The term “contra proferentem” refers to a doctrine of contractual interpretation which instructs courts to construe ambiguous language found in contracts against the drafter of the contract. In our practice, we often come across terms or provisions of insurance contracts which are capable of more than one meaning. In the non-ERISA context, this ambiguity is always construed against the insurance company. However, in ERISA governed cases, the analysis can change in favor of the insurance company. The 10th Circuit Court of Appeals has rejected the applicability of contra proferentem in cases where the Administrator (e.g. insurance company) retains discretion, thus the court’s review of an adverse benefit determination is whether the administrator abused discretion. See Kimber v. Thiokol Corp, 196 F.3d 1092, 1100 (10th Cir. 1999). However, in the Kimber case, the court reserved the question of whether contra proferentum applied in reviewing a case under the “de novo” (Latin for “anew”) standard of review. Under a de novo standard, the court will take a fresh look at the decision without regard for the decision made by the plan administrator or fiduciary. (Click here for a discussion of the difference between “arbitrary and capricious” and “de novo” standards of review.)
On September 25, 2007, the 10th Circuit answered the question in the affirmative with the decision in Miller v. Monumental Life Ins. Co. In this case, the insurance company did not reserve any such powers of interpretation such that the court’s review of the denial of benefits was de novo. The 10th Circuit followed the precedent of other circuits in employing contra proferentem to construe ambiguous language in contracts governed by ERISA where review is de novo. To do so comports with the principal underlying ERISA preemption, which is uniformity. The court in this case construed the Plan’s terms in favor of Mr. Miller and held that he satisfied the requirement of his disability policy that the insured/participant must have been awarded Social Security benefits to be considered disabled under his employer provided long-term disability policy.
Although the 10th Circuit has finally clarified the applicability of this doctrine in de novo review cases, the Law Office of Shawn E. McDermott has always presented this argument when appropriate. Moreover, we believe the 10th Circuit’s failure to adopt the doctrine in a discretionary review should be in doubt following the decision of Fought v. Unum, 379 F.3d 997 (10th Cir. 2004). Pursuant to Fought, the burden under the arbitrary and capricious standard depends upon whether a Plan Administrator operates under a conflict of interest. In most cases the Defendant insurance company has an inherent conflict of interest, which means the Plan Administrator bears the burden of proving the reasonableness of its decision. When a serious, inherent conflict of interest exists, the rule of contra proferentem should apply. Otherwise, insurance companies could intentionally draft ambiguous provisions into their contracts, deny claims based upon those intentionally ambiguous provisions, then have the ambiguity construed in its favor by a reviewing court. This outcome certainly undermines the policies underlying ERISA, which Congress enacted to “promote the interests of employees and their benefits and employee benefit plans and to protect contractually defined benefits,” Firestone Tire & Rubber Co., 489 U.S. 101 (1989).
The law in cases surrounding ERISA are ever changing, and often conflicting from one circuit to another. An experienced ERISA attorney is a must to guide you through your claim for disability benefits. Please feel free to contact our office if you have any questions or concerns about your claim for benefits.