MetLife v. Glenn, or How SCOTUS saved judicial review in ERISA cases

Imagine you’re a rich, powerful insurance company. A Fortune 500 corporation selects you to both fund and administer a disability insurance program for its employees. In other words, you evaluate claims and pay benefits.

You insert into the written plan documents a provision stating that you have sole and absolute discretion to interpret the terms of the benefit plan and to determine eligibility for benefits. Such a provision would be laughably unenforceable (or unenforceably laughable) in any sane world, but standard precepts of sanity simply don’t apply here. You’re funding and administering an employee benefit plan. Hence, your policy is governed by the federal Employee Retirement Income Security Act of 1974 (“ERISA”), previous discussed here and here.

29 U.S.C. § 1132(a)(1)(B) authorizes a plan participant or beneficiary to file suit in federal court “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan”, but doesn’t specify what standard of review the court should use in assessing the insurer’s denial of a claim. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the U.S. Supreme Court borrowed heavily from the common law of trusts and held that courts must review an ERISA-governed claim denial de novo, i.e., with no deference or presumption of correctness whatsoever, unless the plan confers discretion on the insurer to interpret the policy’s terms and determine eligibility for benefits. Where the policy contains the magic language, the court’s review is limited to determining whether the claim denial was “arbitrary and capricious” or an “abuse of discretion.” As anyone who’s handled an ERISA case knows, “arbitrary and capricious” review adds up to “the insurance company wins pretty much every goddamned time.”

After Firestone, insured plans and self-funded plans alike scrambled to insert the magic language in their governing documents. The Firestone Court noted in dicta that where “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.’ ” 489 U.S. at 115 (quoting Restatement (Second) of Trusts § 187, cmt. d (1957)). The Court didn’t address what qualifies as a “conflict of interest” or exactly how such a conflict affected the standard of review.

And now we come at long last to Metropolitan Life Ins. Co. v. Glenn, the subject of this here entry. Wanda Glenn, an employee of Sears, Roebuck & Co., was diagnosed with severe dilated cardiomyopathy, a highly debilitating heart ailment featuring symptoms such as extreme fatigue and shortness of breath. Sears had a long-term disability insurance plan for its employees. MetLife was both the insurer and the administrator of the plan.

The plan provided for an initial twenty-four months of disability benefits if the employee could establish inability to “perform the material duties of [her] own job.” After her diagnosis in April 2000, Ms. Glenn applied for the initial benefits, and MetLife approved the claim.

Now the shenanigans begin in earnest. MetLife referred Ms. Glenn to a lawyer for filing a federal Social Security disability benefits claim. As discussed here, certain private long-term disability insurers have their tit stuck in the proverbial wringer for insisting that their insureds file for Social Security disability benefits even though the insureds have little or no chance of meeting the Social Security Administration’s stringent criteria for a disability award. Not so in Ms. Glenn’s case. The SSA ruled that Ms. Glenn’s sickness prevented her from doing her own job and “from performing any jobs [for which she could qualify] existing in significant numbers in the national economy.” See 20 C.F.R. § 404.1520(g). An ALJ awarded her permanent disability benefits retroactive to the date of her diagnosis.

And what benefit did Ms. Glenn get from successfully pursuing a Social Security disability claim? Not much, of course. Seventy-five percent of the back benefits went to MetLife, and the remaining twenty-five percent went to the lawyers to which MetLife referred Ms. Glenn.

To keep receiving benefits under the MetLife plan after twenty-four months, Ms. Glenn would have to meet a stricter standard akin to the SSA standard; she would need to show that her disease made her unable to do both her own job and “the material duties of any gainful occupation for which” she was “reasonably qualified.” MetLife denied payment of any extended benefits and cut off Ms. Glenn after twenty four months, claiming that she was capable of doing full-time sedentary work.

At this point Glenn no doubt would have liked to go straight to court. Well, no can do. ERISA plans and policies always include provisions for at least one level of “appeal” within the insurance company itself. Within a set period of time, you have to lodge a formal written “appeal” with the very plan administrator that denied your claim in the first place. Shockingly enough, the “appeals” committees invariably conclude that the initial decision maker was absolutely correct in denying the claim.

Are such “appeal” requirements enforceable in court? Goddamn jolly well right, they are. If you file suit before pursuing all the “appeals” that the plan requires, the court will dismiss your case for failure to exhaust your “administrative remedies.”

Ms. Glenn toed the line, meeting all the appeals requirements imposed by MetLife. Those exercises in futility complete, she filed suit against MetLife in federal court per § 1132(a)(1)(B) to recover the long-term disability benefits she thought she was entitled to receive. The trial court threw out the case, and Glenn appealed to the U.S. Court of Appeals for the Sixth Circuit.

The court of appeals reversed the trial judge and remanded the case with instructions to reinstate Ms. Glenn’s long-term disability benefits retroactive to the termination date. Glenn v. MetLife, 461 F.3d 660 (6th Cir. 2006) (pdf, 14 pages). The court recognized that MetLife’s policy contained the language necessary to trigger “arbitrary and capricious” review and that the denial of benefits must be upheld “if it is the result of a deliberate, principled reasoning process and if it is supported by substantial evidence.” The appellate court nonetheless disagreed with the trial court’s decision for a number of reasons.

First, the fact that MetLife both determined eligibility for benefits and paid those benefits created a conflict of interest for Firestone purposes. The trial court acknowledged the conflict, but didn’t appear to give it any weight.

Second, the trial court gave insufficient consideration to the Social Security Administration’s award of disability benefits. MetLife insisted that Glenn file for federal benefits, referred her to a law firm, and deducted the government benefits from Glenn’s payments under the plan, actually demanding a $13,000 refund from Glenn of plan benefits previously paid. Despite all that, MetLife terminated Glenn’s benefits without giving any consideration at all to the SSA’s finding of total disability.

Third, MetLife viewed the opinions of Ms. Glenn’s treating cardiologist in a way that could most charitably be described as selective. MetLife focused heavily on a single report suggesting that Ms. Glenn was fit for sedentary working while ignoring multiple, later-prepared reports clearly stating that Glenn was wholly unfit for any sort of full-time work.

Fourth, MetLife cherry-picked the medical records it sent to the physician it selected to conduct an “independent” review of the case. MetLife sent the reviewing physician records that were favorable to Metlife but left out records that were favorable to Ms. Glenn.

Fifth, MetLife gave no consideration to the documented role that stress played in aggravating Ms. Glenn’s heart condition. Those factors, viewed as a whole, rendered MetLife’s decision to terminate Glenn’s disability benefits arbitrary and capricious.

MetLife filed a petition for certiorari with SCOTUS, which agreed to decide the case. The decision came on June 19, 2008. The Court affirmed the Sixth Circuit, resulting in Ms. Glenn getting her MetLife disability benefits. Metropolitan Life Ins. Co. v. Glenn, 554 U.S. ____ (2008).

All nine justices agreed that a conflict of interest exists where the third-party insurance company that pays benefits is also charged with determining eligibility. As Justice Scalia wrote in his dissenting opinion, “A third-party insurance company that administers an ERISA-governed disability plan and that pays for benefits out of its own coffers profits with each benefits claim it rejects.” The real battle was over how the existence of this conflict affects judicial review.

Three justices — Roberts, Scalia and Thomas — bought MetLife’s claim that the subject conflict of interest should not affect the “arbitrary and capricious” standard of review at all unless the claimant can prove that the conflict actually affected the decision. Had a majority of the Court accepted this horseshit, conflicts of interest would have become totally irrelevant. Completely lost in this discussion is the fact that there’s generally no discovery allowed in ERISA cases; courts base their review entirely on the “administrative record,” meaning the documentation in the plan administrator’s file. So long as the insurer refrains from placing in its denial letters statements such as “The Board of Directors has instructed us to deny more claims such as yours to increase our company’s profit margin,” there’s no way in the world for a claimant to prove that the conflict of interest actually affected the decision.

In a concurring opinion, Chief Justice Roberts wrote that the court of appeals shouldn’t have considered the conflict at all since there was no evidence that the conflict played a part in MetLife’s decision to terminate benefits. However, Robert’s concurred in the majority’s disposition of the case because the remaining evidence (disregarding the SSA’s findings, cherry picking medical records, etc.) was sufficient by itself to support the Sixth Circuit’s finding that MetLife abused its discretion.

Joined by Justice Thomas, Scalia dissented. Absent proof that the conflict of interest actually affected the outcome, the conflict must be given no weight at all and the plan administrator’s denial of benefits is subject to review for “reasonableness” only. Scalia and Thomas would have vacated the Sixth Circuits’ decision and remanded for a consideration of “reasonableness . . . without regard to the existence of a conflict of interest.”

The majority consisted of Justice Breyer, who wrote the majority opinion, and Justices Stevens, Souter, Ginsburg and Alito. Rather than opting for a hard and fast, one-size-fits-all rule, the majority held that the significance of a conflict of interest depends on the specific facts and circumstances of a particular case. The standard of review remains the same: “arbitrary and capricious” where the plan contains the magic language. The fact that the same company that makes payments also decides eligibility is but one consideration in the abuse-of-discretion calculus:

We believe that Firestone means what the word “factor” implies, namely, that when judges review the lawfulness of benefit denials, they will often take account of several different considerations of which a conflict of interest is one. This kind of review is no stranger to the judicial system. Not only trust law, but also administrative law, can ask judges to determine lawfulness by taking account of several different, often case-specific, factors, reaching a result by weighing all together.

The Court also said that it is neither “necessary or desirable for courts to create special burden-of-proof rules, or other special procedural or evidentiary rules, focused narrowly upon the evaluator/payor conflict.” That seems to wipe out the Tenth Circuit’s approach to conflict of interest cases, under which (1) the existence of a conflict shifts the burden of proof to the insurer to show by “substantial evidence” (more than a scintilla, but less than a preponderance) the reasonableness of its decision, and (2) where the conflict is sufficiently serious, the insurer’s burden of proof rises to preponderance of the evidence. Fought v. UNUM Life Ins. Co., 357 F.3d 1173 (10th Cir. 2004).

In this case, the SCOTUS majority held, the Court of Appeals did nothing wrong. The appellate court considered MetLife’s conflict of interest as one of many factors supporting its determination that MetLife abused its discretion in terminating Glenn’s benefits. That’s exactly what Firestone required.

That leaves only Justice Kennedy. He agreed completely with the majority’s analysis of the conflict of interest issue. However, he disagreed with the majority’s disposition of the case. The majority said in dicta that a conflict “should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.” Kennedy treats that dicta the holding of the case. The Sixth Circuit considered the existence of a conflict, but didn’t assess “whether MetLife employed structural safeguards to avoid conflicts of interest[.]” Kennedy insisted that fairness to MetLife mandates a remand on which MetLife should be allowed to show that had “structural safeguards” to minimize the effects of the conflict.

All in all, this is a very good decision. Pleasantly surprising is the fact that Justice Alito voted with the majority. I’d considered him a slam-dunk to side with the insurance company. Employee-favoring ERISA decisions are few and far between these days. That fact alone renders Glenn cause for celebration. More than that, the Supreme Court has categorically rejected the insurance industry’s position that conflicts of interest are irrelevant absent proof of actual effect on the claim decision. The “arbitrary and capricious” standard of review is still a formidable obstacle, and Congress should amend ERISA to provide for de novo review in every case. That’s not going to happen, though, so a Glenn-type approach that allows consideration of all relevant factors is about the best we can hope for.

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  • LadyShea  On July 8, 2008 at 12:29 pm

    Argh. Private insurance should not be allowed to force policy holders to apply for public funds (SSI etc.) isn’t that the whole POINT of private insurance?

  • illusory tenant  On July 15, 2008 at 10:47 am

    Great post.

  • genghishitler  On July 15, 2008 at 4:56 pm

    Thankee, kind sir. Coming from you that means a great deal.


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