The Supreme Court recently issued a decision in Metlife v. Glenn, U.S., No. 06-923 where it considered: (1) whether a plan administrator has a conflict of interest when it both evaluates a claim for benefits and pays that benefit claim; and (2) how that conflict of interest should be taken into account by a court reviewing a discretionary benefit determination.
To answer the first question, the Court relied on its decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). The Court noted that in Firestone it held that a conflict of interest exists where the administrator “is the employer that both funds the plan and evaluates the claims” 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.”
The Glenn court extended that analysis to an insurance company that administers a claim and also funds the benefit. In determining that a conflict of interest exists when an insurance company acts as plan administrator, the court explored several bases for that conflict. First, it found that an employer’s conflict of interest may extend to its selection of an insurance company to administer its plan. That is, it may choose to purchase insurance based on low rates as opposed to a company’s accurate claims processing.
Second, the court noted that ERISA imposes “higher-than-marketplace quality standards” on insurers, which requires it to “discharge its duties in respect to discretionary claims processing solely in the interests of the participants and beneficiaries of the plan”; requires it to provide a full and fair review of claims denials; and subjects its individual claim decisions to judicial review.
Third, the court concluded that it is reasonable to treat employers and insurers alike in deciding whether a conflict exists because the district courts may still consider the differences between an employer and an insurance company when determining the significance or the severity of the conflict on each individual case.
Addressing the second question, the court rejected claimants’ invitation to “bring about near universal review by judges de novo—i.e., without deference—of the lion’s share of ERISA plan claims denials” and to create “special burden-of-proof rules, or other special procedural or evidentiary rules, focused narrowly upon the evaluator/payer conflict.” The court reiterated its earlier decision in Firestone that a conflict of interest must “be weighed as a factor in determining whether there is an abuse of discretion.” It does not change the standard of review from one of deference to de novo. Rather, it means that “when judges review the lawfulness of benefit denials, they will often take account of several different considerations of which a conflict of interest is just one.”
The court highlighted both trust and administrative law that frequently “ask judges to determine lawfulness by taking account of several different, often case-specific, factors, reaching a result by weighing all together,” and that in such instances, “any one factor will act as a tiebreaker when the other factors are closely balanced.” The court distinguished those “cases where an insurance company administrator has a history of biased claims administration” and from those “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.”
While the court only provided examples relating to insurance-company administrators, it did not limit its elucidation of Firestone’s conflict-of-interest factor test to those instances when the plan administrator is an insurance company. In other words, Glenn suggests that these considerations must be taken into account when district courts evaluate a conflict of interest whether the claims decision is made by an employer who pays the benefit or by an insurer who pays the benefit.
What is significant abut Glenn is what the Court did not do. It did not change the standard of review where the plan grants the administrator discretion; it did not create “special burden-of-proof rules, or other special procedural or evidentiary rules” for the claims review process where this conflict exists; and it did not find that the mere existence of this conflict was sufficient to throw open the doors to discovery in a benefit claim review.
So what does Glenn mean for employers? First, employers should anticipate that plaintiffs in benefits litigation may argue for more discovery based on an alleged conflict, even though discovery was not at issue in Glenn and the Court did not suggest that established precedent for limited discovery should be displaced. Second, while Glenn involved an insured benefit, an employer that self-insures a benefit plan may also want to consider establishing and documenting “active steps to reduce potential bias and to promote accuracy” of claims decisions.