Recent Circuit Court Decisions May Limit Discovery in ERISA Health Benefit Litigation
By John T. Seybert, Esq. and Matthew P. Mazzola, Esq., Sedgwick, Detert, Moran & Arnold, LLP1
In an action involving a claim for health benefits under an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974, as amended (ERISA),2 the court’s review is limited to the administrative record.3 Generally, this rule results in less expensive proceedings for all parties and quicker rulings from the court.4 However, in Metropolitan Life Insurance Company v. Glenn,5 the U.S. Supreme Court found that an insurance company that is vested with discretionary authority to decide a claimant’s eligibility for benefits and also fund the benefits under the ERISA-governed plan has an inherent financial conflict of interest and that this conflict is a factor to be considered in determining whether the decision-making was arbitrary and capricious.6 The Court also ruled that the conflict of interest factor may “ prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy.”7 Thus, discovery as to whether the insurance company followed these checks and balances is relevant.
Since the U.S. Supreme Court’s Decision in Glenn, Courts Have Permitted Broad Conflict Discovery in ERISA Health Benefit Cases
The Supreme Court did not address the scope of discovery in ERISA benefit actions. But, in the wake of Glenn, several courts have allowed broad discovery of matters outside the administrative record concerning an insurer/claim administrator’s dual role conflict of interest when it is vested by the plan with discretionary authority.8 This is so even though the majority of any information relating to conflict is likely to be found in the administrative record (i.e., the claim and appeal file) that the claim administrator produces and relies on to support its decision-making.9 Often the disclosures sought offer little insight into the conflict issue.10 Nonetheless, in many cases, courts lose sight of the core requirement that the claimant still must prove his or her entitlement to the benefits at issue under the terms of this governing plan.11 The existence of a conflict of interest does not cure a claimant’s failure to submit sufficient proof of a disability at the claim review and/or appeal stage.12
In health benefit cases, the potential financial exposure for approving versus denying a claim is small; thus, the chances that any purported financial conflict of interest will actually affect the administrator’s decision-making is very small.13 Moreover, if broad conflict of interest discovery is allowed, defending the decision-making in litigation may become as expensive as the underlying claim value itself. In order to avoid this burden, some parties have stipulated to a de novo standard of review, rather than a deferential review, which ought to result in rendering conflict of interest considerations irrelevant since the Court no longer must defer to the claim administrator’s reasonable determinations.14
Recent Decisions of the U.S. Courts of Appeals for the Tenth and Eight Circuits Have Limited Both the Entitlement to and Scope of Conflict Discovery
Since the Court’s decision in Glenn, district courts have issued varied rulings regarding the scope of discovery in ERISA benefit actions with no guidance from the Circuit Courts of Appeal.15 Recently, two separate U.S. Circuit Courts of Appeal issued decisions providing a reasoned analysis about whether discovery of a conflict of interest outside of the administrative record is appropriate. In Murphy v. Deloitte & Touche Group Insurance Plan,16the U.S. Court of Appeals for the Tenth Circuit addressed the issue of conflict of interest discovery and set forth a standard for courts to utilize in resolving ERISA discovery disputes. This standard significantly curtails a claimant’s ability to obtain discovery concerning the impact of a dual role conflict of interest. Murphy involved a claim for long term disability (“LTD”) benefits under an ERISA regulated plan. The Tenth Circuit found that Rule 26(b), Fed. R. Civ. P., should apply to discovery requests seeking conflict of interest information, just as it applies to discovery requests in all other matters.17 The Tenth Circuit also found that in applying Rule 26(b), Fed. R. Civ. P., to discovery requests in the ERISA context, the district courts should not permit the parties to engage in unnecessarily broad discovery that slows the efficient resolution of the claim, and that district judges must keep in mind that ERISA seeks to ensure a speedy, inexpensive and efficient resolution of such claims.18 Therefore, the Court ruled that the burden is on the party seeking discovery outside the administrative record itself, to show the propriety of the information sought, and why it is material and relevant.19 The Tenth Circuit also ruled that, “in determining whether a discovery request is overly costly or burdensome in light of its benefits, the district court will need to consider the necessity of the discovery.”20 The Court explained that in many cases, discovery related to an administrator’s financial interest in the claim will be outweighed by its burdens because the structural conflict makes that financial interest obvious or because the evidence supporting an adverse claim decision is so strong that the result would be the same even giving full weight to the alleged conflict.21 Indeed, the Tenth Circuit alluded to a threshold merits inquiry concerning the entitlement to conflict discovery; that is whether the court can evaluate, without any further discovery, the effect of the structural conflict of interest based on the thoroughness of the claim administrator’s review directly from the administrative record.22
Similarly, in Atkins v. Prudential Ins. Co.,23 the Eighth Circuit set forth a threshold evaluation that District Courts should apply when considering a party’s entitlement to conflict discovery. In Atkins, the plaintiff appealed from the district court’s order denying his motion to compel conflict discovery.24 The plaintiff argued that the claim administrator should have been compelled to respond to his broad discovery demands requesting information outside the administrative record concerning the nature and extent of the claim administrator’s structural conflict of interest.25 The Eighth Circuit disagreed, holding that discovery concerning conflict of interest is not necessary where the administrative record is sufficient to permit a fair evaluation of the claim administrator’s decision.26 Specifically, the Court found that the claim administrator’s determination was based on a thorough review of the plaintiff’s claim file, and thus, conflict discovery was not necessary.27 The Eighth Circuit concluded that in order to obtain conflict discovery the plaintiff must make a threshold showing similar to that referenced by the Tenth Circuit in Murphy, that the administrative record reflects questions about whether or not the claim administrator conducted a fair evaluation of the claim.28 Notably, the Eighth Circuit did not suggest the particular standard it would apply in resolving a conflict discovery dispute once this threshold inquiry is satisfied because the facts in Atkins did not require such consideration.
The rulings from the Eighth and Tenth Circuits both require the plaintiff to make a prima facie showing that there is some evidence in the administrative record to suggest that a financial conflict of interest affected the decision-making before discovery outside of the administrative record will be permitted. The Tenth Circuit also instructed in Murphy that even if that threshold requirement is met, the discovery sought must still be reasonably tailored to the information relevant to the conflict of interest issue and that the Court must also consider the cost to the defendant of producing this discovery in comparison to the amount of benefits at stake. Although both of these decisions involve claims for LTD benefits under ERISA governed plans, they can be expected to have a significant impact on health insurance benefit claims under ERISA. Since the financial exposure of health benefit claims is much smaller than, the cost of producing volumes of documents regarding conflict of interest will be a significant factor in deciding whether discovery is appropriate.29
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