This past June, the U.S. Supreme Court issued the latest of many decisions about conflicts of interest under the Employee Retirement Income Security Act ("ERISA").
In Metropolitan Life v. Glenn, 554 U.S. ___ (2008), a divided Court decided that a plan administrator has a conflict of interest when it decides whether to grant or deny claims that the plan will be required to pay. The Court found the conflict to be clear since "[t]he employer's fiduciary interest may counsel in favor of granting a borderline claim while its immediate financial interest counsels to the contrary."
The Court found that when an employer has a conflict, that fact may carry great weight in reversing a coverage denial. In Glenn, for example, the Court found that plan administrator Met Life acted under a conflict of interest when it denied disability benefits to an employee of Sears, Roebuck & Company. Based largely on that conflict, the Court upheld a lower court's decision to reverse the denial.
This decision is of immediate importance to all companies that provide health, life and disability benefits to their employees, whether self-funded or fully insured. Among its various implications, it highlights the need for companies, or their third-party administrators ("TPAs"), to support coverage denials with solid and objective documentation. In short, if you?re going to deny a claim, be right—and be able to prove it.
In the wake of Glenn, courts are likely to conduct detailed, fact-specific reviews of challenges to coverage denials. Not much, if anything, may be beyond the scope of discovery, including the role of the employer in the denial, the role of the TPA, the interaction between the employer and the TPA, the facts supporting the denial, the facts opposing it, and so on.
Also fair game, as shown in the decision, will be whether “the administrator has taken active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decision making irrespective of whom the inaccuracy benefits.”
Perhaps the most significant part of Glenn is the Court’s determination of the weight that such conflicts should be given by reviewing courts. A five-Justice majority adopted an entirely flexible standard. In short, they held that courts should weigh all factors relevant to claims determinations and are free to decide—if they deem it appropriate under the facts—that evidence of a conflict warrants more weight than any of the others.
The Court was firm in its refusal to establish a single test for determining the weight that such conflicts deserve:
Benefits decisions arise in too many contexts, concern too many circumstances, and can relate in too many different ways to conflicts—which themselves vary in kind and in degree of seriousness—for us to come up with a one-size-fits-all procedural system that is likely to promote fair and accurate review.
In Glenn, the Court found that Met Life had a conflict and that the conflict so clearly influenced Met Life’s decision to deny coverage that the Sixth Circuit was correct in reversing the coverage denial. Reminiscent of the “I know it when I see it” approach once taken toward the definition of pornography, the Court stressed a particular action taken by Met Life as a basis for reversing that denial:
In particular, the court found questionable the fact that MetLife had encouraged Glenn to argue to the Social Security Administration that she could do no work, received the bulk of the benefits of her success in doing so. . . and then ignored the agency’s finding in concluding that Glenn could in fact do sedentary work.
Justice Antonin Scalia, joined by Justice Clarence Thomas, objected violently to the flexible standard adopted by the majority. In unforgiving terms, he decried it as “gobbledegook,” as “painfully opaque,” and as “absurd.”
Justice Scalia deemed the concept of a conflict of interest to be irrelevant to whether the coverage denial was appropriate. He then found the Court’s elucidation of a flexible standard for evaluating the denial to be incomprehensible, uncertain and ultimately useless:
In the final analysis, the Court seems to advance a gestalt reasonableness standard (a “combination-of-factors method of review,” the opinion calls it, ante, at 11), by which a reviewing court, mindful of being deferential, should nonetheless consider all the circumstances, weigh them as it thinks best, then define whether a fiduciary’s discretionary decision should be overturned. Notwithstanding the Court’s assurances to the contrary, ante, at 9, that is nothing but de novo review in sheep’s clothing.
The factual circumstances of Glenn may lead some to argue that the decision has a narrow scope. Among other things, Glenn was rendered in the context of disability insurance, not a self-funded health plan. In addition, the plan administrator was a third-party insurance company, Met Life, not the employer itself.
Yet there is good reason to believe that the Court did not intend the decision to be narrowly construed. For example, the Court expressly considered—and rejected—the idea that “a professional insurance company” should be subject to a different standard of decision-making than the employer itself. The Court offered several reasons for rejecting this idea, including that “the employer’s own conflict may extend to its selection of an insurance company to administer its plan;” i.e., the employer “may be more interested in an insurance company with low rates than in one with accurate claims processing.”
There is much more that will be said about Met Life v. Glenn in the days and years ahead. For now, what is important for self-funded employers is to be aware of this decision and to follow the case law as it develops. In short, every employer should do everything possible to make sure that the next big case is about some other company’s decisions—not about their own.