Plan Administrator - One Strike, You're Safe
On April 21, 2010, in the case of Conkright v. Frommert, 559 U.S. ___ (2010), the United States Supreme Court held that where a plan administrator is granted deference in exercising its discretionary authority, and the administrator subsequently issued an incorrect interpretation related to the plan document, absent malice, the plan administrator is not disqualified from making future interpretations of the plan on the same or related matters.
The case involved the Xerox Corporation’s pension plan. The plan document provided the administrator discretionary authority to interpret the plan in accordance with Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), which held that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion.
The administrator of the Xerox pension plan initially interpreted the plan incorrectly. The Second Circuit stated that the plan administrator’s interpretation was unreasonable and remanded the matter. On remand, the administrator interpreted the plan in a different manner. Certain members of the plan objected to the administrator’s second interpretation and argued that the administrator should not be accorded any deference in the matter. The question before the Supreme Court was whether a single honest mistake in plan interpretation strips the administrator of the deferential standard for subsequent related interpretations.
Chief Justice Roberts, writing the opinion for the majority, sided with the plan administrator. “People make mistakes. Even administrators of ERISA plans. This should come as no surprise, given that [ERISA] is ‘an enormously complex and detailed statute. . . and the plans that administrators must construe can be lengthy and complicated’.” As the Chief Justice noted, the Xerox pension plan ran 81 pages, with 139 sections.
Firestone held that the standard of review of the actions of a plan administrator depends on the language of the instrument creating the trust. If the trust documents give the trustee “power to construe disputed or doubtful terms, … the trustee’s interpretation will not be disturbed if reasonable.”
Conkright holds that “when the terms of a plan grant discretionary authority to the plan administrator, a deferential standard of review remains appropriate even in the face of a conflict.” In rejecting the “once-strike-and-you’re-out” approach, the Supreme Court found that the district court erred in refusing to defer to the plan administrator’s interpretation of the plan simply because a previous related interpretation by the administrator turned out to be invalid.
Although Conkright was based on an interpretation of a pension plan, the same latitude should be applicable to a plan administrator’s interpretation of a health plan. If the administrator is found to have misinterpreted plan language, the administrator is entitled to a second bite at the apple. The still unanswered question for plan administrators: Are you out after two strikes?