The U.S. Supreme Court’s recent ruling in Metropolitan Life Insurance v. Glenn (“MetLife”) attempted to answer two questions concerning ERISA benefits litigation, both of which have been a source of disagreement among the circuit courts of appeals:
- Does an entity that both funds benefits and decides claims operate under a conflict of interest?
- If such an entity does operate under a conflict, how should such a conflict affect a court’s review of a conflicted decisionmaker’s determination?
The Court squarely answered “Yes” to the first question, and provided a framework — of sorts — in response to the second question. The Court’s ruling, however, which was sharply criticized by four of the nine Justices, left open a number of issues for plan fiduciaries, their attorneys and the courts to grapple with in the future.
Section 1132(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (“ERISA”) explains that participants in employee benefit plans have a right to bring a suit in federal court to recover benefit payments denied to them by their plan administrators and fiduciaries. ERISA remains silent, however, on the standard of “judicial review” of such claim denials — i.e., the extent (if any) to which a court will defer to a plan administrator’s reasonable decision, even if the court might disagree with that decision. Prior to the decision in MetLife, courts relied on the 1989 Supreme Court decision in Firestone Tire and Rubber Company v. Bruch (489 U.S. 101 (1989)) (“Firestone”) for guidance in reviewing ERISA benefit denials. In Firestone, the Court set forth a set of principles describing the appropriate standard of judicial review:
- a court should be guided by trust law;
- benefit determinations should be reviewed de novo (with no deference) unless the plan grants the claims fiduciary discretionary authority to determine eligibility, in which case such decisions would be reviewed under a deferential standard and would only be disturbed if the court finds that the fiduciary abused its discretion; and
- if the claims fiduciary with discretionary authority has a conflict of interest, that conflict will be weighed as a factor in determining whether or not there has been an abuse of discretion.
Following Firestone, many plan sponsors inserted language into their plan documents granting fiduciaries the necessary discretion in determining eligibility for benefits so that they would enjoy deferential review in the event of a lawsuit. Plaintiffs’ attorneys have long argued, however, that a decision by a conflicted administrator — i.e., one that both funds the benefit and decides the claims — should not be entitled to deference, but instead should be reviewed de novo by the court. The federal courts have been receptive to this argument in varying degrees, resulting in different views as to what exactly constitutes a conflict, and how a conflict should factor into the court’s decision. Some courts applied a “sliding scale” approach, granting less deference to the decision as the severity of the conflict increased; in certain circumstances others required the claims fiduciary to demonstrate that its decision was not tainted by conflict. Still others did not even recognize that a conflict exists, explaining that ERISA expressly allows for the same entity to fund a plan and administer it. MetLife presented the Supreme Court with an opportunity to resolve these different approaches.
MetLife v. Glenn
Wanda Glenn was an employee of Sears Roebuck & Company diagnosed with dilated cardiomyopathy, a disorder which causes the heart to become weak, enlarged and inefficient. Following the onset of her complications, Wanda’s doctor informed her that she could no longer work due to the physical and mental stress of her job. She presented appropriate evidence of her ailment to MetLife, the administrator and insurer of the Sears Plan. MetLife then, acting in its discretionary authority, granted Glenn initial disability payments. By the plan terms, after 24 months Wanda was required to make a further showing that her disability prevented her from holding any job for which she was qualified in order to continue to receive benefits. Wanda’s doctor submitted a report explaining that any employment would place too great a strain on her heart, and MetLife appointed its own specialist to review her medical file. Subsequently, MetLife denied Wanda’s benefit claim, arguing that she could perform sedentary work. Wanda filed suit. The district court ruled in favor of MetLife, finding no abuse of discretion in denying the claim. The Sixth Circuit Court of Appeals overturned this decision after applying a sliding scale of deference, citing concerns over MetLife’s conflict of interest in both funding the benefits and administering the plan.
The Supreme Court’s majority opinion (authored by Justice Breyer) held that a plan administrator that both evaluates and pays benefits claims operates under a conflict of interest under Firestone, regardless of whether the administrator is an employer administering its own plan or an insurance company that has contracted with the employer to provide certain benefits. While the Court acknowledged that employer/administrators and insurer/administrators do not have identical incentives to deny possibly meritorious claims — the Court actually found that the employer administering its own plans was more obviously conflicted than the insurance company — it ultimately held that both operate under a conflict of interest.¹
Notwithstanding the existence of such a conflict, the Court held that, if the plan has the necessary language granting discretion, the administrator’s decision must still be reviewed by a court under a deferential standard of review. The Court explained, however, that the conflict of interest should be weighed as one factor among many in determining whether or not the plan administrator abused its discretion.² The Court offered little practical guidance for judges who must “weigh” this factor in future cases, rejecting the idea that special procedural or burden-shifting devices were necessary, and stating simply that such a “facts and circumstances” review was “no stranger to the legal system.” The Court did identify some circumstances in which the conflict might be deemed more significant — e.g., if the fiduciary has a history of biased claims decisions. In other cases, where the administrator had taken steps to ameliorate the conflict and eliminate possible bias (in the Court’s words, “by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits”), the weight of the conflict might be minimal, and perhaps even zero.
While the dissenting justices took issue with the majority’s “kitchen sink” approach that, in their view, violates trust law principles and eviscerates the deferential standard of review, the majority responded by echoing the Court’s conclusion in Firestone that the “want of certainty in judicial standards partly reflects the intractability of any formula to furnish definiteness of content for all the impalpable factors involved in judicial review.”
Impact of the Decision
The Court’s decision makes clear that the impact of a conflict of interest will vary greatly depending on the individual facts of each case. In reviewing a decision by a conflicted fiduciary, courts will have to weigh various factors, placing the conflict of interest in context in order to determine whether or not an abuse of discretion occurred in denying a claim. Plaintiffs’ lawyers may now argue that, in order to place the conflict “in context,” they need discovery about the fiduciary’s claims-handling history and practices, while fiduciaries may attempt to introduce evidence about the steps they took to ameliorate the conflict. A court’s consideration of these issues could possibly significantly increase the cost and time necessary to litigate an ERISA benefits claim (thereby undercutting one of ERISA’s primary goals, namely, speedy and efficient claims determination). While at least one district court has already rejected the notion that the MetLife decision opens the door to conflict-related discovery,³ the issue is sure to be litigated in other courts in the next few years.
The MetLife decision does offer conflicted fiduciaries some guidance on how to minimize the impact of the conflict of interest, and employers that administer their own plans should strongly consider following the Court’s suggestions. Such steps include:
- separating claims administrators from employees responsible for the company’s finances;
- eliminating any possible financial incentives to deny claims;
- shielding claims administrators from knowledge of the dollar amount of a particular benefit claim; and
- providing disincentives for inaccurate decision-making.
Implementing and abiding by clear claims-handling procedures would also help ameliorate an apparent conflict of interest. Further guidance for plan sponsors may well emerge in the next few years, as cases involving decisions by conflicted decisionmakers make their way through the court system.
¹ Justice Scalia, in a dissenting opinion joined by Justice Thomas, criticized the majority’s opinion as it pertains to employers as unnecessary, since the case before the Court only involved an insurance company, not an employer that administered its own plan.
² The Court held that the Sixth Circuit sufficiently engaged in this analysis of all factors, and that its “serious concerns” about certain actions by MetLife, “together with some degree of conflicting interest on MetLife’s part,” supported the court’s decision that MetLife had abused its discretion.
³ See Dubois v. Unum Life Ins. Co. of America, Civil No. 08-163-P-S, 2008 WL 2783283 (D. Me., July 14, 2008).