## Facts

- Damon Weatherspoon, an employee covered by an ERISA welfare benefit plan sponsored and administered by Majestic Star Casino, was seriously injured in a one-car accident on a Mississippi highway.
- A police crash report noted Weatherspoon was driving without a valid license and without automobile insurance, and included an unverified notation that he was “possibly under the influence.”
- Shelby County Health Care Corporation (a hospital) provided treatment costing about $400,000 and obtained an assignment of Weatherspoon’s plan benefits.
- The plan granted Majestic discretionary authority to construe plan terms and determine eligibility for benefits.
- The plan contained an “illegal act” exclusion barring payment for injuries “caused by, or contributed to by, engaging in an illegal act,” without defining “illegal act.”
- Majestic used a third-party administrator (BAS) to investigate and process claims; BAS recommended denial based on lack of license and insurance and stated it was not relying on the intoxication notation.
- Majestic approved BAS’s recommended denial, and BAS sent the denial letter to the hospital asserting the injuries resulted from participation in an illegal act.
- The hospital sued under ERISA § 502(a)(1)(B) to recover benefits; the district court applied de novo review, awarded benefits and prejudgment interest, and later awarded attorney’s fees and costs.

## Issues

1. Whether the correct ERISA standard of review was de novo or arbitrary-and-capricious where a third-party administrator handled the claim but the plan administrator retained discretionary authority and approved the denial.
2. Whether denying benefits under an “illegal act” exclusion, based solely on driving without a license and insurance, was reasonable where the exclusion required the illegal act to “cause or contribute to” the injury.
3. Whether the district court properly awarded attorney’s fees and costs under ERISA’s discretionary fee provision.

## Decision

- The court held the proper standard of review was arbitrary-and-capricious because the plan granted Majestic discretion and BAS acted as Majestic’s agent, with Majestic approving the denial.
- Applying arbitrary-and-capricious review, the court affirmed the award of benefits and prejudgment interest because the denial lacked evidentiary support for the required causal connection between the alleged illegal acts and the accident.
- The court reversed the award of attorney’s fees and costs, finding an abuse of discretion under the governing multi-factor analysis.

## Legal Principles

- When a plan grants discretionary authority to the administrator, judicial review of benefit denials is arbitrary-and-capricious, and use of a third-party administrator does not eliminate deference where the administrator retains and exercises final authority.
- Even under arbitrary-and-capricious review, a denial must result from a reasoned process and be supported by substantial evidence, including a rational connection between the facts found and the decision.
- Where an exclusion applies only to injuries “caused by, or contributed to by” an illegal act, the administrator must have evidence of a causal nexus; coincidence with unlawful status or conduct is insufficient.
- ERISA attorney’s fees under 29 U.S.C. § 1132(g)(1) are discretionary and require evaluation of factors such as culpability/bad faith, deterrence, common benefit or significance of the ERISA question, ability to pay, and relative merits; prevailing on the merits alone does not compel a fee award.

## Conclusion

The Sixth Circuit required deferential review because the plan administrator retained discretion, but still upheld benefits because the “illegal act” exclusion demanded proof that the illegality caused or contributed to the accident, which the record lacked; it also vacated attorney’s fees as inadequately justified under ERISA’s discretionary standards.


Shelby Cnty. Health Care Corp. v. Majestic Star Casino, LLC Grp. Health Benefit Plan, 581 F.3d 355 (6th Cir. 2009)