INSURANCE LAW ALERT
Conflict of Interest Must be Weighed in Denial of Benefits Claims
The US Supreme Court recently held that when the administrator of an ERISA employee
benefit plan both determines whether an employee is eligible for benefits and is
responsible for paying those benefits out of its own assets, the administrator operates
under a conflict of interest. The Court further held that in a review of the administrator’s
decision a court must consider that conflict of interest as one factor in determining
whether the administrator abused its discretion. However, a complete, well-reasoned
decision by the administrator will go a long way in minimizing the significance of any
conflict. Metropolitan Life Insurance Company v. Glenn (No. 06-923)
The Glenn case involves a suit filed by an employee who had been denied extended
disability benefits under her employer’s plan, which was administered and insured by
Metropolitan Life Insurance Company. The employee argued that the insurance company
had a financial incentive to deny claims, creating a conflict of interest that should weigh
heavily in an employee’s favor when challenging the administrator’s decision in court.
One issue raised in Glenn concerned whether an administrator’s dual role in both
considering eligibility for benefits and paying claims, standing alone, creates the kind of
conflict that should be a factor in a court’s review, or whether it was also necessary for the
claimant to show that the conflict played a role in the denial of benefits. The Court said
that the bare conflict of interest alone was sufficient to affect the standard of review.
Under current law, a court will usually defer to the administrator’s decision if the plan
document says that the plan administrator has discretionary authority to interpret a plan’s
language in determining whether a participant or beneficiary will receive a benefit. This is
the so-called deferential abuse of discretion standard of review.
Another important question, however, is how the standard of review is affected by the
conflict. Even though the Court did not provide definitive guidance on how a reviewing
court should analyze benefit denial claims in the presence of such a conflict of interest, it
did say that the existence of the conflict does not change the standard of review from
abuse of discretion to de novo. The conflict is to be weighed only “as a factor in
determining whether there is an abuse of discretion” and the conflict’s significance will
“depend on the circumstances of the particular case.”
Further guidance will take time as lower courts decide the level of deference they should
apply to plan administrators’ decisions and the factors which may be relevant. In the
meantime, there are steps plan administrators can take to minimize the potential adverse
consequences of a dual role. For example, all benefit decisions should be in writing and
the decisions should be explained thoroughly. If the claimant has presented evidence
contrary to the decision reached by the administrator, the decision should include the
reasons for rejecting that evidence. Inconsistencies should be discussed and relevant
documents should be provided. Steps such as these can go a long way toward
convincing a reviewing court that the administrator is making fair and accurate decisions.
Insurance Law Practice Group
HARRANG LONG GARY RUDNICK P.C.
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Our firm’s Insurance Law Alerts are intended to provide general information regarding
recent changes and developments in the insurance law area. These publications do not
constitute legal advice, and the reader should consult legal counsel to determine how
this information may apply to any specific situation.
HARRANG LONG GARY RUDNICK P.C.