Smith v. Reliance Standard Life Insurance Co., 686 F. App'x 446

Background

Gregory Smith sought short-term and long-term disability benefits from Reliance, which both administered and paid claims under the plan.
Reliance denied short-term benefits as based on a pre-existing condition and denied long-term benefits on the same ground; it relied on a paper review rather than an in-person exam.
The district court affirmed the denial of short-term benefits and awarded long-term benefits solely because Reliance failed to issue a written denial within ERISA’s 90-day regulatory period.
The Ninth Circuit found the district court applied an ordinary abuse-of-discretion review for the short-term denial despite a structural conflict of interest (administrator is also payor), requiring more searching review.
The Ninth Circuit held that a procedural ERISA violation (late denial) alone cannot automatically justify awarding benefits; the district court must determine whether Smith suffered substantive harm warranting de novo review.
The Ninth Circuit vacated the district court’s orders (including attorney’s fees), remanding for reconsideration with instructions on how to weigh the conflict of interest and procedural violation.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standard of review for short-term denial given Reliance both paid and administered claims	Smith: structural conflict requires heightened skepticism of Reliance’s denial	Reliance: ordinary abuse-of-discretion review applies	Vacated and remanded: conflict is a factor to weigh under abuse-of-discretion (apply Abatie framework; consider self-dealing and paper-only review)
Whether failure to issue denial within ERISA 90-day period alone mandates benefits award	Smith: late denial justifies awarding long-term benefits	Reliance: procedural lapse does not automatically entitle claimant to benefits	Vacated: procedural violation alone insufficient; court must assess whether violation caused substantive harm to warrant de novo review
Whether Harlick supports district court’s reasoning (new reasons withheld till litigation)	Smith: district court relied on similar reasoning to Harlick	Reliance: did not assert new reasons in litigation; same pre-existing condition ground used	Harlick inapplicable — Reliance did not raise new grounds at litigation; Harlick concerns invoking new grounds first in litigation
Reconsideration and attorney’s fees consequences of procedural error	Smith: denial of reconsideration and award should stand	Reliance: procedural error must be assessed for prejudice before altering review or awarding relief	Vacated denial of reconsideration; attorney’s-fee award vacated; remand to determine substantive harm and apply proper review; each party bears its own costs on appeal

Key Cases Cited

Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955 (9th Cir.) (en banc) (structural conflict of interest alters level of skepticism under abuse-of-discretion review)
Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917 (9th Cir. 2012) (conflict of interest is a factor in weighing administrator’s decision)
Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623 (9th Cir. 2009) (reliance on paper review rather than in-person exam is a factor in assessing decision)
Gatti v. Reliance Standard Life Ins. Co., 415 F.3d 978 (9th Cir. 2005) (procedural ERISA violations do not automatically require benefits award but may alter standard of review)
McKenzie v. Gen. Tel. Co. of Cal., 41 F.3d 1310 (9th Cir. 1994) (procedural violations and remedies under ERISA)
Harlick v. Blue Shield of California, 686 F.3d 699 (9th Cir. 2012) (administrator may not assert new reasons for denial first raised in litigation)
Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877 (9th Cir. 2000) (clear error standard referenced for reconsideration rulings)