Supreme Court's June 19 Decision About The Standard Of Review Applicable To ERISA Cases
by Cynthia Marcotte Stamer, Glast, Phillips & Murray, PC, Dallas, TX
The United States Supreme Court's June 19th decision in Metropolitan Life Insurance Co. v. Glenn clarifies the latest in a series of regulatory and judicial developments concerning the applicable standard of review for courts when reviewing claims decisions made under insured and self-insured managed care or other health insurance plans regulated by the Employee Retirement Income Security Act (ERISA).
In Glenn, the Supreme Court addressed whether and how courts should take into account the existence of a responsibility to pay plan costs or other financial interests in the outcome of a claims decision by the plan administrator, insurer or other fiduciary when reviewing challenged ERISA-covered claim decisions. Whether to defer to an administrator's benefit decision frequently is critical to the outcome and cost of benefit litigation since the degree of deference a court affords to the fiduciary administrator's decision-making often substantially impacts the burden an administrator must meet and the evidence it must produce to defend its decision.
Prior to Glenn, the Supreme Court in Firestone Tire & Rubber Co. v. Bruch, ruled that ERISA generally requires that a court reviewing a fiduciary's decision to deny plan benefits under a de novo standard unless the plan grants the fiduciary discretionary authority. In contrast, where the benefit plan gives the fiduciary discretionary authority, the reviewing court generally should defer to the fiduciary's decision absent evidence that the administrator abused its discretion. Under Firestone, if the evidence reflects that the insurer's or other fiduciary's decision may have been improperly influenced by a conflict of interest, was contrary to the law or the plan's terms, or was arbitrary, then less deference might be appropriate. With regard to a conflict of interest, the Firestone Court directed reviewing courts to weigh the conflict as a "factor in determining whether there is an abuse of discretion" that justified less deference to the administrator's decision.
After Firestone, insurers or other fiduciaries immediately began arguing that their existing plan documents included the requisite grant of discretionary authority to qualify their decisions for deferential review. Additionally, many but not all, ERISA-covered health or other benefit plan sponsors revised their health benefit contracts or other plan documentation specifically to more clearly document this discretionary grant. Meanwhile, participants and beneficiaries bringing ERISA benefit actions sought to mitigate the impact of these discretionary grants by challenging the existence or scope and scope of the alleged fiduciary grant, alleging the fiduciary forfeited qualification for discretionary deference by acting under a conflict of interest, contrary to the law or plan terms, or arbitrarily. Over time, conflicts developed among the various federal courts regarding whether the dual involvement of the insurer or other fiduciary as both claims decision-maker and as the insurer or employer (or employed by the insurer or employer responsible for providing funds to pay claims) constituted a conflict of interest and, if so, how this impacted the eligibility of its decisions for deferential judicial review.
In Glenn Court addressed whether this dual involvement in benefit administration and plan funding by an administrator constitutes a conflict of interest that requires or justifies the reviewing court's disregard of an otherwise applicable discretionary grant of authority in the plan document. Considering plaintiff Wanda Glenn's challenge to the denial of her ERISA-covered disability benefit claim by the insurer that both insured and administered benefits under the policy, the Supreme Court in Glenn ruled:
- Where the plan administrator making the claims decision also funds claims paid under the plan or otherwise has a financial interest in the outcome of the claims decision, the administrator acts under a conflict of interest that under certain circumstances may justify less deferential judicial review of its claims decisions than otherwise would apply in the absence of this conflict of interest;
- The mere existence of this conflict of interest does not automatically disqualify the plan administrator's decision for any deference by a reviewing court. Rather, the existence of this conflict of interest is merely a factor that the reviewing court may consider when deciding whether less deferential review is justified; and
- The extent to which the conflict of interest justifies a reviewing court's closer scrutiny of the administrator's claims decision depends upon the extent to which the facts and circumstances reflect that the conflict may have caused the administrator to abuse its discretionary authority.
While the Glenn decision also provides insights about types of evidence that might influence a court's decision about whether an alleged conflict of interest merits greater scrutiny, the Supreme Court deliberately stopped short of establishing any "detailed set of instructions" governing court's determination of the review standard. Rather, the Court "simply held that the reviewing judge should take account of the circumstance" of a conflict of interest as a factor in determining the ultimate adequacy of the record's support for the fiduciary's own factual conclusion. The Glenn court explained this "[w]ant of certainty" in judicial standards "partly reflects the intractability of any formula to furnish definiteness of content for all the impalpable factors involved in judicial review."
The Glenn decision almost certainly will fuel another round of intense litigation between the parties to ERISA governed claims litigation because the Supreme Court has made it clear that, depending on the evidence produced, a court reviewing the plan administrator's decision appropriately can decide that the conflict of interest warrants no special scrutiny or significantly greater scrutiny, but provides no specific formulary to govern this decision by a court. The decision is helpful for insurers and other plan fiduciaries administering claims to the extent that it rejects the notion that the mere existence of dual responsibility for deciding and funding claims requires de novo review of the administrator's decisions. By instead ruling that the dual role creates a conflict of interest that is a factor that courts may, but are not required to consider based on the facts and circumstances, however, the Glenn decision is almost certain to fuel another wave of fact intensive argument between claimants and health insurers or other claims fiduciaries seeking to influence the weight placed upon the existence of this conflict by reviewing courts. Where the decision turns on the standard of review, the factual nature of this analysis also makes it less likely that courts will grant summary judgment to either party.
In addition to guidance provided by Glenn, the sustainability of a claim decision under ERISA also is impacted U.S. Department of Labor regulations interpreting ERISA's reasonable claims and appeals procedures requirements, ERISA's fiduciary responsibility standards, and a plethora of other judicial and regulatory guidance. Taken together, the decisions in Glenn and Firestone, along with other judicial and regulatory guidance, provide critical insight to employee benefit plan sponsors, their fiduciaries and service providers, and others about processes and plan language that can help make claims decisions more defensible before the courts. While this guidance continues to evolve, Glenn and the other existing guidance outline certain basic practices that plan sponsors and administrators should follow if they are concerned about positioning plan administration decisions to hold up in court under ERISA. Some of these include:
- Ensure that plan documents incorporate the grants of discretion that the Supreme Court previously ruled in Firestone v. Bruch must exist before the courts can consider applying deferential, rather than de novo review to a plan administrator's decisions whenever possible;
- If a fiduciary intends to allow a service provider or other party to perform all or a portion of its fiduciary responsibilities, ensure that this delegation is accomplished through appropriate documentation that both delegates the fiduciary role and applicable fiduciary discretion in accordance with applicable plan terms and procedures;
- Draft plan documents, summary plan descriptions and other plan communications carefully to reduce the need for the plan administrator to exercise discretion when making plan administration decisions;
- Ensure that plan claims and appeals processes, communications, and documentation are updated and administered to comply with currently applicable Labor Department claims, appeals, and other regulations, many of which have been updated in recent years;
- Appoint an individual, service provider or committee to act as the plan administrator that is insulated from involvement in plan funding related activities of the nature that might create a conflict of interest;
- Where circumstances prevent the redesign of processes to eliminate allegations of a conflict of interest, adopt and make documented use of processes and procedures to ensure the administrator can present the necessary evidence to rebut allegations that the conflict of interest inappropriately impacted its decision-making; and
- Ensure that documentation, processes and procedures, notifications, and communications are appropriately designed and administered to document that the administrator made its decision prudently in accordance with the plan terms taking into account applicable law, without improper prejudice or undue influence as a result of its financial interest in the plan or other conflict of interest.
Glenn, Firestone and other existing court decisions document that the fulfillment of these conditions is key to a court's decision to uphold a plan administrator or other fiduciary's benefit decision and that the reduced evidentiary burden applicable where discretionary review applies also minimizes defense costs. A review of this precedent provides strong evidence of the potential value for employee benefit plans, their sponsors, fiduciaries, and liability insurers of evaluating employee benefit plan documents and procedures for opportunities to strengthen these documents and procedures.
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