Eighth Circuit Upholds Denial of Benefits Under ERISA-governed Insurance Policy

The Eighth Circuit Court of Appeals, in Donaldson v. Nat’l Union Fire Ins. Co. of Pittsburg, recently upheld the denial of benefits under an ERISA-governed insurance policy because the plan administrator’s interpretation of the disputed policy language was found to be reasonable.

Michele Donaldson filed a claim for accidental death and spousal benefits under an insurance policy issued to Schwan’s Shared Services, LLC by National Union Fire Insurance Company of Pittsburgh, PA.  Mrs. Donaldson’s claim arose after her husband was killed in a motor vehicle accident in which his vehicle was struck by another that crossed into his lane of traffic.  Mr. Donaldson was employed as a delivery driver with Schwan’s and was on his delivery route at the time of the accident.

The applicable insurance policy was an employee-benefit plan governed by the Employee Retirement Income Security Act (ERISA).  The policy provided insureds with financial security in the event of an accidental death or injury when traveling on business.  The policy provided “Hazards” that described specifically the circumstances under which coverage would be afforded.

Mrs. Donaldson filed her claim for accidental death and spousal benefits under Hazard H-12, which offered “24-Hours Accident Protection While On A Trip (Business Only).”  National Union denied the claim under Hazard H-12 because Mr. Donaldson was not on a business trip at the time of his death; instead, he was operating a vehicle that he had been hired to operate.  Following denial of her claim, Mrs. Donaldson filed a complaint in state court seeking an accidental death benefit on behalf of Mr. Donaldson’s estate in the amount of $286,000 and a spousal benefit of $50,000.  Following removal to the United States District Court for the Eastern District of Arkansas, the district court found that denial of Mrs. Donaldson’s claim was appropriate because National Union had reasonably interpreted the Policy language and there was no abuse of discretion.  Mrs. Donaldson’s complaint was dismissed with prejudice, which resulted in an appeal to the Eighth Circuit.

The ERISA-governed plan granted the plan administrator discretion to interpret the plan and to determine eligibility for benefits.  The Eighth Circuit reviewed National Union’s decision to deny benefits under the abuse of discretion standard, which required the Court to uphold the insurer’s decision as long as it was based on a reasonable interpretation of the policy and was supported by substantial evidence.  A number of relevant factors to aid the Court in its consideration have been determined in prior matters.  See King v. Hartford Life & Accident Ins. Co., 414 F.3d 994, 999 (8^th Cir. 2005).  The dispositive factor, however, was whether the plan administrator’s interpretation of the disputed provisions was reasonable. 

Interpretation of the policy at issue turned on whether an exception listed in Hazard H-12 applied to the circumstances of the accident.  In its close examination of the policy language, the Eighth Circuit determined that the disputed exception language was ambiguous.  The Court held that where the terms of the plan are susceptible to multiple, reasonable interpretations, a plan administrator’s choice among the reasonable interpretations is not an abuse of discretion.  As both National Union and Mrs. Donaldson’s interpretations were equally reasonable, the Court deferred to the plan administrator’s interpretation of the disputed language and found no abuse of discretion by National Union.  The district court’s decision was affirmed.

The opinion in its entirety may be found here.