The Supreme Court on June 19 said that there is an inherent conflict of interest that must be evaluated under trust law in cases where an insurance company serves as both the administrator and provider of disability coverage for a benefits plan.

In a 7-2 decision, which also prompted concurring decisions, the court ruled against Metropolitan Life Insurance Company in the case of Metlife v. Glenn.

“We here decide that this dual role creates a conflict of interest; that a reviewing court should consider that conflict as a factor in determining whether the plan administrator has abused its discretion in denying benefits; and that the significance of the factor will depend upon the circumstances of the particular case,” Justice Stephen Breyer said in the majority opinion.

Effectively, the court upheld the standard set in the prior precedent, Firestone Tire & Rubber Co. v. Bruch, a 1989 decision.

The lawyer who argued the case for the claimant, Joshua Rosenkranz of Heller Ehrman LLP in New York, said, “This was a critically important ruling for any employee seeking to recover the benefits that he was promised–and there are thousands of them every year.”

He said MetLife took the position “that an insurance company necessarily acts only in the interests of claimants, so that a court should completely defer to the insurance company when it denies benefits, as if the insurance company were completely indifferent to whether or not it pays claims.”

By contrast, he said, “The Supreme Court understood that this position defies common sense, common experience, and all the facts about how insurance companies make their money. Anyone who has ever had a dispute with an insurance company knows they are not necessarily always bent on paying what they owe, he said.

“The Supreme Court held that lower courts should consider that reality when they review claim denials,” Rosenkranz added.

In its latest decision, the Supreme Court held that, as in Firestone, “A court should be ‘guided by principles of trust law,’ analogizing a plan administrator to a trustee and considering a benefit determination a fiduciary act.”

In the case, MetLife was appealing a decision of a panel of the 6th U.S. Circuit Court of Appeals, Columbus, Ohio, which side with Wanda Glenn, whose request for permanent disability benefits from the pension plan of Sears, Roebuck was rejected by MetLife.

In a decision reversing a lower court, the 6th Circuit panel sided in September 2006 with Ms. 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.”

It was that decision that the Supreme Court upheld.