Fairness in Deciding ERISA Claims:  A New Era?

By Bonny G. Rafel

Disabilitycounsel.com

            On June 19, 2008, the U.S. Supreme Court decided Metropolitan Life Ins. Co. v. Glenn, 554 U.S. ___, 2008 U.S. LEXIS 5030 (2008), ruling that the dual role of an entity that administers a group plan, such as an insurance company that both insures an employee welfare benefit plan and determines when to pay benefits gives rise to a conflict of interest that is pertinent when reviewing claims decisions.   

            It has become commonplace three decades after the enactment of Employee Retirement Income Security Act (ERISA) for employers providing health or disability benefits to its employees to contract with insurance companies to handle the claims administration and to determine eligibility for benefits.  Consumers have struggled to convince the courts that this fox-guarding-the-henhouse contradiction must be seriously considered when evaluating the insurers’ denials of these claims. While Congress’ desire in enacting ERISA was to “offer employees enhanced protection for their benefits,” Glenn, Id at *15 [quoting Varity Corp. v. Howe, 516 U.S. 489, 497 (1996)], the Supreme Court recognized that “claims processing, an ingredient of the insurance company’s product, falls below par when it seeks a biased result, rather than an accurate one.”  The Glenn Court resolved an inconsistency among the Circuits ruling, consistent with existing Third Circuit law, that they should not merely countenance the  fact that the same party both makes claims decisions and pays approved claims.

            Claimant’s counsel should celebrate this breakthrough, but its application to cases remains uncertain.  Once a conflict is established, how should the district court apply the fact of the conflict of interest to it’s review of the case?  The Third Circuit already provided guidance in Pinto v. Reliance Standard Ins. Co., 214 F.3d 377 (3d Cir. 2000), informing to “slide the scale” of deference by the degree of the conflict established.   In fact, a recent case, Post v. Hartford Ins. Co., 501 F.3d 154 (2007), set forth an organized method by which to analyze how a conflict impacted the claim administrator’s handling of the claim.

            One thing is certain, the Glenn decision clarifies that claimants are entitled to discovery to prove the conflict and its bearing on the claims determination, in other words,  if the conflict undermined a full and fair review of the claim under review.  The Glenn court reasoned, “Trust law continues to apply a deferential standard of review to the discretionary decisionmaking of a conflicted trustee, while at the same time requiring the reviewing judge to take account of the conflict when determining whether the trustee, substantively or procedurally has abused its discretion.” Id at *18.  The court explained that “when Judges review the lawfulness of benefit denials, they will often take account of several different considerations of which a conflict of interest is one…Id at *20.  Up to now, district courts in New Jersey have greatly limited the extent to which any discovery could be conducted under the “arbitrary and capricious” standard of review. But now Glenn has made it clear that “case-specific factors”, weighed together may act as a “tiebreaker” “depending on its inherent or case-specific importance.”  Glenn’s urging a more “trustworthy” analysis under a true “abuse of discretion” magnifer elucidates the need for discovery as to the extent of the conflict and its bearing on the claims determination.  

            While such discovery was permissible under Pinto and its progeny, the insurer’s internal structure of the company, its claims payment history, the bias of its medical consultants and whether it has a mechanism to penalize inaccurate decisionmaking is fair game and relevant under Glenn.  Litigants should propound discovery to cover, at a minimum the insurer’s internal procedures set up to control the bias inherent in its conflict of interest, the history of the insurer’s claims administration, and terms of administrator and insurance contracts. 

            In essence, our Supreme Court advising judges to do their job, to judge, “ they are not to abdicate the conventional judicial function” because their review is created by statute.

The Court’s decision clears a previously cluttered path to the truth by opening the door for expanded discovery.  The lower courts now must seize Glenn’s challenge to confront this conflict of interest and protect employees’ rights to their health care and disability benefits under ERISA.  The impact of this and N.J.A.C.11:4-58, Prohibition of Discretionary Clauses in insurance contracts, effective May 7, 2007 is refreshing and a long overdue step toward fairness for consumers swaddled with health care bills and disability.