The U.S. Supreme Court admonished the lower courts in Metropolitan Life Insurance Company v. Glenn, 554 U.S. 101 (2008), that in adjudicating Employee Retirement Income Security Act (ERISA) benefit cases, courts must take into consideration the conflict of interest inherent in circumstances where the same party, such as an insurance company, both administers benefits and pays claims out of its own funds. Unfortunately, the court failed to give the lower courts clear instructions on how they are to consider the conflict, as illustrated by Blankenship v. Metropolitan Life Ins.Co., 2011 U.S.App.LEXIS 13358 (11th Cir. June 30, 2011), where the lower court found MetLife’s conflict tainted its decision and the 11th U.S. Circuit Court of Appeals overruled that decision.

Coincidentally, Frank Blankenship, like Wanda Glenn, the claimant in the Supreme Court case, were both employed by Sears, Roebuck & Co. and like Glenn, Blankenship also became disabled due to severe cardiac impairments and he later also developed an orthopedic condition. Although MetLife initially approved Blankenship’s claim for disability benefits, it was a rocky course thereafter, with benefits ceasing and then being reinstated after he underwent knee surgery. Benefits were terminated altogether, though, at the point where the definition of disability changed from one that looked at whether he could perform the duties of his own occupation to a more restrictive requirement that he prove his inability to engage in any occupation that would pay a certain threshold income.

After failing to convince MetLife to reinstate benefits, Blankenship was successful in the district court (686 F.Supp.2d 1227 (N.D.Ala. 2009)) which found MetLife’s decision arbitrary and capricious in large part due to MetLife’s conflict of interest. The court of appeals reversed.

The 11th Circuit has an interesting approach to analyzing ERISA cases adjudicated under the arbitrary and capricious standard. The court follows its precedent in Williams v. BellSouth Telecomms., Inc., 373 F.3d 1132, 1137-38 (11th Cir. 2004), overruled on other grounds by Doyle v. Liberty Life Assurance Co. of Boston, 542 F.3d 1352 (11th Cir. 2008), that utilizes a six-step analysis which first asks whether from a de novo perspective the decision is “wrong.” If the answer to that question is yes and the arbitrary and capricious standard of review applies, the court looks to see whether the decision is reasonable. The court also asks whether there is a conflict, but the conflict “should merely be a factor for the court to take into account when determining whether an administrator’s decision was arbitrary and capricious.” The court said, the basic analysis “still centers on assessing whether a reasonable basis existed for the administrator’s benefits decision.” *11 (citations omitted).

Utilizing that framework, the court concluded that MetLife possessed a “reasonable basis” for its benefits decision and found no basis for disturbing the decision. The court focused on an apparent inconsistency in one of the treating doctor’s reports since he advised MetLife that Blankenship’s chest pain was severe enough to require nitroglycerine, but two months later, the same doctor notified the plaintiff’s orthopedic surgeon that the chest pain was mild and had not required nitroglycerine. Hence, the court concluded that MetLife was not unreasonable in discrediting the cardiologist’s report and in crediting its reviewing consultant’s findings in the absence of any evidence that MetLife conducted an unfair review.

In addition, because Blankenship failed to show MetLife’s conflict tainted the decision, the court deemed the conflict merely “a factor” that was not enough to overturn the benefit decision. The court expressly dismissed specifics pointed to by the district court such as the size of the claim. Although the claim value was more than $500,000 in past due benefits without even considering future benefits, the court found that factor insignificant since MetLife has annual revenues exceeding $50 billion. Nor did the court question MetLife’s potential procedural unreasonableness in relying on file reviews rather than in-person examinations. The court concluded by acknowledging that MetLife may have been wrong, but that it could not find the decision unreasonable or arbitrary and capricious, the touchstone needed to overturn the decision.

This ruling bucks a trend started in the 6th Circuit that has spread to the 7th and 9th Circuits as well. Strangely, this ruling cites Bennett v. Kemper Nat’l Servs., Inc., 514 F.3d 547 (6th Cir. 2008) for the proposition that there is nothing inherently objectionable about file reviews; however, the court’s ruling expressed considerable skepticism about such reviews in place of firsthand clinical evaluations. The 9th Circuit in Montour v. Hartford Life & Accid.Ins.Co., 588 F.3d 623 (9th Cir. 2009), was also dubious about the thoroughness of a file review instead of an independent medical examination and in Holmstrom v. Metro.Life Ins.Co., 615 F.3d 758 (7th Cir. 2010), the 7th Circuit questioned the insurer’s reliance on file reviews. Those decisions also focused on the inconsistency of an insurer’s efforts to financially benefit from the Social Security award while diminishing the significance of the agency finding, which had also occurred here.

More fundamentally, though, the main question remains how a court is to treat an insurer’s conflict of interest. The Supreme Court made it clear in Glenn that it was not advocating special procedural rules, but ERISA litigation has developed unique quasi-administrative law procedures in which the protections inherent in either normal litigation or administrative law are nonexistent. Courts conduct deferential judicial reviews of administrative decisions because of the expertise of the decision-maker or on account of due process procedural protections. But as Luby v. Teamsters Health, Welfare and Pension Trust Funds, 944 F.2d 1176, 1183 (3d Cir. 1991) teaches, in ERISA cases:

“Plan administrators are not government agencies who are frequently granted deferential review because of their acknowledged expertise. Administrators may be laypersons appointed under the plan, sometimes without any legal, accounting or other training preparing them for their responsible position, often without any expertise in or understanding of the complex problems arising under ERISA, and, as this case demonstrates, little knowledge of the rules of evidence or legal procedures to assist them in fact-finding.”

Nor are the proceedings prior to the case reaching court remotely comparable to Social Security hearings where evidence is taken under oath and witnesses are subject to cross-examination before a decision is rendered by a neutral, objective administrative law judge. Nonetheless, by using administrative law terminology in ERISA cases such as the “administrative record” or the “administrative decision,” courts elevate insurers’ claim decisions beyond what they actually are. Administrative law judges do not judge their own claims or have a stake in the outcome.

Nor is there any legitimate reason to blindly credit the so-called “independent” experts consulted by insurance companies since those physicians lack personal knowledge that can be gained only by firsthand clinical observations, a point the Supreme Court deemed crucial in Richardson v. Perales, 402 U.S. 389 (1971), a Social Security disability benefit case. Although Richardson permitted doctor reports to be admitted in evidence in administrative hearings without the doctor being required to attend the hearing, the court limited admissibility to situations where the doctor had conducted an examination and was amenable to cross-examination. But in ERISA cases, courts routinely admit non-examining doctor reports and deny claimants the right to cross-examine or otherwise challenge the reliability and accuracy of those reports. Consequently, insurers, who have a financial interest in denying benefits and aggregating the savings from each denied claim, are undoubtedly motivated to find physicians who are willing to furnish dubious medical opinions. The 9th Circuit recently pointed out:

“[T]he claimants are not the only ones with an incentive to cheat. The plan with a conflict of interests also has a financial incentive to cheat. Failing to payout money owed based on a false statement of reasons for denying is cheating, every bit as much as making a false claim.”

Salomaa v. Honda Long Term Disability Plan.637 F.3d 958, 970 (9th Cir. 2011). The Supreme Court has also questioned whether “physicians repeatedly retained by benefits plans may have an incentive to make a finding of ‘not disabled’ in order to save their employers money and to preserve their own consulting arrangements.Black & Decker Disability Plan v. Nord.538 U.S. 822, 832 (2003) (internal quotations omitted). And the Mississippi Supreme Court put it best when it observed:

“While doctors occupy an important role in our scheme of things, they are, after all, merely human, and may not be considered wholly free from the frailties that beset the rest of us. There is nothing, therefore, in the fact that a witness may be a member of the medical profession that reasonably may be said to justify his exemption from the requirements and restriction which would apply to others giving testimony in an adversary proceeding.”

Georgia-Pacific Corp. v. McLaurin.370 So.2d 1359, 1362 (Miss. 1979).

While the district court grappled with these issues and concluded that the entire record demonstrated a predetermined motivation to deny benefits, the 11th Circuit simply glossed over such important concerns, which were also troubling to Judge Andrew Kleinfeld of the 9th Circuit, the author of Salomaa, who also wrestled with the notion of how courts are to weigh conflicts of interest . The court of appeals focused on a single apparent inconsistency in the plaintiff’s evidence and merely noted that MetLife’s conflict was a factor. However, the district court pointed out multiple defects in MetLife’s claim determination suggestive of procedural unreasonableness if not downright bias.

While explicit guidance as to how an insurer’s conflict is to be factored into decision-making was not directly offered by the Supreme Court in Glenn, it may nonetheless be discerned from a careful reading of the court’s majority opinion which twice cites Universal Camera Corp. v.NLRB . 340 U.S. 474, 490 (1951). A concurring opinion questioned why the majority cited that case; however, a reading of Universal Camera points to the answer. Universal Camera plainly instructs lower court judges that they are “not to abdicate the conventional judicial function” and must carefully examine all aspects of the record to ascertain whether the administrative agency reached the correct conclusion. Viewing ERISA cases through the same lens, it appears the Supreme Court was telling the lower courts that judges are to thoroughly examine the entire context of a claim record and that even while giving deference to the determination reached, inconsistencies, omissions and errors can reveal which claim decisions are the product of a principled and deliberative process and which are not.

Note: I authored an article on the district court ruling in this case, “ERISA: A Frankenstein made up of different laws,” Chicago Daily Law Bulletin, Jan. 4, 2010. Also, I represented the plaintiff-appellant in Holmstrom v. MetLife cited in this article.

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