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.
In this regard, it would also be valuable for the claims review department to be physically separated within the same building or, if possible, located in a different building altogether. In addition, transfers of personnel between the claims review department and positions that are directly responsible for or impacted by the financial success of the company should be limited or, preferably, avoided.
–Establish proper written procedures. Administrators should have written guidelines and policies, which are as detailed as possible, that govern the claims determination process. For example, the guidelines should explicitly state that administrators will consider neither the amount of benefits that will be paid to a claimant, nor the financial impact on the insurance company, if a claim is approved. An additional written policy requiring claims department personnel to comply with the guidelines is also recommended.
–Eliminate any incentives for claims denials. It is also very important to ensure a completely objective structure for claims determinations, which in no way rewards denials of claims. For example, the claims examiners’ pay structures should provide for equal compensation regardless of the outcomes of their decisions. In addition, it is advisable to institute regular training programs and perhaps the circulation of written company policies that explain the requirement of complete objectivity in claims determinations. While such steps will not prevent willful acts by individual administrators, they can at least “create an atmosphere” in which there is no incentive to deny claims.
–Incentivize accuracy: Going a step further, administrators could be provided with specific incentives for rendering accurate determinations. For example, a bonus system linked to the percentage of challenged claims decisions that are upheld or overturned would sufficiently accomplish this objective. The company may also want to hire an outside entity, such as a law, accounting, or consulting firm, to perform an independent audit of past claims decisions for accuracy.
–Require well-drafted decisions: Denial letters should always be carefully crafted in a manner that makes them as impervious to attack as possible. As such, it is advisable to require citations to, and at least some brief reasoned analyses of, as much of the information presented in connection with the claim as possible. Conversely, it could be damaging to present a record that reflects a lengthy discussion by the claim administrators of the high cost of the benefit or medical procedure at issue. Every written determination should include boilerplate language, quoting the administrators’ written policy forbidding financial considerations with respect to the insurance company.
If some or all of the steps outlined above are implemented as suggested, a court may find it more difficult to conclude that the particular plan administrator had not “taken active steps to reduce potential bias and promote accuracy,” under MetLife.
Further, as other plan administrators begin to implement steps such as these, companies that do not may have a harder time arguing they have taken appropriate measures to mitigate what courts are viewing as an inherent conflict of interest.
Accordingly, adopting these measures may provide security, and may even become necessary to demonstrate, that a dual-role administrator’s decision should receive the preferred deferential review.
Susan Relland is of counsel with Miller & Chevalier, Chartered, Washington. She can be reached at email@example.com