If you live in Chicago and ever had to claim long-term disability under an employer’s group insurance policy, enforced under ERISA § 502(a), you have probably heard of the term “arbitrary and capricious,” or “deferential review.” Few people really know what those mean, and they think of their long-term disability claim purely in the context of their medical impairments. Depending on the plan’s financial structure and its location, your rights can vary considerably when an important term in the plan or insurance policy is not so clear.
Unless the long-term disability plan is an insurance policy issued in a state that bans discretionary clauses, the plan or policy would state that it grants the claims review fiduciary discretionary authority to interpret the plan’s terms and make benefit determinations. Large employers that self-insure plans routinely include such clauses. Also, only about half of states have regulatory bans on insurance companies including such clauses in the group policy.
To the extent a plan’s terms are vague, or not clear in their meaning, the administrator with discretionary authority has the right to resolve the ambiguities in favor of the plan. That modifies most common law of contracts and insurance where any ambiguities are construed against the drafter or insurance company, and in favor of insurance coverage.
A pretty good example of how discretion to resolve an ambiguity operates arose recently in a retired NFL play’s case. Youboty v. NFL Player Disability, No. 20-40613, 2021 WL 1533662 (5th Cir. Apr. 16, 2021). There, the plan required a retiree apply for disability within 4 years of ending service, but Youboty had a surgery one year after the application deadline that was important to his claim. The plan was silent on whether a claim can be based on a surgery occurring after the application deadline. The court held that the Trustees could determine how to apply that ambiguity, which of course they applied in favor of denying a claim. Under typical state insurance law, that ambiguity would have to be interpreted in favor of coverage.
If you are concerned about how a discretionary clause may affect your long-term disability insurance claim, call a knowledgeable ERISA long-term disability lawyer.