ERISA, Trust Law, and the Appropriate Standard of Review

Joshua Foster (J.D. Candidate, June 2008, St. John’s University School of Law) has recently published his Note entitled ERISA, Trust Law, and the Appropriate Standard of Review: A De Novo Review of Why the Elimination of Discretionary Clauses Would be an Abuse of Discretion, 82 St. John’s L. Rev. 735 (2008).

Here is an abstract of his article:

Since the Supreme Court’s landmark decision in Firestone Tire & Rubber Co. v. Bruch, circuits have routinely upheld the use of discretionary clauses in insurance policies.  As the name implies, discretionary clauses allocate significant discretion to plan administrators, and decisions made by the administrators are reviewed under an arbitrary and capricious standard as opposed to de novo.  In early 2006, the New York Insurance Department issued two advisory circular letters maintaining that the use of discretionary clauses in insurance policies violates New York Insurance laws, and threatened to pass legislation banning their use.  However, allowing the New York Insurance Department to succeed in eliminating discretionary clauses will deprive the judicial system of its discretionary function in direct contradiction to the trust law the insurance scheme is built upon.  Additionally, many policy concerns including cost to policyholders and principles of judicial efficiency would be undercut by these changes.   This note argues that the legislature should not change the current scheme and consequently alter the judicial role, because the current scheme adequately protects the interested parties and is consistent with trust law that underlies ERISA and state insurance law.