ERISA Has A Heart

Too often, because of the case law interpreting ERISA, ERISA claims are denied by courts which are required to defer to claims administrators even though the courts would have found for the claimant on the basis of the evidence. There are a flood of such cases throughout ERISA jurisprudence and such unnatural outcomes are not foreign to those who labor in the ERISA field day in and day out.

So, it was refreshing when a Federal District Court Judge in Alabama recently opted to favor interpreting ERISA with emphasis on plan fiduciaries’ discharging their duties solely in the interest of participants and beneficiaries. The clause containing this clear direction, 29 U.S.C. Sec. 1104 (a)(1)(A), is too often overlooked or denigrated by judges in deciding ERISA claims.

Historically, because of the Supreme Court’s decision in Firestone v. Bruch, 489 U.S. 101 (1989), courts have given deference to the decisions of plan administrators (fiduciaries), while sacrificing the primary objective of ERISA – to give employees’ interests top priority in their deliberations. Insurance companies, who most often act as ERISA plan fiduciaries, have made it a religion to ignore this guiding precept of ERISA. That is why this recent Alabama decision is so noteworthy.

Going back to basics in Howington v. Smurfit-Stone, 856 F. Supp. 2nd 1235 (S.D. AL, 2012), District Court Judge Kristi K. DeBose told a fiduciary that a mistake on an application should be corrected so that a claimant’s application could be fairly considered, rather than being dismissed out of hand because the claimant had made a simple mistake in entering the date when his disability arose.

The plan administrator took the position that because the plan documents allowed correction of such an error only if a prior SSDI court Administrative Law Judge made the correction first, the claimant could not rectify the mistake although it was clear that the date was actually in error. Further compounding the mix was the fact that the time within which claimant might have asked the SSDI judge to revise the record had expired.

But, rather than take the “straitjacket” Bruch view (that an administrator’s discretion must be upheld if there is anything in the record to support it), which has been adopted in an overwhelming line of cases since it was first promulgated in 1989, Judge DeBose went back to the basic language of ERISA citing the fiduciary duty owed by an administrator to a claimant.

The Court held that the administrator’s refusal to determine the correct disability date was arbitrary and capricious and the denial of benefits was sent back to the plan administrator for further consideration of Mr. Howington’s real date of disability.

So, instead of taking the hard Bruch line, as many courts have done to favor administrators, Judge DeBose opted for the more humane “prudent fiduciary” standard.

This makes more sense. After all, the purpose of ERISA, as expressed in the statute, is to help disabled employees – not to provide an unfair, unwarranted windfall to claim fiduciaries, because of a simple, honest mistake on the benefit claim forms.