In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the U.S. Supreme Court ruled that benefit claims under the ERISA law should be evaluated under principles of trust law, which allows discretionary authority to be vested in trustees to determine eligibility to receive benefits and to interpret the plan documents. At the conclusion of the Bruch opinion, consistent with the court’s reliance on the Restatement of Trusts, the court remarked: ”Of course, if a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’ 489 U.S. at 115 (citing Restatement (Second) of Trusts § 187, Comment d (1959)). That one comment has produced at least 250 appellate opinions in the nearly 20 years since Firestone was issued that have tried to parse the Supreme Court’s meaning and which has resulted in a spectrum of opinions ranging from those circuits that flatly reject the notion that insurers who both administer claims and pay benefits are acting under a conflict to other circuits which find the mere presence of a conflict sufficient to render a denial of benefits presumptively void. The majority of circuits have applied a sliding scale type of approach giving more weight to the conflict when it is shown the claim determination was the result of bias.
The recently issued ruling in Metropolitan Life Ins.Co. v. Glenn, No. 06-923, 2008 U.S.LEXIS 5030 (U.S.Sup.Ct. June 19), represents the Supreme Court’s effort to resolve the circuit split and offer a measure of guidance to lower courts dealing with disputes primarily involving health and disability insurance benefits. Glenn involved a very typical claim – Wanda Glenn, an employee of Sears, suffered from severe cardiac disease. When her medical condition rendered her unable to continue working, she took advantage of her Sears-provided employee benefits and applied to MetLife, which insured Sears employees against disability, seeking payment of long-term disability benefits. Her claim was approved, and Glenn began receiving benefits in 2000 under a definition of disability that entitled her to disability insurance payments if she could not perform the material duties of her regular occupation due to her medical condition. Then, in 2002, utilizing the assistance of a law firm to which MetLife steered her to receive representation, Glenn was also approved to receive Social Security disability payments under a much more stringent definition of disability which required that she not only be incapable of performing her regular job duties, but prove her inability to work at any occupation. The award of Social Security enabled MetLife to recoup monies it had already paid out based on policy provisions allowing the insurer to offset Social Security disability payments against the long-term disability benefits. Despite the Social Security approval, though, MetLife terminated Glenn’s payments, asserting she failed to continue to qualify for benefits based on a change of definition of disability from an ”own occupation” standard to one that required her to prove her inability to work at ”any occupation.”
Glenn unsuccessfully sought MetLife’s reconsideration, and her efforts to seek restoration of her benefits were equally unavailing when she brought suit against MetLife under ERISA because the district court applied a deferential abuse of discretion standard of review.
Applying that same standard, though, the 6th U.S. Circuit Court of Appeals reversed. Among other factors, the 6th Circuit pointed to MetLife’s dual role as plan administrator and the funding source for benefits, and found MetLife acted under a conflict of interest which it deemed a factor to consider in weighing the determination. Other circumstances cited by the 6th Circuit for reversal included MetLife’s failure to reconcile its determination with the Social Security award, MetLife’s selective consideration of one aberrant physician report which differed markedly from every other prior and subsequent medical report certifying Glenn’s disability, MetLife’s failure to provide all of the treating physician reports to its consultants, and the insurer’s failure to consider the effect of stress on Glenn’s heart condition. All of those factors convinced the 6th Circuit that MetLife had abused its discretion. Following that ruling, the Supreme Court granted certiorari to consider two questions: 1) whether MetLife’s dual role constituted a conflict of interest; and 2) how such a conflict is to be considered.
The court’s opinion, authored by Justice Stephen Breyer, began by finding MetLife had acted under a conflict of interest. The court cited the 3d Circuit’s Bruch ruling for the proposition that where a party both funds a plan and evaluates claims, ”every dollar provided in benefits is a dollar spent by … the employer; and every dollar saved … is a dollar in [the employer’s] pocket.” Bruch v. Firestone Tire & Rubber Co. , 828 F.2d 134, 144 (3d Cir. 1987). Thus, the court determined that because the insurer’s financial interest was in conflict with its fiduciary duty owed to claimants under the ERISA law, that dual role exemplified the type of conflict the court spoke of in Firestone.
Rejecting MetLife’s claim that the purchase of insurance by an employer implicitly waives the conflict, the court cited a host of trust law authorities holding that even an agreed-upon conflict ”does not change the legal need for a judge later to take account of that conflict in reviewing the trustee’s discretionary decision making.” Nor was the court persuaded that the finding of a conflict would discourage the creation of employee benefit plans since MetLife failed to provide any empirical or other evidence in support of that argument. In sum, the court rejected all of MetLife’s arguments, finding them ”outweighed by ‘Congress’ desire to offer employees enhanced protection for their benefits.”’ (citation omitted).
The court was equally unswayed by MetLife’s argument that insurers have an incentive to make accurate claim decisions because the marketplace and/or insurance regulators will punish insurers whose determinations are based more on bias than accuracy. The court acknowledged that, on the contrary, employers ”may be more interested in an insurance company with low rates than in one with accurate claims processing.”
The court also made it clear that ”ERISA imposes higher-than-marketplace quality standards on insurers.” Because insurers administering employee benefits governed by ERISA are required to act ”solely in the interests of the participants and beneficiaries” of the plan [(29 U.S.C. § 1104(a)(1))], those fiduciary obligations ”underscore the particular importance of accurate claims processing.” Finally, the court pointed out the difference between the existence of a conflict and its significance or severity which can be shown in individual cases.
The court next turned to the question of how the conflict should be taken into account. First, the court made it clear the conflict would not change the standard of review to de novo, nor would there be a need for special burden of proof rules or special procedural or evidentiary rules. However, the court also found it could not ”come up with a one-size-fits-all procedural system that is likely to promote fair and accurate review.” Instead, the court focused on the conflict being merely one of many factors that a court considers in evaluating fact finding. The court added that ”any one factor will act as a tiebreaker when the other factors are closely balanced.” And the conflict of interest ”should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration.” On the other hand, the court pointed out a conflict would be less important ”where the administrator has taken active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decision making irrespective of whom the inaccuracy benefits.”
Applying this guidance to the specifics of the claim at issue, the court agreed with the 6th Circuit that the conflict alone was not determinative but was merely a factor, among many, that showed MetLife had reached an inaccurate conclusion. Indeed, the court suggested that MetLife’s inconsistency of encouraging the Social Security application and then rejecting the agency’s findings ”was not only an important factor in its own right (because it suggested procedural unreasonableness), but also would have justified the court in giving more weight to the conflict (because MetLife’s seemingly inconsistent positions were both financially advantageous).” Also mentioned was MetLife’s emphasis on one report that favored a denial of benefits while the insurer failed to consider all of the medical evidence in context or provide its consultants with all of the relevant evidence. The opinion concluded by citing Universal Camera Corp. v. NLRB, 340 U.S. 474, 490, 71 S. Ct. 456, 95 L. Ed. 456 (1951), as a guide for review of fact finding. There, the Supreme Court held:
”We conclude, therefore, that the Administrative Procedure Act and the Taft-Hartley Act direct that courts must now assume more responsibility for the reasonableness and fairness of Labor Board decisions than some courts have shown in the past. Reviewing courts must be influenced by a feeling that they are not to abdicate the conventional judicial function. Congress has imposed on them responsibility for assuring that the Board keeps within reasonable grounds. That responsibility is not less real because it is limited to enforcing the requirement that evidence appear substantial when viewed, on the record as a whole, by courts invested with the authority and enjoying the prestige of the Courts of Appeals. The Board’s findings are entitled to respect; but they must nonetheless be set aside when the record before a Court of Appeals clearly precludes the Board’s decision from being justified by a fair estimate of the worth of the testimony of witnesses or its informed judgment on matters within its special competence or both.”
Chief Justice John G. Roberts Jr. concurred with the majority’s conclusion that ”a third-party insurer’s dual role as a claims administrator and plan funder gives rise to a conflict of interest that is pertinent in reviewing claims decisions.” However, Roberts disagreed with the majority’s view of how the conflict would be considered, and would not have deemed the bare existence of a conflict without more to be sufficient to ”increase the level of scrutiny.” Instead, he would have considered the conflict relevant only where there was evidence the conflict infected the decision. Although Roberts found no evidence of that in this case, he would still have affirmed based on a sufficiency of evidence establishing an abuse of discretion.
Roberts also criticized the majority for its imprecision ”about how the existence of a conflict should be treated in a reviewing court’s analysis.” Returning to his theme, Roberts pronounced, ”It is the actual motivation that matters in reviewing benefits decisions for an abuse of discretion, not the bare presence of the conflict itself.” Thus, he maintained that the conflict need be proven by evidence such as that a plan offers financial incentives to its employees for denying claims or by a showing of a pattern or practice of unjustifiably denying meritorious claims. The factors cited by the majority, according to the chief justice’s concurrence, merely prove an abuse of discretion and not a conflict. Indeed, Roberts points out the 6th Circuit hardly did more than remark about the conflict without giving it any further consideration.
Finally, Justice Antonin Scalia authored a dissent joined by Justice Clarence Thomas. Although the dissenting opinion agreed that MetLife has a conflict, it disagreed with the majority’s view of how the conflict is to be weighed, finding the majority’s ”totality of the circumstances test” would make ”each case unique, and hence the outcome of each case unpredictable.” The dissent also cited the Restatement of Trusts as requiring proof that the conflict actually motivated the decision before an abuse of discretion is found. Hence, the dissent found the opinion ”painfully opaque, despite its promise of elucidation.” And it accused the majority of offering ”nothing but de novo review in sheep’s clothing.” Heaping on more criticism, the dissent argues:
”Common sense confirms that a trustee’s conflict of interest is irrelevant to determining the substantive reasonableness of his decision. A reasonable decision is reasonable whether or not the person who makes it has a conflict.”
Thus, Scalia concludes the only basis for finding an abuse of discretion was the conflict between MetLife’s finding and the Social Security decision, but he went on to note that there is no rule requiring congruence between the two findings and suggesting the Social Security decision may have been wrong. Justice Anthony M. Kennedy also dissented (although he, too, agreed MetLife had a conflict), finding the majority ruling a departure from the points made inFirestone.
Although theGlenn ruling made it perfectly clear that MetLife was conflicted, this ruling may not alleviate the confusion in the lower courts about how the conflict of interest is to be considered. Perhaps the ”fault” goes back to the court’sFirestone opinion and its adoption of a trust law paradigm in the adjudication of benefit claim disputes. Firestone rejected the Solicitor General’s argument that ERISA plans are contracts and that a contract law approach should be applied. The court also drew the criticism of leading ERISA scholar John Langbein of the Yale Law School. In his essay, ”The Supreme Court Flunks Trusts,” 1990 S.Ct.Rev. 207 (1990), Professor Langbein argued the Supreme Court made a serious error in choosing a trust law approach to ERISA cases, opening the door to granting deference to conflicted fiduciaries. Had a contract law approach been adopted instead, no deference would be granted to either party and the administrative law analogue now routinely applied to ERISA cases would never have taken hold.
In addition, the National Association of Insurance Commissioners argued in an amicus brief filed in the Glenn litigation (http://www.abanet.org/ publiced/preview/briefs/pdfs/07-08/ 06-923_RespondentAmCuNAIC.pdf) that giving deference to insurers who render health and disability determinations is contrary to public policy; and the NAIC has stood behind that position by promulgating a model law prohibiting the inclusion of discretionary clauses in health and disability insurance policies which has now been adopted in many jurisdictions (See: 50 Ill.Admin.Code § 2001.3 (2005)).
Obviously, an easy and workable universal solution that would avoid the problems set forth in both the concurring and dissenting opinions would have been to impose the de novo standard in all benefit claims adjudicated by insurers; however, it is clear the court was reluctant to overturnFirestone. Thus, the only way out is for Congress to step in.
Until that happens, though, the Glenn ruling leaves much uncertainty. For example, will discovery be expanded? It would be difficult for a plaintiff to convince a court the conflict was a factor sufficient to be the tiebreaker in a close case if the plaintiff is not given the opportunity to show whether a consultant hired by an insurer may be biased. Certainly, if the insurer is going to argue that it took steps to insulate itself from the conflict by hiring an independent consultant, the plaintiff should have the opportunity to investigate the consultant’s independence. Likewise, if the insurer asserts that the claims personnel have been shielded from financial decision making or that management controls have been implemented, plaintiffs need to be able to investigate. An insurer’s self-serving interpretation of a policy provision must also be subject to discovery as to consistency of application both historically and from claim to claim since the existence of a conflict would promote an interpretation more favorable to the employer/insurer than the claimant and a ”reasonable” interpretation may no longer be sufficient to win the day.
Undoubtedly, though, the court’s ruling will still be somewhat confusing since it remains unclear how the conflict is to be assessed and how strongly or weakly it will be a factor in ensuing litigation. However, the citation to Universal Camera and the Supreme Court’s clear signal ”that courts must now assume more responsibility for the reasonableness and fairness of [ERISA plan fiduciary] decisions than some courts have shown in the past,” (340 U.S. at 490) means the current lenient regime of claim reviews is over.
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This article was initially published in the Chicago Daily Law Bulletin.