Your ERISA Watch – Eighth Circuit Jettisons Prior Circuit Precedent Holding that Procedural Irregularities Can Justify a De Novo Standard of Review

This week the Eighth Circuit’s decision in McIntyre v. Reliance Standard Life Ins. Co., No. 19-2367, __F.3d__, 2020 WL 4951028 (8th Cir. Aug. 25, 2020), clarified that when circumstances demand “less deferential review,” this cannot mean de novo review. Why? After all, de novo review is less deferential than abuse of discretion review and multiple Eighth Circuit opinions appeared to sanction this seemingly logical finding.

After approving Plaintiff’s disability claim for two years, Reliance terminated Plaintiff’s long-term disability claim under the “any occupation” definition of disability. Plaintiff appealed and Reliance upheld its original determination. That finding that came almost seven months after the appeal was submitted—well outside the 90 days allowed. Plaintiff filed suit and the district court ruled in her favor under the de novo standard of review despite the Plan containing a grant of discretionary authority.

The district court decided that a de novo standard applied on the basis of Eighth Circuit caselaw providing that “less deferential review” applied despite a grant of such discretionary authority if (1) either the administrator faces a “palpable conflict of interest” or a “serious procedural irregularity” arose in the review process, and (2) either the conflict or the procedural irregularity “caused a serious breach of the plan administrator’s fiduciary duty” to the claimant. See Woo v. Deluxe Corp., 144 F.3d 1157, 1160 (8th Cir. 1998), abrogated in part by Metro. Life Ins. v. Glenn, 554 U.S. 105, 115-16 (2008). Specifically, the district court found a palpable conflict of interest present insofar as Reliance “both determines and pays claims” and ostensibly had a “history of biased claims administration.” The district court also found a serious procedural irregularity; namely, Reliance’s “long delay in deciding McIntyre’s appeal.” It then concluded that both of these caused Reliance to breach its fiduciary duty owed to McIntyre and therefore decided to “review McIntyre’s benefits claim de novo.”

The key precedent at issue was Woo, in which the Eighth Circuit recognized a court could apply “less deferential review” in certain circumstances. Because the district court found these circumstances present, it read Woo’s endorsement of “less deferential review” to mean de novo review. The three-judge panel in McIntyre held “this reading was error.”

It was undisputed that Glenn did not authorize de novo review based on a conflict of interest. But what about serious procedural irregularities, did they justify sliding the scale to de novo review post-Glenn? The Eighth Circuit had repeatedly avoided deciding the issue of whether a sliding scale was even appropriate post-Glenn and expressly did so again here. Instead it relied on an announcement that Woo never permitted de novo review in the first place.

In Woo, the court determined the facts warranted a less deferential standard of review, but it had to chose whether to adopt a sliding scale approach to the standard of review or to simply review the denial de novo. It adopted the sliding scale approach, which still required courts to apply an abuse of discretion analysis. “Notwithstanding the fact that the Woo sliding scale approach did not authorize departure from the abuse-of-discretion standard of review, Woo came to be read by [the Eighth Circuit] as providing a gateway to de novo review.” At least six published Eighth Circuit decisions read Woo in this way, with four others suggesting Woo permitted this outcome.

The McIntyre panel rejected those cases because, when faced with conflicting panel opinions, the law dictated the earliest opinion controlled. Thus, because “all of our precedents” mischaracterized the holding in Woo, it was Woo rather than the subsequent cases misstating (or misapplying) the holding in Woo that controlled. The review could not be de novo, but an abuse of discretion standard analysis that took into consideration the procedural irregularity.

In a footnote, the court emphasized that “at most—and only if the procedural-irregularities component of Woo survived Glenn, [] Woo would permit the district court to ‘require that the record contain substantial evidence bordering on a preponderance to uphold [Reliance’s] decision’ if the district court determines the procedural irregularities here are ‘egregious.”’

McIntyre had a second holding of interest: an administrator’s failure to decide an appeal within the applicable deadlines (usually 45 days plus 45 days) does not in and of itself trigger de novo review. Application of the de novo standard was only appropriate if the administrator wholly failed “to act on an appeal” and that failure “raises serious doubts about the result reached by the plan administrator” in its initial denial. The delay in deciding an appeal becomes a factor to be considered by the district court when reviewing the decision for an abuse of discretion.

This week’s notable decision was summarized by Brent Dorian Brehm, a partner at Kantor & Kantor, LLP. Brent has represented claimants like Ms. McIntyre—persons disabled by Charcot Marie Tooth Syndrome (“CMT”). This degenerative neurological condition affects a person’s peripheral nerves such as those in the hands and feet. Having seen the sometimes devastating effect of CMT, including problems walking, manual dexterity (i.e. writing or manipulating zippers), and loss of the sense of touch, he wishes Ms. McIntyre well as her case goes back to the district court for another evaluation. 

To read about other recent notable ERISA decisions, or to subscribe to our weekly blog, visit us online at www.lifeanddisabilitylaw.com/blog.