambiguities in favor of the insurer even in the face of a very long line of insurance cases which holds just the opposite: Ambiguities in an insurance policy are interpreted in favor of an insured.

An interesting sidelight here is the Appeals Court found no conflict of interest as the administrator was not the insurance company insuring the plan. An online search, however, showed that the administrator was closely affiliated with the insurance company and probably received the financial benefits of administering many of the insurer’s ERISA plans. Wouldn’t such facts lead to a possible conflict of interest which the Court should have considered?

ERISA was billed as the “workingman’s friend” when it became law in 1974.

Sometimes it turns out to be her worst enemy.





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