Supreme Court justices on April 23 appeared torn about the advice they would give lower courts in evaluating conflicts of interest in disability cases where an insurance company serves as both an administrator of a company benefits plan as well as the provider of the benefits.
In an hour of intense arguments in which the U.S. Solicitor General joined with the claimant, the justices first wrestled with the question of the level of scrutiny lower courts should consider in cases where the insurance company plays a dual role.
The case, MetLife vs. Glenn, was brought by Metropolitan Life Insurance Company, which both administered and funded the benefits of an ERISA plan for Sears Roebuck.
In this case, MetLife appealed a decision of the 6th U.S. Circuit Court of Appeals, which reversed a lower federal court decision in Columbus, Ohio backing MetLife decision denying benefits in 2002 to Wanda Glenn, now 55, after two years. Glenn went on disability in 2000 after suffering for years with heart disease, which included in 1989 an incident of cardiac arrest.
MetLife then suggested Glenn should seek Social Security benefits, even providing her with the name of an attorney who was aware of her medical problems. MetLife told Glenn that any Social Security award could be deducted from her MetLife payments.
A federal administrative law judge eventually determined, based in part on information submitted by MetLife, that Glenn was disabled and entitled to Social Security payments. About a month later, after reviewing conflicting evaluations from Glenn’s physician about her ability to do sedentary work, MetLife revised its opinion and decided she was no longer eligible for disability benefits. Glenn’s administrative appeals failed, and she eventually sued MetLife in federal court.
In its decision reversing a lower court, a 6th Circuit panel sided in September 2006 with Glenn, saying that it was entitled to consider MetLife’s dual role in deciding benefits and paying them.
The 6th Circuit decision 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.”
In seeking review, MetLife noted the issue has deeply divided appellate courts. The 4th, 5th, 6th, 8th, 9th and 11th Circuits require consideration of such dual roles when reviewing an ERISA award, while the 1st and 7th Circuits do not require consideration of such “structural” conflicts.
The Supreme Court first took up the issue in 1989 in Firestone v. Bruch.
But the cases are different because the Bruch case involved a self-funded pension plan, not an ERISA plan funded through purchase of a group insurance policy.
The case is important because the Supreme Court has never required federal courts to defer to an insurer’s denial of benefits based on the insurer’s self-granted discretionary authority, according to several lawyers who have studied the issue.
Justice Stephen Breyer summed up the dilemma of the court in questioning the lawyer for MetLife during oral arguments.
“The problem that I’m having is what to say in the opinion [in the case before the court],” Breyer said. “Now, could I say this? Firestone, yes, that’s the way to put it as a standard.”
In her response, Amy Posner, a MetLife lawyer, explained that the standard should be “where there is a dual role inherent in the plan [where the insurance company is both the plan administrator and benefits provider] but no evidence whatsoever that it infected the decision, [the plan administrator's decision]… must be given weight.”
But Joshua Rosenkranz, a lawyer with HellerEhrman LLP in New York who represented the claimant, argued that trust law, a higher standard, should prevail. “Trust law says that when you have a fiduciary with a conflict, you apply especially careful scrutiny,” he replied in answer to a question from Justice Antonin Scalia.
“What trust law does is to say we apply especially careful scrutiny,” Rosenkranz explained. And 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.”
Chief Justice John Roberts warned the lawyer for the claimant in the case that applying too high a standard might dissuade companies from providing benefit plans under ERISA. “Well, but trust law doesn’t take into account what we have said repeatedly in our ERISA decisions, which is, ‘we want to encourage people to set up ERISA plans,’” he said.
Roberts then noted the disincentive to employers that has played a factor in the court’s ERISA decisions.
“That has affected the standards that we’ve adopted, for example, that we even allow a conflict of interest like this to exist,” he 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.’”
The case has attracted broad attention in the benefits community.
A brief filed in the case by the U.S. Chamber of Commerce, America’s Health Insurance plans and the American Benefits Council said disability insurance plans cover 28 million Americans, and insurers paid more than $7.2 billion in long-term disability claims to more than 500,000 people in 2006.
In a brief, Solicitor General Paul Clement contended that MetLife “benefits financially if it denies an employee’s claim,” which is a “commonsense understanding of what constitutes a conflict of interest.”