:: Update To ERISA Toolkit

[This information is for historical context given the 2008 opinion of the U.S. Supreme Court in MetLife v. Glenn. https://www.scotusblog.com/case-files/cases/metlife-v-glenn/ ]

On the standard of review – a new checklist. This is added to the ERISA Toolkit page.

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The proper standard of review to be applied in judicial review of a plan administrator’s decision varies depending on venue. Nor are the Courts all persuaded that the issues have been well decided. As noted by a panel of the First Circuit Court of Appeals in a recent opinion:

This survey of the circuits reflects the difficulty of the standard of review issue. It remains an issue of considerable importance, as the number of amicus curiae briefs filed in this case demonstrates. However, this court’s prior decision in Doyle cannot be overruled by a panel of the court. Thus, we are bound by our precedent, and must apply arbitrary and capricious review in situations where the conflict of interest is purely structural. Nevertheless, I think our standard of review in cases in which an insurer also makes benefits determinations is increasingly difficult to defend. Denmark v. Liberty Life Assur. Co. Of Boston ____ F.3d ___, 2007 WL 914673 (March 28, 2007)

N.B.  Since the U.S. Supreme Court will address the issue in Glenn v. Metlife, 461 F.3d 660 (6th Cir.2006), cert. granted in MetLife v.. Glenn, No. 06-923, _____ S.Ct. ____, 2008 WL 161473 (Jan. 18, 2008),, all of what follows could change in whole or in part. For now, here is the checklist:

Checklist Factors

For the present, the standard of review issue can be evaluated as follows:

  1. Is the plan fully insured, e.g., a group disability plan offered through an insurance carrier? (If not, proceed to #6)
  2. If yes to #1, has the state where the policy is issued (N.B.) one of the states that have prohibited discretionary clauses in insurance policies?
  3. If yes to #1 and # 2, was the policy issued at such as time as to be subject to the prohibition?
  4. 4. If yes to # 1-# 3, inclusive, the standard of review should be de novo.
  5. If no to any one of # 1-# 3, then proceed to # 6.
  6. Determine if the plan contains an adequate discretionary clause.
  7. If no to #6, then the standard of review should be de novo.
  8. If yes to #6, then proceed to evaluation of conflict under appropriate authority in the applicable jurisdiction (usually situs of plan administration)
  9. Regardless of # 5 – # 8 follow the developments in Met Life v. Glenn, which could change the effect of these conclusions. Until then, proceed to # 10 – # 11.
  10. Does the fact that the plan administrator both pays and adjudicates claims make a difference in the standard of review?

The outcome depends on the venue. The cases may be classified in two categories as follows:

10 a. The Realist Approach: 3rd, 4th, 5th, 6th, 9th, 10th, & 11th Circuits

The Third, Fourth, Fifth, Ninth, Tenth, and Eleventh Circuits have agreed that a plan administrator that also pays plan benefits operates under a conflict of interest that must be taken into account on judicial review of a benefit determination. See, e.g., Post v. Hartford Ins. Co., 501 F.3d 154, 161-164 (3d Cir. 2007)1; Carolina Care Plan Inc. v. McKenzie, 467 F.3d 383, 386-387 (4th Cir. 2006), cert. dismissed, Nos. 06-1182 & 06-1436 (July 30, 2007); Vega v. National Life Ins. Servs., Inc., 188 F.3d 287, 295-296 (5th Cir. 1999) (en banc); Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 965-966 (9th Cir. 2006) (en banc); Fought v. UNUM Life Ins. Co. of Am., 379 F.3d 997, 1003 (10th Cir. 2004), cert. denied, 544 U.S. 1026 (2005); Brown v. Blue Cross & Blue Shield of Ala., Inc., 898 F.2d 1556, 1561, 1566-1567 (11th Cir. 1990), cert. denied, 498 U.S. 1040 (1991). (The Third Circuit has suggested, however, that there is no conflict of interest when an employer “both funds and administers the plan, but pays benefits out of a fully funded and segregated ERISA trust fund rather than its operating budget.” Post, 501 F.3d at 164 n.6.)

10 b. The Law & Economics Approach: 1st, 2d, 7th & 8th Circuits

The First and Seventh Circuits have come to the contrary conclusion, holding that the mere fact that a plan administrator also pays claims does not present a conflict of interest that must be taken into account on review of a discretionary benefit determination. See, e.g., Wright v. R.R. Donnelley & Sons Co. Group Benefits Plan, 402 F.3d 67, 74-75 (1st Cir. 2005); Perlman v. Swiss Bank Corp. Comprehensive Disability Prot. Plan, 195 F.3d 975, 981 (7th Cir. 1999). Those courts have reasoned that although there is a potential conflict of interest in such circumstances, there is no need to adjust the level of scrutiny because market forces will counterbalance that potential. See, e.g., Perlman, 195 F.3d at 981 (explaining that “the award in any one case will have only a trivial effect on [the administrator’s] operating results,” and plan administrators “want to maintain a reputation for fair dealing with” plan beneficiaries).

The Second Circuit appears to take the same view, holding that the mere fact of a plan administrator’s dual roles does not “trigger stricter review” unless the plaintiff shows that “the administrator was in fact influenced by the conflict of interest.” Pulvers v. First UNUM Life Ins. Co., 210 F.3d 89, 92 (2000) (quoting Sullivan v. LTV Aerospace & Def. Co., 82 F.3d 1251, 1255-1256 (2d Cir. 1996)). The Eighth Circuit’s approach is similar, requiring, as a condition for heightened review, “material, probative evidence demonstrating that (1) a palpable conflict of interest or a serious procedural irregularity existed, which (2) caused a serious breach of the plan administrator’s fiduciary duty to her.” Woo v. Deluxe Corp., 144 F.3d 1157, 1160-1161 & n.2 (1998).

11. What effect should a structural conflict of interest have on the standard of review?

Once again, the outcome depends upon venue. The courts of appeals also have divided on the closely related question of how a conflict of interest should be weighed on review of a plan administrator’s discretionary benefit denial.

The courts have adopted essentially three approaches:

  1. abuse-of-discretion review on a sliding scale,
  2. de novo review, and
  3. burden-shifting.

11a. Abuse-of-Discretion Review On A Sliding Scale – 3rd, 4th, 5th, 6th, & 9th Circuits

The first approach, followed by the great majority of courts of appeals and utilized in the decision below, applies abuse-of-discretion review on something of a “sliding scale,” whereby the plan administrator’s decision is reviewed for reasonableness, and the particular degree of deference afforded depends on the seriousness of the conflict. The Third, Fourth, Fifth, Sixth, and Ninth Circuits utilize variations of this approach. See, e.g., Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 392 (3d Cir. 2000); Doe v. Group Hospitalization & Med. Servs., 3 F.3d 80, 87 (4th Cir. 1993); Vega, 188 F.3d at 297; Borda v. Hardy, Lewis, Pollard & Page, P.C., 138 F.3d 1062, 1065-1069 (6th Cir. 1998) (applying abuse-of-discretion review that is “shaped by the circumstances of the inherent conflict of interest” but not calling it a “sliding scale” (internal quotation marks omitted)); Abatie, 458 F.3d at 967 (rejecting the “sliding scale” metaphor but adopting an approach that “is substantially similar to” the sliding-scale approach). In addition, although they do not view an administrator’s dual roles alone as a conflict of interest, in circumstances where they do identify a conflict of interest, the First, Seventh, and Eighth Circuits increase the degree of scrutiny of a benefit denial using essentially the slidingscale approach. See, e.g., Wright, 402 F.3d at 74-75; Mers v. Marriott Int’l Group Accidental Death & Dismemberment Plan, 144 F.3d 1014, 1020-1021 & n.1 (7th Cir.), cert. denied, 525 U.S. 947 (1998); Woo, 144 F.3d at 1162.

11b. De Novo Review 2d Circuit

The Second Circuit follows an entirely different approach. Although it does not engage in heightened scrutiny based on an administrator’s dual roles alone, when a claimant provides evidence that a potential conflict of interest exists and “ ‘the administrator was in fact influenced by the conflict of interest,’ ” the court utilizes de novo review. Pulvers, 210 F.3d at 92 (quoting Sullivan, 82 F.3d at 1255-1256).

11c. Burden-Shifting“ 10th & 11th Circuits

Both the Tenth and Eleventh Circuits utilize burden-shifting approaches. In the face of a conflict of interest, the Tenth Circuit shifts the burden of proof to the plan administrator to establish “the reasonableness of its decision pursuant to [the] court’s traditional arbitrary and capricious standard.” Fought, 379 F.3d at 1006. Under that approach, the “administrator must demonstrate that its interpretation of the terms of the plan is reasonable and that its application of those terms to the claimant is supported by substantial evidence.” Ibid. Under the Eleventh Circuit’s approach, a reviewing court first determines, de novo, whether or not the denial of benefits was “wrong.” Brown, 898 F.2d at 1566. If the benefit denial was correct, the administrator’s decision is affirmed; if it was wrong, “the burden shifts to the fiduciary to prove that its interpretation of plan provisions committed to its discretion was not tainted by self-interest.” Ibid. If the administrator meets that burden, abuse-of-discretion review applies. See HCA Health Servs. of Ga., Inc. v. Employers Health Ins. Co., 240 F.3d 982, 993-995 (11th Cir. 2001). If the administrator does not meet that burden, the court reverses the administrator’s decision, having already determined on de novo review that it was erroneous. Ibid.

11d. De Novo/Sliding Scale – Eighth Circuit

The Eighth Circuit applies a de novo standard in “egregious circumstances,” but otherwise applies abuse-of-discretion review that is adjusted to account for the seriousness of the conflict. See Woo, 144 F.3d at 1161-1162.