Supreme Court justices said Wednesday that they are not sure what to tell lower courts about how to review potential conflicts of interest that might affect disability benefits decisions.
The justices heard oral arguments in Metropolitan Life Insurance Company et al. vs. Wanda Glenn, a case involving questions about a benefits determination made by a company that served both as the insurer of an employer-sponsored group disability plan and as the administrator.
The plan was governed by the Employee Retirement Income Security Act.
Justices told the lawyers for the parties that they are uncertain about what the lawyers want them to write in their opinion.
Chief Justice John Roberts noted that the Supreme Court has repeatedly emphasized the importance of employer-sponsored benefit plans.
“We want to encourage people to set up ERISA plans,” Roberts said.
The Glenn case deals solely with how the courts should review a benefits determination and not with the merits of the underlying disability claim.
The insurer in the Glenn case, Metropolitan Life Insurance Company, a unit of MetLife Inc., New York, both administered and funded the benefits of an ERISA plan for Sears Roebuck and Company, Hoffman Estates, Ill.
Wanda Glenn, a Sears employee, suffered for years from heart disease. In 2000, she left her job and applied for disability benefits.
MetLife paid Glenn benefits for 2 years, and it also advised her to apply for Social Security disability benefits. She qualified for the Social Security disability benefits.
In 2002, MetLife reviewed Glenn’s files and decided she was no longer eligible for MetLife disability benefits, even though she had qualified for Social Security benefits.
Glenn sued in a U.S. District court in Columbus, Ohio.
The lower court held that MetLife had not been “arbitrary and capricious” and had not abused its discretion.
The 6th U.S. Circuit Court of Appeals reversed the district court decision. The appeals court judges said the court was entitled to consider MetLife’s dual role in evaluating claims and deciding whether to pay benefits.
The appeals court judges held that MetLife “acted under a conflict of interest” and made a decision that “was not the product of a principled and deliberative reasoning process.”
MetLife appealed to the Supreme Court. The company noted that questions about how to review decisions by insurers that act both as an ERISA plan’s administrator and as the plan’s insurance provider have divided the appellate courts.
The 4th, 5th, 6th, 8th, 9th and 11th circuits require consideration of the insurer’s dual roles when reviewing an ERISA award, while the 1st and 7th circuits do not require consideration of such “structural” conflicts, MetLife reported.
Solicitor General Paul Clement contends in a brief commenting on the case that MetLife “benefits financially if it denies an employee’s claim.”
That is a “commonsense understanding of what constitutes a conflict of interest,” Clement writes.
The Supreme Court looked at the issue of potential benefit plan administration conflicts in 1989, in Firestone vs. Bruch. That case dealt with a self-funded pension plan rather than a benefit plan funded with a group insurance policy.
In Firestone, the court held that courts should review a benefit plan’s deciscion “de novo” – from scratch – unless the plan has given the administrator or fiduciary “discretionary authority to determine eligibility for benefits or to construe the terms of the plan.”
In a case involving an insured ERISA plan, and an insurer that is both the plan administrator and the benefits provider, where there is no evidence whatsoever that the “dual role inherent in the plan…infected the decision,” the standard of review should be that the plan administrator’s decision must be given weight, said Amy Posner, a lawyer for MetLife.
Justice Anthony Kennedy told Posner he is not sure how MetLife wants the court to handle the conflict-of-interest question.
“Does the fiduciary at least have the, the burden of production to show that it has established clear lines of demarcation, firewalls, whatever you call them, within the company?” Kennedy said.
Posner said the fiduciary has no such burden.
“That’s a structural conflict that ERISA anticipates and, as the United States said in its brief to this court in Pegram vs. Herdrich, ERISA tolerates this dual role and this level of conflict in order to keep these plans that are so vital in our country’s economic interests in underlying the employee’s well-being,” Posner said.
“You want us to write an opinion to say that it’s irrelevant that a company does not have procedures to insulate the profit section from the claims processing section?” Kennedy asked Posner.
“Absolutely not,” Posner told Kennedy.
Any potential conflict “must be a factor that’s weighed with the other factors,” Posner said later.
Justice Stephen Breyer told Posner he is not sure what to say in the opinion.
“Now,” Breyer said, “could I say this? Firestone, yes, that’s the way to put it as a standard…. So I’ve got Firestone — my opinion so far is 2 words: ‘Firestone, perfect.’ Okay? Now, what do you want me to say other than that?”
Joshua Rosenkranz, a lawyer with HellerEhrman L.L.P., New York, who represented Glenn at the hearing, said a trust law standard should prevail.
“Trust law says that, when you have a fiduciary with a conflict, you apply especially careful scrutiny,” Rosenkranz said in response to a question from Justice Antonin Scalia. “The scrutiny has to be consonant with the purpose of the scrutiny, which is to ensure that the conflicted fiduciary does not end up subconsciously or consciously tilting the scale.”
Roberts responded by citing the Supreme Court’s reluctance to issue rulings that could discourage employers from offering benefits.
“That has affected the standards that we’ve adopted, for example, that we even allow a conflict of interest like this to exist,” Roberts said. “And it seems to me that your position is going to hurt beneficiaries under ERISA plans, because people–the employers–are going to say, as they are perfectly free to do, ‘You know, I’m just not going to do it; if we’re going to have judges looking at these claims decisions on a de novo basis, who knows how much it’ll end up costing me? So I’m not going to set up these plans.’”