On State Regulators and the Continued Existence of Discretionary Review

You know the old saying “let a thousand flowers bloom”? Its long been a shorthand way (ironically enough, given its origin) of referring to the idea of letting state governments and programs serve as testing grounds for different approaches to the same problem, rather than having the federal government dictate one definitive solution, in the form of a particular program. What’s this have to do with ERISA? Well, in all the years I have been writing this blog, people have complained that the Supreme Court, perhaps inadvertently, granted plan administrators too much power by authorizing the application of discretionary review so long as the plan’s authors remembered to grant that to them in the plan documents. Eventually, the carping at the federal level – predominately by means of arguments made in litigation in the federal courts – resulted in some minor changes at the margins, such as rules regarding structural conflicts of interest that are at least slightly more favorable to participants than they are to plans. This approach to date has still not resulted in any great gains in favor of participants, or weakening of the system of arbitrary and capricious, or discretionary, review that governs decisions under most plans. With much less fanfare, however, certain state regulators have targeted this problem by banning the use of the operative language that generates this type of review in insurance policies affecting residents of their states. I have not made a careful study, but the cases that cross my desk from time to time clearly show that these regulatory initiatives are being upheld by the courts, are not preempted, and are serving to impose de novo review – instead of discretionary review – on plans. Why this is working in this way is perfectly summed up in this decision out of the United States District Court for the Northern District of Illinois, Curtis v. Hartford.