The Supreme Court’s recent decision
in Metropolitan Life Insurance Company v. Glenn, 128 S. Ct.
2343 (Jun. 19, 2008) is likely to have beneficial effects on judicial review of ERISA-governed disability and other welfare
benefit claims, particularly in the Second Circuit, which includes New York. The
Court’s analysis allows district courts more freedom to consider the impact of an insurer’s bias and financial self-interest
(conflict of interest) in denying claims. Moreover, since the presence of such
a conflict can justify discovery and admission of evidence outside the so-called “administrative record,” courts should be
more willing to authorize discovery where signs of bias and self-interest are present, even if no “smoking gun” is apparent. Finally – and with specific reference to disability claims – the Supreme Court has
made clear that insurers and claim administrators should consider Social Security disability determinations. If a claimant has been approved for Social Security disability, it may be considered arbitrary and capricious
for a private insurer to ignore that fact in its claim determination.
The
New Standard of Review
A significant hurdle to claimants
seeking benefits under employer-sponsored plans has long been the “arbitrary and capricious” standard of review. The Supreme Court approved the application of this standard of review in Firestone Tire and Rubber Co.
v. Bruch, 489 U.S. 101 (1989), holding that if the documents which establish a benefit plan grant the claim administrator
“discretion” to interpret plan terms or make benefit determinations, those interpretations or decisions would not be overturned
unless the decision was so wrong or unreasonable as to be arbitrary and capricious. Under this more deferential review, it is not enough for a claimant to demonstrate
that the decision was against the weight of the evidence.
While recognizing the administrators’
discretion, the Supreme Court also admonished in Firestone that “if 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 ‘facto[r] in determining whether
there is an abuse of discretion.’” 489 U.S. at 115. Many federal circuit
courts of appeal, guided by this admonition, adopted a “sliding scale” approach to conflict-of-interest analysis. The Second Circuit, however, established an all-or-nothing test in Sullivan v. LTV Aerospace & Defense
Company, 82 F.3d 1251 (2nd Cir. 1996). Under this test, a district
court was required to adhere to the arbitrary and capricious standard of review in cases alleging conflict of interest, unless
the claimant could show that the conflict actually affected the choice of a reasonable interpretation. In other words, it was not enough to simply demonstrate a structural conflict of interest, i.e.,
that the claim administrator was also the insurer (financially responsible party) for the plan, but instead a claimant must
carry the burden of demonstrating that the administrator was “in fact influenced” by the conflict of interest. Only then would the court reduce its deference to the administrator and make its own determination of whether
the benefits should be awarded (known as “de novo” review).
Thus, the Second Circuit essentially
required “smoking gun” evidence of a conflict of interest. Given the improbability
that a claim manager would record such a “smoking gun” in a claim file, cases satisfying the Sullivan standard have been rare. We are aware of only one such case, Schwartz v. Oxford Health Plans, 175 F.
Supp. 2d 581 (S.D.N.Y., 2001), in which Oxford’s decision to change to a less generous reimbursement formula for “usual, customary
and reasonable” charges was found tainted by a conflict of interest, based on the Oxford’s past coverage in full of insured’s
medical care, its decision to make the change in the same year it began to experience losses, its failed efforts to induce
the insured to switch to an in-network provider, and the relative weakness of Oxford’s reasoning in support of the change.
Glenn effectively
overrules Sullivan’s “smoking gun” test, instead directing district courts to consider the effect of bias and financial
self-interest as a factor, even when the effect of that conflict is not blatant. The
Court determined that “for ERISA purposes[,] a conflict exists” when an insurer “both evaluates claims for benefits and pays
benefits claims.” 138 S. Ct. at 2348-50. That conflict must always be considered as a “factor” to a greater or lesser degree
depending on a variety of other factors:
[C]onflicts are but one factor
among many that a reviewing judge must take into account. Benefits decisions arise in too many contexts, concern too many
circumstances, and can relate in too many different ways to conflicts – which themselves vary in kind and in degree of seriousness
– for us to come up with a one-size-fits-all procedural system that is likely to promote fair and accurate review….
In such instances, any one factor will act as
a tiebreaker when the other factors are closely balanced, the degree of closeness necessary depending upon the tiebreaking
factor's inherent or case-specific importance. [A] conflict … should prove more important (perhaps of great importance) where
circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where
an insurance company administrator has a history of biased claims administration…. It
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.
128 S. Ct.
at 2351. Although we are unaware of a district court in the Second Circuit that
has yet addressed the effect of Glenn vis a vis Sullivan’s all-or-nothing
test, it seems clear that in insurer-administered benefit plans, district courts will have freer rein to consider the insurer’s
conflict of interest as a “factor,” even if there is no “smoking gun” evidence of a direct link between the conflict and the
particular benefit determination.
New
Opportunities to Obtain and Introduce Evidence
The Court’s reasoning in Glenn
should also make district courts in the Second Circuit more open to admitting evidence outside the “administrative record.” The general rule is that a district court’s review – whether under the arbitrary and
capricious standard or the de novo standard – is limited to the administrative record, i.e., the claim file as organized and maintained by the claim administrator.
Miller v. United Welfare Fund, 72 F.3d 1066, 1071 (2nd Cir. 1995) (district court erred when, on
arbitrary and capricious standard of review, it conducted a bench trial in which evidence outside the administrative record,
including the testimony of claimant’s treating cardiologist and an affidavit from a nurse consultant, was considered); DeFelice
v. Am. Int'l Life Assurance Co., 112 F.3d 61, 66-67 (2nd Cir. 1997) (In reviewing an ERISA eligibility determination
de novo, the district court is limited to a review of the evidence in the administrative record absent good cause to
consider additional evidence).
The Second Circuit, in DeFelice,
held that where there is “[a] demonstrated conflict of interest in the administrative reviewing body,” this may constitute
“good cause” for the admission of evidence outside the administrative record. 112
F.3d at 66-67 (2nd Cir. 1997). The court also observed that for this
purpose, the conflict need not rise to the level of causing “actual prejudice,” as required by Sullivan to alter the
standard of review. Nonetheless, the Second Circuit emphasized in Locher v.
UNUM Life Ins. Co. of Am., 389 F.3d 288 (2nd Cir. 2004), that a bare structural conflict (i.e., that a claim administrator occupies the dual role of claim decision-maker and claim payer) is not enough,
on its own, to constitute “good cause.” Something more has been required, such
as a “procedural irregularity or deficiency,” including “an insurer’s lack of ‘established criteria for determining an appeal’;
an insurer’s ‘practice of destroying or discarding all records within minutes after hearing an appeal’; an insurer’s ‘failure
to maintain written procedures’ for claim review; and an insurer’s failure to state its reason for denying a claim in its
notices to a claimant.” Laub v. Aetna Life Ins. Co., 549 F. Supp. 2d 571
(S.D.N.Y., 2008). Thus, “good cause,” for purposes of admitting evidence beyond
the administrative record, lies somewhere on the continuum between a structural conflict and a conflict manifested by evidence
of direct consideration of financial or other self-interested factors. This test
might be called “structural conflict plus” or, alternatively, “actual conflict lite.”
Glenn’s holding –
that a structural conflict of interest is, in and of itself, a factor that must be considered in reviewing a claim determination
– does not directly overrule the holdings of DeFelice and Locher. However,
by placing increased weight on the structural conflict itself, Glenn should reduce the amount of additional ”good cause”
a claimant needs to introduce in order to get extrinsic evidence admitted. Glenn
should also provide additional momentum to the prevailing trend in the Second Circuit of recognizing that discovery is appropriate,
and that a claimant seeking discovery should not be required to first overcome onerous hurdles:
However, at the discovery
stage, the plaintiff need not “make a full good cause showing, but must show ‘a reasonable chance that the requested discovery
will satisfy the good cause requirement.’” In Anderson v. Sotheby's Inc. Severance
Plan, Magistrate Judge Douglas F. Eaton explained this less-than-good-cause requirement, stating, “If a plaintiff were
forced to make a full good cause showing just to obtain discovery, then he would be faced with a vicious circle: To obtain discovery, he would need to make a showing, that in many cases, could be satisfied only with the
help of discovery.” The good cause standard required to obtain evidence beyond
the administrative record is therefore less stringent than when requesting that the court to consider such evidence in its
final determination.
Trussel v. CIGNA Life
Ins. Co., 552 F. Supp. 2d 387 (S.D.N.Y. 2008). While entitlement to discovery
certainly cannot be assumed as a fait accompli by plaintiffs’ attorneys, prompt,
non-abusive discovery demands will likely be upheld when a structural conflict is present, non-frivolous questions or concerns
about the integrity of the decision-making process are raised, and a reasonable rationale has been articulated for the information
sought. A non-exhaustive list of permissible discovery inquiries has been summarized
by one court, as follows:
(1) the criteria of review
by the administrator; (2) the composition of the panel and if a conflict of interest exists; (3) the medical records reviewed
in determining eligibility; (4) the relationship between the plan administrator and employer; (5) the person most knowledgeable
of the termination of plaintiff's benefits; (6) the factual basis for the defendant's decision regarding benefits; (7) any
procedural irregularities; (8) the proper standard of review; (9) the competency of the fiduciary; (10) whether or not the
fiduciary acted unreasonably; (11) the change in medical condition as a basis for denial; (12) the role of the insurer in
the loss of benefits; (13) the completeness of the administrative record; (14) the competent and complete evaluation of medical
records; (15) the compensation plans of the decision makers; (16) the identity of the plan's trustees; (17) who has ultimate
authority to decide claim disputes under the plan; (18) consultation with medical sources; (19) the relationship between the
administrator and the medical advisor; (20) inspection of the claim file; (21) the role of the fiduciary; and (22) the physician's
report and testimony.
Reittinger v. Verizon
Communications, 2006 U.S. Dist. LEXIS
83293, at *11, n. 2 (N.D.N.Y., Nov. 15, 2006). Discovery should be sought early
and not raised as an afterthought, as courts seem disinclined to permit discovery once a summary judgment motion (or a so-called
“motion for judgment on the administrative record”) has been submitted. See, e.g., Wagner v. First Unum Life Ins. Co., 100 Fed. Appx. 862 (2nd Cir., Jun. 14, 2004)
(unpublished opinion) (affirming district court’s refusal to permit discovery after granting summary judgment to the claim
administrator). Nor is it likely that courts will view Glenn as authorizing
open-ended discovery. Florczyk v. Metropolitan Life Ins. Co., 2008 U.S. Dist. LEXIS 54651 (N.D.N.Y., Jul. 11, 2008)
(considering the interim Glenn decision, discovery denied where, “because of the conflict, the Court [had previously]
permitted limited discovery that uncovered nothing probative”: “Further discovery
is not warranted, and to permit the ‘fishing expedition’ proposed by Plaintiff would entirely frustrate ERISA’s efforts to
avoid complex review proceedings”).
Thus, without necessarily opening
the door to the sorts of broad ranging discovery that characterizes other civil litigation, Glenn does, through recognizing
a broader view of how a conflict of interest may affect decisions, provides a basis for ensuring that relevant evidence can
be found and introduced.
Taking
Social Security Disability Decisions into Account
The Supreme Court’s handling of
the plaintiff’s Social Security disability determination in Glenn should boost claimants’ efforts to have these determinations
given consideration and weight. Prior to Glenn, a majority of courts held
that such a determination cannot be summarily dismissed, but must be reviewed and accounted for in some way. E.g., Edgerton v. CNA Ins. Co., 215 F. Supp. 2d 541,
549-50 (E.D. Pa. 2002) (“Although an SSA decision may not be dispositive in determining whether an ERISA administrator’s decision
is arbitrary and capricious, it is a factor that should be considered”). However,
some courts have given the impression that such determinations are wholly irrelevant, or that the failure to consider such
determinations is harmless. E.g.,
Suarato v. Bldg. Servs. 32bj Pension Fund, 554 F. Supp. 2d 399 (S.D.N.Y., 2008).
In Glenn, the Supreme Court confirmed that ignoring a Social Security disability determination may not only
constitute arbitrary and capricious decision-making, but evidence of a conflict of interest, as well:
[T]he fact that MetLife
had encouraged Glenn to argue to the Social Security Administration that she could do no work, received the bulk of the benefits
of her success in doing so (the remainder going to the lawyers it recommended), and then ignored the agency’s finding in concluding
that Glenn could in fact do sedentary work … was not only an important factor in its own right (because it suggested procedural
unreasonableness), but also would have justified the court in giving more weight to the conflict (because MetLife’s seemingly
inconsistent positions were both financially advantageous).
128 S. Ct.
at 2352. Although Chief Judge Roberts did not join the 5-judge majority in the conclusion that the recited facts were evidence
of a conflict of interest, he agreed in his concurring opinion that “These facts … prove that MetLife abused its discretion
in failing to consider relevant, expert evidence on the question of Glenn’s disability status.”.
Conclusion
Because the Supreme Court’s
holding in Glenn rejects a “smoking gun” approach to demonstrating a conflict of interest, claimants in the Second
Circuit should have an easier time in challenging the decisions of insurers who both fund and determine claims. This relaxed standard should also make it easier to obtain discovery and admit evidence regarding such
conflicts. Finally, as the result of this decision, claimants who have been awarded
Social Security disability benefits, often with the help of their disability insurers, should have that fact considered in
support of their claims.
