The U.S. Supreme Court has ruled that an insurer who both paid and decided ERISA disability benefits had a conflict of interest that courts must consider in determining whether the insurer abused its discretion in denying a claim, even without evidence that the conflict influenced the decision. Metropolitan Life Insurance Co. v. Glenn, No. 06-923 (S. Ct., June 19, 2008).
Case History
The highly anticipated decision expands upon the Supreme Court’s previous decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), which laid out a court’s standard of review for ERISA benefit claim denials. Firestone held that a fiduciary denial of an ERISA benefit claim is reviewed on an “abuse of discretion” standard if the ERISA plan document confers such discretion on the claims administrator. Firestone also held that where the claims administrator both pays and determines benefit claims, the claims administrator has a conflict of interest that must be weighed as a factor by the reviewing court.
In Glenn, the Sixth Circuit Court of Appeals found that that the insurer had a conflict of interest, and considered that conflict in finding an “abuse of discretion” in denying the disability claim. The Court of Appeals stated that the insurer failed to consider certain evidence favorable to the claimant, including statements of the treating physician and a favorable Social Security disability determination, focusing instead on a physical capacity assessment that indicated the claimant could perform sedentary work.
The Supreme Court granted the insurer’s petition for certiorari following a recommendation by the Solicitor General that the Supreme Court consider whether a conflict of interest existed and how that conflict should be considered in the ERISA standard of review. The Supreme Court affirmed the Sixth Circuit’s decision, with Justice Breyer writing the opinion for a five-justice majority, and found that the insurer had a conflict of interest that a reviewing court must consider.
Supreme Court Analysis
In the Supreme Court’s decision, Justice Breyer repeated Firestone’s earlier statements that trust law was an important source for guidance in the proper administration of ERISA benefits claims. The Court did not identify any specific formula for the weight that a conflict should have, but stated that the conflict should be weighed as one factor of many in determining whether there was an abuse of discretion.
Before the Glenn decision, Courts of Appeals have applied differing standards in determining whether a conflict exists and how the conflict affects the standard of review. Certain language in Justice Breyer’s opinion may change the standard of review in some circuits. Justice Breyer suggests that a conflict will exist where an employer both “funds the plan and evaluates the claims,” even though this specific issue was not before the Supreme Court. A number of circuits have adopted the view that this fact alone does not create a conflict, particularly where the ERISA benefit is funded through a trust, such as a qualified retirement benefit.
Chief Justice Roberts and Justice Kennedy wrote separate opinions that concurred in part and dissented in part. Justices Scalia and Thomas dissented, agreeing that MetLife had a conflict of interest, but calling the majority’s analysis “de novo review in sheep’s clothing.”
Impact of the Court’s Decision
- Language in Justice Breyer’s opinion will be used by plaintiffs’ lawyers to challenge benefit denials by both employers and insurers. For example, Justice Breyer implies in his opinion that employers may violate ERISA duties if they pick insurers who make poor claims decisions.
- Firestone is still good law. However, a plan sponsor’s ability to limit judicial review of decisions by claims fiduciaries may be diminished in some circuits as a result of Glenn.
- The ultimate impact of Glenn will depend on the Circuit Courts of Appeal, each of which will now re-examine its precedents on standard of review, as ERISA cases arise.
Employers and insurers will need to exercise extra care in making benefit determinations and developing a strong record in determining claims. Employers should also take care to monitor that their claims administrators have good processes for deciding benefit claims.
For further information or help in analyzing the impact of the Glenn decision on your organization, please contact any member of the McGuireWoods Employee Benefits or Labor & Employment Teams.