The administrator is a committee. In one of our early ERISA decisions, Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir. 1982), we cited with approval a definition of an "arbitrary and capricious" standard as one that required a reviewing court to determine if the decision of the plan fiduciary is "supported by substantial evidence" and is based on correct interpretations of law. Although we have no desire to wade into the largely semantic disagreement among other circuits about how to label this deferential standard of review, we are nonetheless confident that if a decision is supported by substantial evidence and is not erroneous as a matter of law, it is not arbitrary and capricious.
The actions of a Plan Committee must be upheld unless a plaintiff proves that the Committee has acted in an arbitrary and capricious manner. Dennard v. Richards Group, 681 F.2d 306, 313 (5th Cir. 1982); Denton v. First National Bank of Waco, 765 F.2d 1295, 1304 (5th Cir. 1985). This strict standard limits excessive judicial intervention in the administration and operation of trusts.
The "arbitrary and capricious" formulation was widely used to describe the standard. See, e.g., Moore v. Reynolds Metals Co. Retirement Program, 740 F.2d 454, 457 (6th Cir. 1984); Short v. Central States, Southeast and Southwest Areas Pension Fund, 729 F.2d 567, 571 (8th Cir. 1984); Wolf v. National Shopmen Pension Fund, 728 F.2d 182, 187 (3d Cir. 1984); Berg v. Board of Trustees, Local 705 Int'l Bhd. of Teamsters Health and Welfare Fund, 725 F.2d 68, 70 (7th Cir. 1984); Miles v. New York State Teamsters Conference Pension and Retirement Fund, 698 F.2d 593, 599 (2d Cir. 1983); Dennard v. The Richards Group, 681 F.2d 306, 313 (5th Cir. 1982); Lowenstern v. International Ass'n of Machinists and Aerospace Workers, 479 F.2d 1211, 1213 (D.C. Cir. 1973).narrow one. A reviewing court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. . . . [T]his inquiry into the facts is to be searching and careful, [but] the ultimate standard of review is a narrow one . . ., [and t]he court is not empowered to substitute its judgment for that of the [plan fiduciaries].
Denton v. First National Bank of Waco, Texas, 765 F.2d 1295, 1304 (5th Cir. 1985). See also, Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir. 1982). Even if the administrator's interpretation appears incorrect, there is no violation of ERISA, unless that decision can be viewed as arbitrary or capricious. Dennard, 681 F.2d at 314.
Lockhart v. United Mine Workers of America 1974 Pension Trust, 5 F.3d 74, 78 (4th Cir. 1993) (noting that denial of benefits which is contrary to the clear language of the plan constitutes an abuse of discretion); Davis v. Burlington Indus., Inc., 966 F.2d 890, 895 (4th Cir. 1992) ("If the plan language is unambiguous, however, we would not defer to a contrary interpretation" by the trustees.); Callahan v. Rouge Steel Co., 941 F.2d 456, 460 (6th Cir. 1991) (most important factor in considering whether denial of benefits was arbitrary and capricious is the language of the plan); Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir. 1982) ("When the trustees' interpretation of a plan is in direct conflict with express language in a plan, this action is a very strong indication of arbitrary and capricious behavior."). Regarding the remaining four Finley factors, we first examine whether the trustees have interpreted the policy provisions consistently.
Prior to Firestone, the Fifth Circuit had followed a limited scope of review for denial of benefits under ERISA. Along with other courts, we considered ourselves bound by a committee's interpretation and determinations unless they were arbitrary or capricious. See, e.g., Dennard v. Richards Group, Inc., 681 F.2d 306, 313 (5th Cir. 1982); Bayles v. Central States, Southeast Southwest Areas Pension Fund, 602 F.2d 97, 99-100 (5th Cir. 1979). A number of courts, however, recognized that such a broad deferential review could not be accorded questions of law under ERISA.
A. The Correct Interpretation. We are guided by Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir. 1982), which instructs us to consider three factors in determining the legally correct interpretation of the Pension Plan: (1) "uniformity of construction; (2) `fair reading' and reasonableness of that reading; and (3) unanticipated costs." 1. Uniformity of construction.
As defendants correctly note in their response to plaintiffs' argument, most courts of appeals have applied the arbitrary and capricious standard when considering challenges to plan administrators' denial of benefits. Kosty v. Lewis, 319 F.2d 744 (D.C.Cir. 1963); Miles v. New York State Teamsters Conference, 698 F.2d 593 (2d Cir. 1983); Holland v. Burlington Industries, 772 F.2d 1140 (4th Cir. 1985), affirmed mem. as Brooks v. Burlington Industries, ___ U.S. ___, 106 S.Ct. 3267, 91 L.Ed.2d 559, cert. denied as Slack v. Burlington Industries, ___ U.S. ___, 106 S.Ct. 3271, 91 L.Ed.2d 562 (1986);Dennard v. Richards Group, Inc., 681 F.2d 306, 314 (5th Cir. 1982); Varhola v. Doe, 820 F.2d 809 (6th Cir. 1987); Blakeman v. Mead Containers, 779 F.2d 1146 (6th Cir. 1985); Pabst Brewing Co. v. Anger, 784 F.2d 338 (8th Cir. 1986) (per curiam); Dockray v. Phelps Dodge Corp., 801 F.2d 1149 (9th Cir. 1986); Anderson v. Ciba-Geigy Corp., 759 F.2d 1518 (11th Cir. 1985). Most of these courts — though, as we discuss below, not all — have applied this standard without stopping to ascertain whether the plan's funding obligations gave the plan administrator an interest adverse to the claimants with respect to the question whether benefits should be paid.
The court performs a review function, and its role is limited to determining whether the administrator exercised its decision-making prerogative in a reasonable and impartial manner. See Denton v. First Nat'l Bank, 765 F.2d 1295, 1298-99 n. 5 (5th Cir. 1985) (inquiry for trial court must always be whether trustees acted in an arbitrary and capricious manner, not what district court would have done had it been confronted with the evidence placed before the committee de novo; exhaustion of remedies "is such an important part of ERISA" because court must look to reasonableness of committee's decision); Offutt v. Prudential Ins. Co., 735 F.2d 948, 950 (5th Cir. 1984) (application of arbitrary and capricious standard "is not an abdication of traditional judicial responsibility to review the actions of fiduciaries; but, in accordance with federal labor policy, the arbitrary-or-capricious standard does limit review to prevent excessive judicial intervention in trust operations."); Dennard v. Richards Group, Inc., 681 F.2d 306, 313 (5th Cir. 1982) (arbitrary and capricious standard "prevents excessive judicial intervention in trust operations"); cf. Pierre v. Connecticut Gen. Life Ins. Co., 932 F.2d 1552, 1559, 1562 (5th Cir.), cert. denied, ___ U.S. ____, 112 S.Ct. 453, 116 L.Ed.2d 470 (1991) ("courts simply cannot supplant plan administrators, through de novo review, as resolvers of mundane and routine fact disputes;" rather, "abuse of discretion standard best balances the need to respect plan administrator's factual determinations and the need to protect beneficiaries by providing some judicial review of those decisions.") Whereas the Fifth Circuit had once referred to the applicable standard of review as arbitrary and capricious, see, e.g., Offutt v. Prudential Ins. Co., 735 F.2d 948, 950 (5th Cir. 1984), the court has recently clarified, in response to the Supreme Court's decision in Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), that the standard of review for an administrator's f
It is settled in this circuit that the denial of a claim for ERISA profit-sharing plan benefits is to be reviewed in the trial court in the first instance, and on appeal, under the arbitrary and capricious standard of review. Dennard v. Richards Group, Inc., 681 F.2d 306, 313 (5th Cir. 1982) (profit-sharing plan case). According to the clear weight of authority, the actions of a trustee in the administration of a pension plan must be sustained as a matter of law unless plaintiff can prove such activities have been arbitrary or capricious.