United States: Discovery In De Novo Matters – It Is Real And Here To Stay

The last two decades of litigation of matters subject to the Employee Retirement Income Security Act of 1974, 29 U.S.C.A. § 1001 (West) et seq. ("ERISA") have seen many changes with some profound ones in the area of discovery. At the beginning of the 21^st century, discovery was neither requested nor taken in ERISA governed claim litigation matters. Now, two decades later, discovery in cases subject to an arbitrary and capricious standard of review-so called conflict of interest discovery-is all too common and we have recently seen courts limiting matters to the administrative record again.1 The increasing number of claims subject to a de novo review were initially shielded from discovery as the so called conflict of interest did not factor into the analysis of a case subject to de novo review. In recent years, that changed again, however. The following will discuss the latest trends and case law in this evolving area of the law.

I. What is the de novo standard of review.

In 1989, the Supreme Court held in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989) that "[a] denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Id. at 115. Guiding courts in conducting a de novo review, the Supreme Court explained that prior to the enactment of ERISA, courts reviewed challenges to an employer's denial of benefits under principles of contract law, evaluating the employee's claim "by looking to the terms of the plan and other manifestations of the parties' intent." Id. at 112-113 (citing Conner v. Phoenix Steel Corp., 249 A.2d 866 (Del. 1969)). In accordance with the Supreme Court's reference to contract law, the Seventh Circuit Court of Appeals explained in Krolnik v. Prudential Ins. Co. of Am., 570 F.3d 841 (7th Cir. 2009):

Firestone holds that "de novo review" is the norm in litigation under ERISA. Cases such as this show that "de novo review" is a misleading phrase. The law Latin could be replaced by an English word, such as "independent." And the word "review" simply has to go. For what Firestone requires is not "review" of any kind; it is an independent decision rather than "review" that Firestone contemplates. The Court repeatedly wrote that litigation under ERISA by plan participants seeking benefits should be conducted just like contract litigation, for the plan and any insurance policy are contracts. Firestone Tire and Rubber Co., 489 U.S. at 112-13. In a contract suit the judge does not "review" either party's decision. Instead the court takes evidence (if there is a dispute about a material fact) and makes an independent decision about how the language of the contract applies to those facts.

That's well understood in insurance litigation under the diversity jurisdiction. If the plaintiff says that a fire at his home destroyed a valuable painting, and the insurer declines indemnity after finding that (a) there was no such painting, and (b) the fire was caused by arson, the federal judge won't ask what evidence the insurer considered. The court will decide for itself where the truth lies. A judge would not dream of forbidding the parties to take discovery, let alone of rejecting affidavits that did not depend on discovery. Evidence is essential if the court is to fulfill its fact-finding function. Just so in ERISA litigation. When review is deferential-when the plan's decision must be sustained unless arbitrary and capricious-then review is limited to the administrative record. See Perlman v. Swiss Bank Corp. Comprehensive Disability Prot. Plan, 195 F.3d 975 (7th Cir. 1999). Otherwise, however, the court decides on the record made in the litigation. And, if material evidence conflicts, then there must be a trial.

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Originally Published by ABA: Employee Benefits Law, Spring 2020