A recent decision by the Missouri Court of Appeals limited the scope of the U.S. Supreme Court’s holding in Firestone Tire & Rubber Co. v. Burch, 489 U.S. 101 (1989). In Firestone, the Supreme Court held that “a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Id. at 115. If the administrator or fiduciary is given such discretionary authority, courts are to review benefit denials under an arbitrary or capricious standard. This magic discretionary authority language—or “Firestone language”—has been incorporated into benefit plans ever since.
In Thiemann v. Columbia Public School District, No. 72791 (Mo. App. W.D., March 22, 2011), a plan participant was denied benefits under a self-funded, governmental medical benefits plan. The plan participant sued for breach of contract and vexatious refusal to pay, and the trial court granted summary judgment in the defendant employer’s favor. The plan participant appealed the decision, and the Missouri Court of Appeals was initially tasked with deciding what standard of review to apply to the employer’s decision to deny benefits.
Importantly, the benefits plan at issue contained explicit “Firestone language,” which read as follows:
The Employer, or its designee, shall have the sole and absolute authority and discretion to interpret the terms of the Plan, to determine all questions of fact and determine the eligibility of individuals for coverage and benefits and their extent.
The employer argued on appeal that the above-referenced language mandated an “abuse of discretion” standard of review instead of a “de novo” standard. However, since the benefits plan was a governmental plan, it was not subject to the Employee Retirement Income Security Act (“ERISA”), and therefore the U.S. Supreme Court’s decision in Firestone did not serve as binding precedent.
The Missouri Court of Appeals ultimately applied a “de novo” standard of review to the benefits denial, noting in pertinent part that the plan was not subject to ERISA, the plan provided that Missouri law would govern interpretation of the plan documents, and the “Firestone language” authorized the employer to make determinations of fact, not law. Also noteworthy, the court made clear that it would not deviate from the Missouri Supreme Court’s position that decisions with respect to summary judgments are to be given a “de novo” review.