Understanding “Abuse of Discretion” in ERISA Long-Term Disability Claims
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The Employee Retirement Income Security Act of 1974 (ERISA) governs employer-sponsored long-term disability (LTD) insurance plans and sets the rules for how claims are evaluated and litigated. When a plan administrator denies an LTD claim, the standard of review applied by courts — either “abuse of discretion” or “de novo” — can significantly affect the outcome.
This blog explores whether a plan administrator’s failure to apply the terms of an ERISA LTD plan can be considered an abuse of discretion, the differences between these two standards, and what claimants should know when challenging a denial.
ERISA’s Legal Framework for Long-Term Disability Claims
ERISA preempts most state insurance laws for employer-sponsored LTD plans, creating a distinct legal environment. Unlike typical insurance litigation, ERISA claims are generally decided in federal court without a jury. Remedies are usually limited to the benefits owed under the plan and reasonable attorney’s fees — no punitive or emotional distress damages.
The Two Standards of Review: De Novo vs. Abuse of Discretion
De Novo Review
When an ERISA plan does not grant the administrator discretionary authority, courts apply the de novo standard. This means the court will review the case from scratch, with no deference to the insurer’s decision.
Abuse of Discretion Review
When the plan includes a discretionary clause, courts apply the abuse of discretion standard (also called “arbitrary and capricious” review). Here, the court must uphold the administrator’s decision unless it was unreasonable, arbitrary, or unsupported by the evidence.
The Importance of Applying the Plan Terms Correctly
A fundamental duty of a plan administrator is to apply the LTD plan’s terms accurately and consistently. Courts have repeatedly found that a failure to apply these terms can be an abuse of discretion, even under a deferential review standard.
For instance, in Mullins v. CONSOL Energy Inc., the Third Circuit overturned a denial because the insurer misclassified the claimant’s job duties, failing to apply the plan’s own definition of “total disability.”
Factors Courts Consider in an Abuse of Discretion Analysis
When deciding whether a denial was an abuse of discretion, courts look at:
The plan’s language and purpose
The reasonableness of the interpretation
Consistency with past interpretations
Adequacy of the evidence considered
Procedural fairness
Potential conflicts of interest
Courts can also weigh any procedural irregularities, such as failing to consider key medical evidence or not giving the claimant a full and fair review.
When Courts May Apply De Novo Review Instead
Even when a plan includes discretionary language, courts may switch to de novo review if:
The plan administrator fails to comply with procedural requirements.
The plan’s language is ambiguous about who has discretion.
State law (like in California) bans discretionary clauses in LTD policies. Read our blog about that to find out if your state has this valuable ban.
There is a structural conflict of interest that infects the decision-making process.
Consequences and Remedies if Abuse of Discretion is Found
If a court finds that a plan administrator abused its discretion by ignoring the plan terms:
The denial can be reversed.
Benefits may be reinstated, including back payments.
The court may remand the claim back to the insurer for reconsideration.
Claimants may recover attorney’s fees and costs.
However, ERISA generally does not allow punitive or emotional distress damages.
Conclusion: The Importance of a Careful, Fact-Specific Approach
Courts across the country have consistently held that failing to apply the LTD plan’s terms is a serious error that can overturn a denial. If you’re facing a long-term disability denial, it’s crucial to:
✅ Review the plan’s language.
✅ Gather and highlight evidence showing how the plan terms support your claim.
✅ Watch for procedural errors by the insurer.
✅ Work with an experienced ERISA attorney who understands these nuanced rules.
At Dorian Law, we’re committed to helping claimants navigate the complexities of ERISA and fight for the benefits they deserve.
Frequently Asked Questions (FAQ)
What does “abuse of discretion” mean in an ERISA disability case?
“Abuse of discretion” means that a court will uphold an insurance company’s decision to deny benefits unless it was unreasonable, arbitrary, or unsupported by the evidence. The administrator must have a logical and fair basis for the denial.
What is the “de novo” standard of review in an ERISA disability case?
The “de novo” standard is applied when the plan doesn’t grant discretion to the insurer. Under de novo review, the court independently decides whether the claimant qualifies for benefits, without deferring to the insurer’s decision.
Can I win my ERISA disability case if the insurance company did not apply the policy terms?
Yes. Courts can find an abuse of discretion if the insurer misinterprets or ignores the plan’s clear terms. This often results in reversing the denial and ordering benefits to be paid.
What factors do courts consider when deciding who wins an ERISA disability case if the review is for abuse of discretion?
Courts consider the plan’s language, how reasonable the interpretation was, whether the administrator consistently applied the rules, if all relevant evidence was considered, and if there were any conflicts of interest or procedural errors.
What do I get if a court finds an abuse of discretion in my ERISA disability lawsuit?
If a court finds an abuse of discretion, it can reverse the denial and order payment of back benefits. Courts can also remand the claim for further review and may award attorney’s fees and costs.
Contact Dorian Law for Help
If your LTD claim has been denied or you’re navigating a complex ERISA disability dispute, contact Dorian Law today. We can analyze your plan’s language, the insurer’s decision, and your medical records to build the strongest possible case for you.