The impact of a recent Supreme Court ruling involving disability benefits was at issue in Chronister v. Unum Life Ins.Co. of America, 2009 U.S.App.LEXIS 9033 (8th Cir. April 30). This ruling marked the second time the 8th U.S. Circuit Court of Appeals had occasion to consider Sandra Chronister’s application for disability benefits. In the first ruling, Chronister v. Baptist Health, 442 F.3d 648 (8th Cir. 2006)(See: M. DeBofsky, “Court tackles ‘church plan,’ ‘self-reporting’ case,” Chicago Daily Law Bulletin, April 3, 2006), the court of appeals found Unum improperly applied a “self-reported illness” limitation to cut off disability insurance benefits and remanded the matter for a new claim determination. On remand, though, Unum determined Chronister could perform sedentary work and again denied the claim. The district court upheld that finding under a deferential standard of review, and Chronister again appealed. The principal question before the court on the second appeal was whether Metro. Life Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008), changed the way in which the court should review Unum’s decision.
In giving an affirmative answer to its own question, the court first made it clear there is “no doubt” as to Glenn‘s impact on ERISA review “in some ways.” First, Glenn established unequivocally that a conflict exists when the same entity “both determines whether an employee is eligible for benefits and pays benefits out of its own pocket” (citing Glenn, 128 S.Ct. at 2346). The court also pointed out the conflict of interest must be taken into consideration irrespective of whether the conflict is shown to have affected the benefit determination. However, the conflict would prove “more important … where circumstances suggest a higher likelihood that it affected the benefits decision….” Regardless, the court determined that under Glenn, courts must analyze the facts of the case at issue, taking into consideration not only the conflict of interest, but also other factors that might bear on whether the administrator abused its discretion.
Thus, while the 8th Circuit acknowledged the abuse of discretion standard remains in place following Glenn, the Supreme Court’s ruling mandates that a court “determine lawfulness by taking account of several different, often case-specific, factors, reaching a result by weighing all together” (citing Glenn, 128 S. Ct. at 2351). The court recognized that these aspects of the Glenn ruling necessitated a significant change in the circuit’s jurisprudence.
Applying the Glenn standards, the court found an abuse of discretion in Unum’s handling of Chronister’s claim. The court identified several factors that established an abuse of discretion. First, the court identified Unum’s financial conflict of interest and a history of a “disturbing pattern of erroneous and arbitrary benefit denials, bad faith contract misinterpretations, and other unscrupulous tactics” (citing Radford Trust v. First Unum Life Ins. Co., 321 F. Supp. 2d 226, 247 (D. Mass. 2006)). The Glenn decision itself noted Unum’s “history of biased claims administration” (Glenn, 128 S. Ct. at 2351) by citing John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315, 1317-21 (Spring 2007)). A “history of arbitrarily denying claims” was thus identified as a factor the court must consider.
Other evidence showing a conflict was the insurer’s failure to follow its own internal standards relating to consideration of a favorable Social Security disability determination. The court explained that Unum’s claims manual requires giving “significant weight” to a Social Security finding absent “compelling evidence” to the contrary. Moreover, if a claim decision differs from Social Security’s finding, Unum’s claims manual explains the insurer must articulate the reasons for disagreement. The court found Unum failed to explain why it reached a conclusion differing from the Social Security determination and it appeared to the court that “Unum did not consider the SSA’s disability determination at all.” The court deemed Unum’s failure to follow its own procedures a factor weighing in favor of a finding of abuse of discretion. Hence, taking all factors into consideration, the court was left with the “firm impression” that Unum’s re-denial of the claim following remand was an abuse of discretion; and the court thus awarded benefits since the matter had already been remanded once and “a remand would needlessly delay the already long-delayed benefits payments.”
This ruling joins the 2d Circuit’s decision in McCauley v. First Unum Life Ins.Co., 551 F.3d 126 (2d Cir. 2008), in recognizing Unum’s history of biased claims administration as a factor to be considered when evaluating a claim decision. But as Professor Langbein pointed out in his article, “Cases of abusive benefit denials involving other disability insurers abound. Unum turns out to have been a clumsy villain, but in the hands of subtler operators such misbehavior is much harder to detect.” 101 Nw.L.Rev. 1315, 1321. Certainly, after Glenn, MetLife carries a history of biased claims administration; other insurers have also been similarly cited for arbitrary behavior. Thus, Unum cannot be singled out as the only party subject to the new regime following Glenn.
The major significance of this ruling, though, is in the court’s reiteration that Glenn does more than state that the Supreme Court’s ruling in Firestone v. Bruch, 489 U.S. 101 (1989), was reaffirmed. Chronister reiterated the two key points made in Glenn by the Supreme Court and overturned prior circuit precedent in doing so. First, the 8th Circuit reiterated that a conflict of interest exists when an insurer both administers and funds claim payments regardless of whether the plaintiff presents evidence of how the conflict affected the claim decision. As the Supreme Court pointed out, a conflict exists simply because “every dollar provided in benefits is a dollar spent by . . . the employer; and every dollar saved . . . is a dollar in [the employer’s] pocket.” 128 S.Ct. at 2348 (citing Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134, 144 (CA3 1987)). Second, the Supreme Court made it clear, and Chronister reaffirmed, that the conflict must be taken into consideration among a combination of case-specific factors. In this case, the key issue was Unum’s disregard of its own claim manual instructions on giving significant weight to Social Security awards. The ERISA regulations require consistency in adjudication of claims and claims manuals provide a yardstick for measuring uniformity:
“[A]s a general requirement for reasonable claims procedures for all plans, that a plan’s claims procedures must include administrative safeguards and processes designed to ensure and to verify that benefit claims determinations are made in accordance with governing plan documents and that, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants. Courts have long recognized that such consistency is required even under the most deferential judicial standard of review.” (citing Lutheran Medical Center v. Contractors, Laborers, Teamsters and Engineers Health and Welfare Plan, 25 F.3d 616, 620-22 (8th Cir. 1994);De Nobel v. Vitro Corp., 885 F.2d 1180, 1188 (4th Cir. 1989)). 65 Fed.Reg. 70246, 70251 (November 21, 2000).”
Cases including Glista v. Unum Life Ins. Co. of America, 378 F.3d 113 (1st Cir. 2004) and Egert v. Connecticut Gen. Life Ins. Co., 900 F.2d 1032 (7th Cir. 1990), have reinforced a conclusion that an insurer’s deviation from its own documented standards is evidence of an abuse of discretion.
Finally, both Glenn and Chronister carefully utilized terminology that reinforces a trust law standard of deference which is less deferential than an administrative law standard that courts have lapsed into utilizing. Both decisions explicitly refer to the “lawfulness,” not the “reasonableness” of a claim determination; and both cases utilize the abuse of discretion standard rather than an arbitrary and capricious standard. Pointing out that the abuse of discretion standard affords less deference, Professor Kathryn Jennings Kennedy of The John Marshall Law School cited several rulings explaining the abuse of discretion standard implicates a more penetrating review than the arbitrary and capricious standard. See, Kennedy, “Judicial Standard of Review in ERISA Benefit Claim Cases,” 50 Am.U.L.Rev. 1083, 1135 (2001). Chronister therefore captures what the Supreme Court obviously intended by its Glenn ruling, and will compel consideration of insurers’ conflicts of interest in all ERISA claim disputes. By doing so, the court has dramatically improved the current state of ERISA litigation to afford significantly more protection to claimants.
This article was initially published in the Chicago Daily Law Bulletin.