In an opinion decided late last week, the U.S. Supreme Court clarified that when an insurer or an employer both makes the decisions on benefit claims and also pays the benefits, such entity has a conflict of interest that must be taken into account as a factor in a court’s review of a denied benefit claim. However, the Court did not provide detailed guidance on how the judicial review of denied claims should evaluate this conflict of interest.
In the case, Metropolitan Life Ins. Co. v. Glenn, MetLife was both administrator and insurer under a Sears long-term disability plan. The plan gave MetLife express discretionary authority to review and decide benefit claims, which it, in turn, would have to pay if it found such claims to be valid. MetLife initially granted Ms. Glenn benefits for a 24-month period, and MetLife assisted her in successfully obtaining disability benefits from the Social Security Administration (“SSA”). (The SSA benefits offset the disability insurance benefits otherwise required to be paid by MetLife, a common provision in long-term disability policies.) However, under a stricter disability standard that applied after the initial 24-month period, MetLife denied Ms. Glenn further benefits finding she was “capable of performing full time sedentary work.” Ms. Glenn sued under ERISA.
The district court held in favor of MetLife. However, the Sixth Circuit Court of Appeals set aside MetLife’s benefit denial, even though it applied a differential standard in its review (since the plan granted MetLife discretionary authority to review and decide claims). The Court of Appeals pointed to a combination of five separate circumstances in its denial, including MetLife’s conflict of interest. MetLife sought review from the U.S. Supreme Court on the issue of whether it operated under a conflict of interest, though the Supreme Court also agreed, at the request of the U.S. Solicitor General, to consider “how” any such conflict should be taken into account on judicial review. On the first issue, the Court concluded that a conflict existed for ERISA purposes, despite MetLife’s various arguments, including its attempt to distinguish an employer-administered self-insured plan from an insurer-administered insured plan.
On the second issue, the Court analyzed and cited extensively from its 1989 case of Firestone Tire & Rubber Co. v. Bruch, as well as trust law, and essentially upheld the precedent that when “a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘factor in determining whether there is an abuse of discretion’” and that the overall method of review should be a “combination of factors.” The Supreme Court agreed with the various factors focused on by the Sixth Circuit Court of Appeals, including MetLife’s conflict of interest as well as MetLife’s encouraging Ms. Glenn to apply for SSA disability benefits (with the resulting offset of long-term disability benefits) and then ignoring the SSA conclusion that Ms. Glenn could not perform sedentary work.
The impact of this decision, if any, remains to be seen. However, it does not appear to modify the “sliding scale” standard of review adopted by many Circuit Courts, including the Fourth Circuit Court of Appeals, which previously stated “[t]he more incentive for the administrator or fiduciary to benefit itself by a certain interpretation of benefit eligibility or other plan terms, the more objectively reasonable the administrator or fiduciary’s decision must be and the more substantial the evidence must be to support it.”