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May 28, 2009 at 08:00 PM
In light of the Supreme Court’s 2008 decision in Metropolitan Life Insurance Co. v. Glenn, insurers that insure and also are responsible for making final claims determinations for ERISA plans are well-advised 
to establish internal safeguards to reduce the impact of a perceived conflict of interest. If structured properly, such safeguards could help preserve the right to deferential review of claim decisions.
MetLife v. Glenn
MetLife was the administrator and insurer of a Sears, Roebuck & Company long-term disability plan governed by the Employee Retirement Income Security Act. The plan gave MetLife discretionary authority to decide when to award benefits and provided that MetLife, as insurer, would pay the claims. MetLife denied Glenn’s disability claim, and the 6th U.S. Circuit Court of Appeals set aside the denial. The court used a deferential standard of review, even though it concluded that there existed a conflict of interest because MetLife both determined an employee’s eligibility and paid for benefits.
The Supreme Court had earlier addressed the appropriate standard of judicial review under ERISA in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), holding that a deferential standard of review is appropriate where the plan grants the administrator or fiduciary discretionary authority to determine eligibility. The opinion also observed that, if the administrator or fiduciary is operating under a conflict of interest, the conflict must be weighed as a factor in determining whether there is an abuse of discretion.
In MetLife, the Supreme Court stated that a plan administrator’s dual role of both evaluating and paying benefits claims creates the kind of conflict of interest referred to in Firestone. The court explained that such a conclusion is clear where it is the employer itself that both funds the plan and evaluates the claim, but a conflict also exists where the plan administrator is an insurance company that also insures the plan.
The court held that a conflict of interest is a factor to be weighed with the other case-specific factors. However, the court stated that a conflict of interest should “prove less important (perhaps to the vanishing point)” when there is evidence that the administrator took active steps to diminish potential bias and increase the accuracy of its claims administration.
Securing deferential review
While the court did not spell out a safe harbor, it did refer to an article that proposes several steps to form a “Chinese Wall,” to prevent (or diminish) conflicts of interest in banks. Accordingly, the following is a list of measures that, if implemented in whole or part, may help prevent a conflict of interest from influencing a court’s decision regarding whether to use substantial deference. The more safeguards that are adopted, the better an administrator’s chances are of achieving deferential review (and, thus, the plan administrator’s decision being upheld).
–Maintain a separation between claims administration and finance. Perhaps the most important measure to be undertaken in this context is to completely separate the individuals who handle claims decisions from those who have financial responsibility for the insurance company. Individuals who are responsible for the review of claims should not have direct responsibility for, or receive a direct financial incentive (such as an end of year bonus) that is tied to, the profitability of the company.
