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Copyright (c) 2011 South Dakota Law Review
South Dakota Law Review

ARTICLE: EXORCISING DISCRETION: THE DEATH OF CAPRICE IN ERISA CLAIMS HANDLING

2011

South Dakota Law Review

56 S.D. L. REV. 482

Author

John Morrison+ and Jonathan McDonald++

Excerpt



I. INTRODUCTION
 
The Employee Retirement Income Security Act of 1974 (ERISA) 1 was enacted to rectify mismanagement of union-sponsored pension plans. 2 To that end, the Act sought to "protect ... participants in employee benefit plans and their beneficiaries ..." by imposing fiduciary duties on persons responsible for management of benefit plans. 3 More than 130 million Americans receive health coverage and other employee benefits under plans governed by ERISA. About 64 million of them are covered under insurance policies purchased by their employers. 4

ERISA permits a person who is denied benefits under a plan to contest the denial in federal court, subject to various limitations. 5 Nearly all ERISA plans contain "discretionary clauses," which bestow discretion on the "plan administrator" to interpret language in the policy and otherwise determine eligibility for benefits. These clauses proliferated in the early 1990s when they were construed by the federal courts to confer such authority upon insurers and employers that benefit denials can only be reversed when they are found to be "arbitrary and capricious." After more than a decade of litigation among private parties in every federal circuit, state insurance regulators stepped in, banning the clauses and restoring the rights of tens of millions of Americans to go to court to enforce their insurance contracts. 6 Challenged by the insurance industry, states have prevailed in two key legal battles. In Standard Insurance Co. v. Morrison and American Council of Life Insurers v. Ross, ...
 
 
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