An issue that always has to be addressed in ERISA disability claims is the standard of review to be applied to the plan administrator’s decision. If the plan language does not confer discretion on the administrator, then the court reviews any decision under a de novo standard. However, if the plan gives discretion, then the administrator’s decision is reviewed under an abuse of discretion standard.
But there can be another scenario, one that has confounded litigants, lawyers, and courts for years. It is where the plan administrator, which makes the decision about a claimant’s entitlement to benefits, is also the plan insurer and therefore responsible for paying benefits.
Courts have long recognized the conflict of interest that exists, even if they have not been sure how to deal with it. That’s why the Supreme Court of the United States’ decision in Metropolitan Life Insurance Company v. Glenn, 2008 WL 2444796 (June 19, 2008),was so eagerly awaited.
In Glenn, Metropolitan (“MetLife”) administered Sears, Roebuck & Company’s long-term disability plan and also paid the benefits. Sears’ plan’s language conferred discretion on Metropolitan, which meant that its decision whether to award benefits would be reviewed under the abuse of discretion standard.
Wanda Glenn applied for and received LTD benefits because she was able to show that she could not perform the material duties of her own job (the “own occ” standard). After 24 months, however, the plan’s standard for proving disability changed, and required her to prove that not only could she not perform her own job, but that she could not perform the material duties of any gainful occupation for which she was reasonably qualified (the “any occ” standard).
MetLife found that she did not satisfy this standard and denied her claim for benefits. The District Court for the Southern District of Ohio affirmed the denial, and Glenn appealed to the United States Court of Appeals for the Sixth Circuit.
In reversing the denial of Glenn’s benefits, the Sixth Circuit relied on a combination of factors, including MetLife’s conflict of interest (the others factors were specific to the treatment of Glenn’s claim). MetLife appealed to the Supreme Court.
In an opinion written by Justice Stephen Breyer for a majority of five justices, the Court affirmed the Sixth Circuit and identified two questions to be answered: the first, posed by MetLife, is “whether a plan administrator that both evaluates and pays claims operates under a conflict of interest in making discretionary benefit determinations.” The second question, posed by the Solicitor General, is “’how’ any such conflict should ‘be taken into account on judicial review of a discretionary benefit determination.’”
Personally, I find the second question to be much more significant than the first. Courts have noted for years the existence of a conflict of interest when the “entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket.” The real issue is how a court is supposed to deal with the conflict.
The Court relied on principles of trust law in concluding that “for ERISA purposes a conflict exists,” and identified several reasons.
The employer’s own conflict may extend to its selection of an insurance company to administer its plan (an employer may be more interested in a company that offers low rates instead of one that has accurate claim processing);
ERISA imposes higher-than-marketplace quality standards on insurers (ERISA requires a plan administrator to adhere to a special standard of care; and
A legal rule that treats insurance company administrators and employers alike in respect to the existence of a conflict can nonetheless take account of the circumstances to which MetLife points so far as it treats those, or similar, circumstances as diminishing the significance or severity of the conflict in individual cases
Regarding the thornier problem of how to account for a conflict, the Court repeated its statement from Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), that a conflict “should be weighed as a factor in determining whether there is an abuse of discretion.”
The Court pointed out that the standard of review should not change, however, which “in practice could bring about near universal review by judges de novo-i.e., without deference-of the lion’s share of ERISA plan claims denials.” Rather, the Court envisioned that a conflict of interest is a “factor” to be considered in addition to other considerations. This was the approach taken by the Sixth Circuit; it considered the conflict, but may not have found it to be determinative of Glenn’s appeal in view of other factors.
Interestingly, in his partial concurrence, Chief Justice John Roberts cautioned that the majority’s approach would bring about a change in the standard of review: “The end result is to increase the level of scrutiny in every case in which there is a conflict-that is, in many if not most ERISA cases-thereby undermining the deference owed to plan administrators when the plan vests discretion in them.”
If you're interested in knowing more about MetLife v. Glenn (and who wouldn't be?), I recommend the knowledgeable and insightful comment and analysis of Roy Harmon at Health Plan Law, Brian King at ERISA Law Blog, Steven Rosenberg at Boston ERISA & Insurance Litigation Blog, Paul Secunda at Workplace Prof Blog, Suzanne Wynn at Pension Protection Act Blog, and Mark DeBofsky at DDBlog.
