Written By Attorneys Mark C. Stephenson, Randall S. Rabe and Rebecca K. Hockenberry
Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
On June 19, 2008, the U.S. Supreme Court reaffirmed its 1989 decision that when an ERISA plan administrator both evaluates and pays claims in its sole discretion, its dual roles create an inherent conflict of interest and is a factor in determining whether the plan administrator may have abused its discretion in denying benefits. The court declined to create a per se rule and signaled that the significance of any given conflict depends on the circumstances of that case.
In Metropolitan Life Insurance Company v. Glenn, 2008 WL 2444796 (U.S. 2008), MetLife, an ERISA plan administrator, terminated Wanda Glenn's disability benefits on the basis that her health condition had improved to the point that she was no longer totally disabled. MetLife underwrote plan benefits through insurance and decided whether benefit claims were payable. The employer that sponsors the benefit plan authorized MetLife to determine eligibility for benefits in its sole discretion. As a result, MetLife became a claims fiduciary to the plan and under the federal common law of ERISA, entitled a reviewing court to defer to its claim decisions, when reasonable and based on substantial evidence. Glenn brought suit in the U.S. District Court for the Southern District of Ohio seeking judicial review of MetLife's denial of benefits. The District Court entered judgment in MetLife's favor. On appeal, the Sixth Circuit Court of Appeals reversed the district court's decision, despite the deferential standard of review to which MetLife was entitled.
The principal issue before the U.S. Supreme Court was whether a "dual role" administrator, one that decides and funds claims, operates under a conflict of interest when making discretionary benefits determinations that is sufficient to strip away any deference by the court. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the Supreme Court held that federal courts are free to consider a plan administrator's potential conflict when considering how far to defer to a benefit decision adverse to a claimant. Since then, the federal courts of appeal have adopted a variety of tests with which they measure whether plan administrators have evidenced conflict in deciding benefit claims. The Supreme Court concluded that a "dual role" benefit plan administrator like MetLife operates under an inherent conflict of interest because, as an insurer, it funds paid benefit claims with its own assets. This conflict of interest becomes a factor to be weighed by the court in determining if the plan administrator abused its discretion when denying a benefit claim.
The majority opinion, authored by Justice Breyer, leaves open how this conflict of interest is to be factored when courts are asked to review a plan administrator's benefit decisions. The Court declined to establish a bright-line rule for evaluating the nature and extent of the conflict of interest in any given case, leaving the issue to the federal circuits. From the point of view of plan administrators however, it is important to note that the Court affirmed that that the mere existence of a conflict does not mandate that a court abandon its deferential standard of review. So long as the benefit plan grants discretionary authority, the court appropriately will defer to a plan administrator's benefit decision, subject to the court's consideration of all potential factors that might show bias or conflict. Under Glenn, conflict of interest becomes one factor that a court must consider when examining the administrator's discretion in making its decision to affirm a benefit denial.
The impact of the Supreme Court's decision in Glenn is a matter of debate. On the one hand, the majority opinion can be characterized to as an extension of principles laid out in Firestone almost 20 years ago, and widely litigated since. Yet Chief Justice Roberts in his concurring opinion and Justice Scalia in his dissenting opinion observed that the result in Glenn portends significant changes for courts that are called upon to review benefit determinations. A key point, addressed by both the concurring and dissenting opinions, is the majority's requirement that the "dual role" administrator's conflict of interest be weighed in all cases - even where there is no evidence of either an illicit motive or that the result was inappropriately influenced. A further concern is the majority opinion's discussion of routine plan administration practices that are subject to mischaracterization as potentially conflicted without having also provided appropriate guidance to the federal circuits on how such practices should be treated. The questions left unanswered by the Glenn decision are likely to foster intense litigation over the next several years as plan administrators seek to clarify their fiduciary duties in determining claims.
