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Court Pro Business? Not So Fast
A highly watched Supreme Court case has added uncertainty to the finality of insurer-administrators' employee benefits denials. Ending its 2007-2008 term, a divided high court ruled that an insurer that both decides and pays benefits has a conflict of interest that may be weighed by a federal court in reviewing the propriety of employee plan benefit denials.
Sears employee Wanda Glenn developed a serious heart condition. Metropolitan Life Insurance Co., her disability benefit plan administrator and benefits payer, granted Glenn 24 months of payments. MetLife also encouraged Glenn to apply for Social Security disability benefits which she did and which were granted. The Social Security payments to Glenn resulted in a MetLife benefits reduction. At the end of two years, MetLife argued that Glenn was not completely disabled under the plan and cut off benefits. After exhausting administrative appeals Glenn sued in federal court under the federal Employee Retirement Income Security Act. The trial court found for MetLife, deciding its decision was not "arbitrary." The federal intermediate appellate court, however, reversed, holding MetLife's denial of benefits was not based on "substantial evidence." Along the way, the appellate court considered as a factor the conflict of interest that MetLife had, as both a benefits decider and payer.
The court dealt affirmatively in answering the first question, having decided two decades earlier that an employer-administrator of a plan that both decides and pays benefits has a conflict of interest. The second question--how federal courts factor in conflicts of interest in reviewing benefits determinations--was more troublesome. The majority opinion, joined in by five Justices, concluded that the conflict of interest's significance will depend upon the circumstances of each particular benefits decision being reviewed. The majority affirmed the appellate court's conclusion of an improper denial of benefits. Chief Justice Roberts concurred with the result of the majority's opinion--that denial of benefits was improper--but disagreed with the majority's reasoning. Pointing out that most American plans have "conflicted" administrators, Roberts concluded that the "just another factor" standard would invite the substitution of judicial discretion for the discretion of the plan administrator. Justice Scalia, with Justice Thomas, wrote a typically blistering dissent. He warned that the majority's decision makes each benefits case unique and the outcome of each case, therefore, unpredictable. Scalia argued this was totally at odds with the plan creator giving an administrator explicit discretion to decide benefits, conflict or no conflict. It appears, by a 6-3 majority, that the Supreme Court has made matters more difficult for the thousands of ERISA-governed benefits plans nationwide. Plan administrators who both decide and pay will now be placed under greater scrutiny by federal courts, causing additional delay and expense to all involved. PHILIP G. KIRCHER is co-chairman of the commercial litigation department at the law firm of Cozen O'Connor. August 1, 2008 Copyright 2008© LRP Publications |
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