Supreme Court Addresses Review Of Conflicted ERISA Claims Administrator´s Decision
In Metropolitan Life Ins. Co. v. Glenn, __U.S.__(2008), 2008 U.S. LEXIS 5053 (June 19, 2008), the Supreme Court addressed two important and closely-related related issues involving the situation in which a plan administrator who also funds plan benefits decides claims appeals under an ERISA plan. The case involved a plan administrator - Metropolitan Life, which insured benefits under Sears Roebuck's long-term disability insurance plan - that was vested with discretionary authority to decide such appeals. The first issue is whether this dual role creates a conflict of interest. This type of conflict is often called a "structural conflict." The second issue is assuming such a conflict exists, what is the relevance of the conflict to a court reviewing a benefit determination made by the plan administrator. How should it be weighed? The Supreme Court held that the dual role creates a conflict of interest; a reviewing court should consider that conflict as a factor in determining whether the plan administrator abused its discretion in denying benefits; and the significance of the conflict will depend upon the circumstances of the particular case.
The core of the Supreme Court's decision is that the existence of a conflict should be weighed as one of many factors in determining whether there was an abuse of discretion. The reviewing court should engage in a combination-of-factors method of review. There is no need for a showing that the structural conflict actually infected the decision-making process. The reviewing court must decide the abuse of discretion issue by taking into account several different, and frequently case-specific factors, including the conflict of interest, and then reaching a conclusion by weighing all of the factors together. The Supreme Court declined to lay down any special burden-of-proof rules, or other procedural or evidentiary rules, focused narrowly on the fiduciary-decision-maker/payor conflict. The Supreme Court made an analogy to judicial review of agency fact-finding. In that context, the Supreme Court has not given a detailed set of instructions for how the reviewing court should do the weighing. Instead, it has pointed out that " 'there are no talismanic words that can avoid the process of judgment.' " As it had done in the agency context, the Supreme Court concluded that the lack of certainty in judicial standards partly reflects the fact that no formula can " 'furnish the definiteness of content for all the impalpable factors in involved in judicial review.' " To that point, the opinion provided fine words but little guidance. The practical effect of the opinion appears to be to shift the "discretion" upstream to the reviewing court.
The Supreme Court did not leave the stage totally dark. It provided some very practical guidance as to what types of conduct by conflicted administrators might be signal flags of abuse of discretion, and what might be signal flags of an appropriate review worthy of deference. The flags, as well as all of the other evidence, must still be put through the multi-factor weighing process. Indications that all may not be right with the fiduciary's decision include situations where the insurance company has a history of biased claims-decisions. In such cases, the conflict of interest may prove to be more important, and perhaps greatly important, where circumstances suggest a higher likelihood that the conflict affected the benefits decision. On the other side of the scale, the plan administrator may gain some points by taking active steps to reduce potential bias and to promote accuracy in claims-handling. This type of conduct may reduce the impact of the conflict of interest, perhaps to the vanishing point. Such efforts might include, for example, walling off claims administrators from persons interested in company finances; using internal controls to promote accurate claims-handling; providing incentives to reward claims reviewers for accurate work; and imposing management checks that penalize inaccuracies in decision-making, regardless of who benefits from the inaccuracy. This part of the opinion may be regarded as a "full employment" bill for ERISA lawyers. Every claim denial case involving a conflicted plan administrator will now include a trial-within-a-trial. The trial courts will receive not only an administrative record of the claim-handling for the claim in question, but a spate of evidence on the general conduct of the insurance company or employer in handling other claims, on whether fire-walls are used, and on rewards and punishments for the people in the claims offices.
The Glenn decision is a 5-1-1-2 decision. The majority opinion is by Justice Breyer, joined by Justices Stevens, Souter, Ginsburg and Alito. Chief justice Roberts filed an opinion concurring in part and dissenting in part. The Chief Justice wrote that the conflict of interest should be considered on review only where there is evidence that the plan administrator's decision was motivated or affected by the conflict of interest. Justice Kennedy filed an opinion concurring in part and dissenting in part. Justice Kennedy stated that the majority opinion gives a workable framework for taking potential conflicts of interest into account, but the case should have been remanded so that the Court of Appeals could assess whether Metropolitan Life had used structural safeguards to avoid conflicts of interest. Justice Scalia filed a dissenting opinion, in which Justice Thomas joined. Justice Scalia complained that majority opinion unnecessarily said that an employer administering its own ERISA plan has a conflict of interest, a statement which the dissent called "dictum." The dissent also described the majority opinion as "painfully opaque," calling the combination-of-factors method of review "nothing but de novo review in sheep's clothing."
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