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Do you know the twenty-four words that can keep the claim decisions made by your ERISA Plan from being overturned in court?
If you do, then you know the "Firestone exception." This phrase helps uphold a Plan's determination of an ERISA-governed claim in court.
In 1989, the United States Supreme Court held in Firestone Tire & Rubber Co., v. Bruch, 489 U.S. 101 (1989), that the de novo (non-deferential) review of ERISA-governed claims applied - "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan."
How is it that these twenty-four words above can provide an ERISA Plan with a favorable outcome if it is sued for denying a claim? A benefit plan with the Firestone Language gives the Plan administrator discretionary authority when deciding a claim. If an employee sues over the Plan's denial of a claim, and the Plan contains the Firestone Language, a court defers to the Plan's final decision regarding the employee's claim and looks only at whether the decision was "arbitrary, capricious or an abuse of discretion." In this situation, it is difficult for the court to overturn the judgment of the Plan administrator.
Without this language, the court's inquiry is not confined to looking at whether the decision is "arbitrary, capricious or an abuse of discretion." A broader standard is used by the court, i.e., the court's interpretation of the Plan language may be substituted for the Plan administrator's interpretation.
Suggestion: Consider inserting this Firestone Language into your Plan the next time you republish your Plan documents.
For more information on ERISA Plans and other employment law issues, call Krukowski & Costello, S.C. at (414) 423-1330 or e-mail educational services.
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