High Court Hears Oral Arguments In Benefit Determinations Case

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.’”