The U.S. Supreme Court (Court) recently issued a long-awaited opinion in Metropolitan Life Ins. v. Glenn (MetLife) following the course they charted 20 years ago in Firestone v. Bruch (Firestone), by ruling that employers and insurers who wear the dual hats of plan administrator and payer of claims face an inherent conflict of interest. 554 U.S. ______, 128 S. Ct. 2342 (June 19, 2008); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). The Court further expanded upon Firestone by holding that a reviewing court must weigh this conflict of interest along with other factors in deciding whether a plan administrator abused its discretion in denying benefits to a plan participant. While the Court provided a loose framework for evaluating an Employee Retirement Income Security Act (ERISA) plan administrator’s conflict of interest, it remains to be seen how much the decision in MetLife will affect the standard of review in ERISA denial of benefits cases.
Firestone set forth four principles as to the appropriate standard of judicial review under 1132(a)(1)(B):
- A court should be guided by the principles of trust law.
- Principles of trust law require de novo review (i.e., without deference) unless a benefits plan dictates otherwise.
- A deferential, rather than de novo, standard of review is appropriate where the plan grants the administrator or fiduciary discretionary authority to determine eligibility.
- If the administrator or fiduciary who has discretion is operating under a conflict of interest, that conflict must be weighed as a factor in determining whether there is an abuse of discretion. Firestone, 489 U.S. at 111-115.
The Court’s opinion in MetLife stems from the insurance company’s denial of benefits for Wanda Glenn, a sales manager at a Sears, Roebuck and Co. (Sears) store. In 2000, Ms. Glenn was diagnosed with a severe heart condition and filed for disability benefits under Sears’ benefits plan, administered by MetLife. After MetLife rejected Ms. Glenn’s claim, asserting that she was still physically capable of performing sedentary work, Ms. Glenn filed suit against both Sears and MetLife under § 1132(a)(1)(B) of ERISA, seeking judicial review. On appeal, the U.S. Court of Appeals for the Sixth Circuit (Sixth Circuit), applying the deferential abuse of discretion standard of review, sided with Ms. Glenn, found that MetLife focused on some parts of her medical records, while ignoring others that supported her claim. This biased review, in conjunction with MetLife’s conflict of interest as both a plan administrator and payer of benefits, convinced the Sixth Circuit to reverse the lower court’s decision and reinstate Ms. Glenn’s benefits on the grounds that MetLife’s denial of benefits was an abuse of discretion.
According to the Supreme Court’s majority opinion affirming the decision of the Sixth Circuit, MetLife’s dual role of both evaluating and paying benefits claims creates the kind of conflict of interest referred to in Firestone. In finding that the conflict of interest was properly weighed as one factor, among many, in determining whether there was an abuse of discretion, and that the deferential standard of review was appropriate, the Court stated:
Often 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. We here decide that this dual role creates a conflict of interest; that a reviewing court should consider conflict as a factor in determining whether the plan administrator has abused its discretion in denying benefits; and that the significance of the factor will depend upon the circumstances of the particular case.
While the Court’s pronouncement that a plan administrator’s conflict of interest should be weighed as “one factor among many” admittedly does not contain a “detailed set of instructions” and declines to take a “one-size-fits-all” approach in weighing the factors, the majority opinion does provide some direction to courts reviewing cases such as MetLife. The Court indicated that there may be circumstances that diminish the significance or severity of the conflict of interest in certain cases. For example, the significance of the conflict would be diminished (“perhaps to the vanishing point”) if an administrator has walled off claims administrators from those involved in firm finances or has imposed management checks that punish inaccurate decision making. However, if the facts suggest that an administrator has a history of biased claims administration, or there were other circumstances that indicate the conflict of interest affected the benefits decision,, then the conflict of interest should be found to carry more weight. In determining the relative weight that should be accorded to the plan administrator’s conflict of interest, the Court indicated that courts must review and weigh the other factors related to the denial of benefits, much like the Sixth Circuit did in its decision reversing MetLife’s denial of benefits..
Significantly, the Court held the presence of an administrator’s conflict of interest does not automatically convert the standard of review from one of deference to that of increased scrutiny (i.e., de novo review). While ERISA claimants had likely been hoping for a de novo standard of review when a conflict existed, the Court rejected this standard in favor of the course it charted in Firestone.
Because the Court continued on the path it forged in Firestone, its opinion in MetLife does not dramatically alter the judicial landscape regarding the standard of review; therefore, the impact of the decision on ERISA cases is not readily ascertainable. While the various dissenting opinions criticize the nebulousness of the majority’s intentionally vague factor test, with Justice Scalia going so far as to call the majority opinion “nothing but de novo review in sheep’s clothing,” Justice Breyer noted that there “are no talismanic words that can avoid the process of judgment.”
Courts will likely wrestle with the combination-of-factors method of review set forth by the Supreme Court for years to come. While it is unclear exactly where this will lead lower courts, ERISA litigation related to the weight of an administrator’s conflict of interest is sure to rise, as will disputes regarding discovery related to such conflict.
The Court’s ruling indicates that employers and insurers should be proactive about reducing plan administrators’ conflict of interest. By establishing internal firewalls and internal controls to promote claims-processing accuracy, employers and insurers can take steps to diminish or avoid plan administrators’ conflict of interest.
You can access a copy of the Supreme Court’s opinions in MetLife at: http://www.supremecourtus.gov/opinions/07pdf/06-923.pdf
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