On June 19, 2008, the Supreme Court issued its decision in Glenn v. Metropolitan Life Insurance Co., No. 06-923, 2008 WL 2444796. The Court was asked to address the issue of the conflict of interest which exists when the entity that administers an ERISA plan, such as an insurance company, is also the entity which pays the benefits out of its own pocket. The Supreme Court confirmed that a conflict of interest exists in such a situation and the court must consider the conflict or at least be “weighed as a factor” in determining whether the denial of an employee’s claim for benefits was proper. The court in Glenn found that MetLife, as plan administrator, engaged in a dual role of both evaluating and paying benefit claims which creates the kind of conflict of interest previously referred to in the Supreme Court’s decision of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Unfortunately, the ERISA statutory scheme failed to contain an express standard of review for the courts to follow in reviewing a beneficiary’s denied claim. Pursuant to Firestone, the court found that a denial of benefits challenged under ERISA § 502(a)(1)(B) must be reviewed under a de novo standard unless the benefit plan expressly provides the plan administrator or fiduciary (often times the insurance company) with discretionary authority to determine eligibility for benefits or to construe the plan’s terms, in which case a deferential (or arbitrary and capricious) standard of review would be appropriate. Ever since the court’s ruling in Firestone in 1989, the district and circuit courts have struggled with the proper application of this arbitrary and capricious standard of review. The hope was that the Supreme Court would clarify the appropriate standard of review in those case where discretionary authority had been granted to a fiduciary and such fiduciary was acting under a conflict of interest. The new Glenn v. MetLife decision clarifies this approach somewhat and, in this author’s opinion, serves to overturn the 10th Circuit’s approach as set forth in Fought v. Unum, 379 F.3d 1997 (10th Cir. 2004).
The Supreme Court in Glenn clearly recognizes that when a fiduciary both funds the plan and evaluates claims that “every dollar provided in benefits is a dollar spent by…the employer; and every dollar saved is a dollar in [their] pocket. As such, an insurance company’s financial interest in being profitable is in direct conflict with its ERISA mandated fiduciary duty owed to claimants which specifically provides that a plan administrator must discharge its duties solely in the interests of the [plan’s] participants and beneficiaries.” See 29 U.S.C. § 1104(a)(1). Further, the Glenn court stated that ERISA imposes “higher-than-market place quality standards on insurers,” underscoring the particular importance of accurate claims processing by insisting that administrators provide a full and fair review of claim denials.
What is less clear about the Glenn decision is how the conflict of interest should be taken into account by a trial court in reviewing an adverse benefit determination. In the Fought case, the 10th Circuit found that an inherent conflict of interest switches the burden of proof onto the insurance company to prove that its decision was reasonable. The Glenn case likely changes this approach in the 10th Circuit. Under Glenn, the conflict is now one of many factors that a court should consider in evaluating the claim and that any one factor will act as a tie breaker when the others are closely balanced. In doing so, the Supreme Court really failed to provide the district court judges with any clear road map on how to review an insurance company’s denial of benefits when a clear conflict exists. The confusion which has existed for two decades in our courts about how the conflict is to be considered by a reviewing court will only continue in this author’s opinion. However, as mentioned in my blog post of June 5, 2008, Colorado’s new law (House Bill 1407) likely renders the conflict of interest approach set forth in Glenn to be inapplicable. House Bill 1407 bans discretionary clauses in group insurance policies which means that a court is not required to grant deference (or engage in a “arbitrary and capricious standard of review” approach) in such cases. Instead, the purpose of House Bill 1407 was to remove these discretionary clauses altogether so that a reviewing district court judge is permitted/required to perform a “de novo” review of a denial, which means that the judge gives no deference whatsoever to the insurance company’s prior decision.