Any hope that ERISA litigants would get clarity from the Supreme Court’s decision last term in Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008) — addressing the proper standard of review of a plan administrator’s decision in the light of a conflict of interest — has been doused. Two opinions from different circuits, handed down the week before Christmas, arrive at differing destinations.
Under Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), courts are instructed to review an ERISA plan administrator’s decision de novo “unless the benefit plan gives the administrator . . . authority to determine eligibility for benefits or to construe the terms of the plan.” When the plan grants such authority, court review of decisions under Firestone is limited to abuse of discretion. In practice, this has meant that (1) plan sponsors nearly always draft their plans to include such authority, and (2) the house almost always wins.
But in the intervening decades, courts applied differing and inconsistent rules to set the standard of review when the plan administrator is also an interested party, such as where (2) the payor and administrator are the same, or (2) the administrator is an employee of a self-funding plan sponsor. Glenn, addressing a split in the circuits on this issue, held that a conflict does not change the standard, but may be “weighed as a factor in determining whether there [was an abuse of discretion.” Glenn, 128 S. Ct. at 2348 (quotation marks omitted).
McCauley v. First Unum Life Ins. Co., No. 06-5100 (2d Cir. Dec. 23, 2008): The pro-participant decision of the week comes from the Second Circuit, which prior to Glenn had treated conflict-of-interest cases as ratcheting up the standard of review to de novo. Here, the defendant — a disability insurance provider to auction-house giant Sotheby’s — twice denied disability benefits to a participant, who argued that:
“certain procedural irregularities that occurred in the handling of his claim demonstrated that First Unum’s conflict of interest had affected its decision to deny him benefits. These alleged irregularities included contentions that one document was missing from the administrative record and that First Unum had incorrectly told McCauley that his claim had been reviewed by a medical doctor when in fact it been reviewed by a nurse.”
The district court had granted summary judgment to First Unum, but the Second Circuit reverses and renders judgment in favor of the participant. While acknowledging that Glenn lowered the standard-of-review previously enforced by the circuit, it finds that the conflict inhering to the decisions in this case (First Unum was both payor and administrator) along with the irregularities rendered the outcomes arbitrary.
In the first instance, the administrator ignored the participant’s submission of materials on appeal that filled in details missing in the initial claim:
“Even the most cursory comparison with McCauley’s earlier submission by a competent reviewer would have revealed the myriad of details about his condition, absent from the earlier submission, severely affecting his ability to work. And contrary to First Unum’s representation, it appears the information was afforded little if any weight by the nurse considering his appeal because the memorandum was not signed by a physician. The rejection mischaracterizes the quality and detail of the evidence McCauley had submitted on appeal. This is so particularly because the new submission purported to be information that the physicians at Sloan-Kettering believed justified McCauley’s request for disability.
“. . . . First Unum’s response to McCauley implies that it would have been pointless to undertake any efforts to sort out the obvious and facial discrepancies in his record. Hiding behind a terse initial response to a set of questions it posed three months earlier, First Unum blithely ignored detailed descriptions constituting clear proof of total disability– apparent even to a lay person–purporting to be the views of McCauley’s physicians.
The panel then factored in the conflict of interest: “Taken in combination, these factors are plainly exacerbated by First Unum’s conflict of interest, as both administrator and payor, for what else would have influenced First Unum to avoid following up on simple inquiries prompted by McCauley’s June 10 submission?”
The standard enunciated here — “for what else?” — seems perfectly opaque to me. But then, maybe the Second Circuit is simply announcing a special “First Unum” rule, for the panel opinion goes on to report:
“First Unum is no stranger to the courts, where its conduct has drawn biting criticism from judges. A district court in Massachusetts wrote that ‘an examination of cases involving First Unum . . . reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics.’ Radford Trust v. First Unum Life Ins. Co., 321 F. Supp. 2d 226, 247 (D. Mass. 2004), rev’d on other grounds, 491 F.3d 21, 25 (1st Cir. 2007). That court listed more than thirty cases in which First Unum’s denials were found to be unlawful, including one decision in which First Unum’s behavior was ‘culpably abusive.’ Id. at 247 n.20. Also, First Unum’s unscrupulous tactics have been the subject of news pieces on ’60 Minutes’ and ‘Dateline,’ that included harsh words for the company. Id. at 248-49. First Unum has fared no better in legal academia. See John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315 (2007). In light of First Unum’s well-documented history of abusive tactics, and in the absence of any argument by First Unum showing that it has changed its internal procedures in response, we follow the Supreme Court’s instruction and emphasize this factor here. Accordingly, we find First Unum’s history of deception and abusive tactics to be addition al evidence that it was influenced by its conflict of interest as both plan administrator and payor in denying McCauley’s claim for benefits.”
Justice courtesy of network news notoriety? This is the record that a participant must present to win a simple ERISA claim?? I’ve litigated ERISA cases for some 18 years, but even with my experience I’m having trouble figuring how to piece this all together.
Champion v. Black & Decker, No. 07-1991 (4th Cir. Dec. 19, 2008): This decision — noted previously on Workplace Prof Blog — arises from a circuit that, prior to Glenn, applied a modified abuse-of-discretion standard in conflict of interest circumstances. But in light of Glenn, the Fourth Circuit holds (like the Second Circuit) that it must revisits governing precedent. The participant in this case, too, was denied disability benefits by a plan administered by Black & Decker employees. The plan capped benefits associated with mental disabilities at 30 months. The participant argued under the plan definition that her disability had been misclassified as “mental,” but two consulting doctors reviewed her medical records and concluded that her principal disabilities were mental in nature.
The Fourth Circuit, affirming summary judgment for the plan, restates Glenn as follows (citations omitted):
“As it now stands after Glenn, a conflict of interest is readily determinable by the dual role of an administrator or other fiduciary, and courts are to apply simply the abuse-of-discretion standard for reviewing discretionary determinations by that administrator, even if the administrator operated under a conflict of interest. Under that familiar standard, a discretionary determination will be upheld if reasonable. And any conflict of interest is considered as one factor, among many, in determining the reasonableness of the discretionary determination.”
The panel holds, under prior Fourth Circuit case law, that conflict would be one of eight factors considered. And while agreeing with the participant that there was a conflict — “[t]he Plan sponsor, Black & Decker, served in the dual role of both evaluating and paying Champion’s claims” — it holds that the other factors substantially outweighed this one. “The Plan applied the language defining benefits, as well as the limitations on those benefits; it considered the materials supplied by the professionals who treated Champion; it fully cured any initial procedural irregularities; and it engaged in a decision making process that was ultimately reasoned and principled.”
In the grip of multifactored, unweighed tests, courts will have an ever-more difficult time resisting the drift toward entropy. Courts can take the course of assigning the conflict-of-interest determinative weight when the facts otherwise look bad, or brushing the conflict under the rug when the niceties are satisfied. Nothing good can come of this until Congress one day (with hope) visits anew the entire standard-of-review problem, which up to now has been shaped by the kind of judicial lawmaking ordinarily decried by pro-corporate types.