:: Revisions To The Standard Of Review Rule Book (Unit 1)

I have some work to do in updating the standard of review section of the ERISA Toolkit after the MetLife v. Glenn decision.   As I develop these segments, I will post them as independent units.  Ultimately they will be incorporated into the Toolkit page.  Here’s the first revision:

#1  Pay attention to the form of conflict alleged

We didn’t learn a whole lot from Stamp v. Metro. Life Ins. Co., 531 F.3d 84 (1st Cir. 2008) because the First Circuit held that the conflict of interest issue was waived and therefore applied an arbitrary and capricious standard of review.  The Court did note a point that might be worth thinking over in defending or asserting the conflict issue:

Moreover, in Metro. Life Ins. Co. v. Glenn, 128 S. Ct. 2343, 171 L. Ed. 2d 299, 2008 U.S. LEXIS 5030 (2008), the Supreme Court determined that a “conflict of interest” exists when a single entity both funds the plan and evaluates the claims. 2008 U.S. LEXIS 5030 at *12. Mrs. Stamp did not assert this form of conflict; here, MetLife funded the plan while Mobil made final benefit determinations. (emphasis added)

This scenario is a bit odd – normally, the party funding also (at least in the plan documents) retains final authority over benefit determinations.  But it does remind us that the conflict of interest quiver actually has several arrows in it and we must be careful to understand which should be selected in a given factual scenario.

Here’s a list of subsidiary rules drawn from the Glenn decision that may help refine analysis of the nature of conflicts of interests:

#1A The Evaluator-Payor Rule (a/k/a The Funder-Evaluator Rule)

A plan administrator both evaluates claims for benefits and pays benefits claims creates the kind of “conflict of interest” to which Firestone’s fourth principle refers. (from Glenn)

and

The employer that both funds the plan and evaluates the claims has a conflict of interest. (from Glenn)

and, as in the Glenn case itself, we have the:

#1B The Insurance Company Rule

“[though] the answer to the conflict question is less clear” where the plan administrator is not the employer itself but rather a professional insurance company, a conflict still exists.

and, a postulate ripe with possibilities,

The employer’s own conflict may extend to its selection of an insurance company to administer its plan. (a possibility suggested in Glenn)

Moreover, Glenn develops the plan administrator role of insurance companies under a “standard of care” analysis:

#1C The Insurance Company Standard Of Care

ERISA imposes higher-than-marketplace quality standards on insurers which may be evaluated in the conflict of interest setting.  In this context, the Supreme Court noted that ERISA  sets forth a special standard of care upon a plan administrator, and cited three factors distinctive to insurers as they performed as plan administrators:

  • the administrator must ”discharge [its] duties” in respect to discretionary claims processing “solely in the interests of the participants and beneficiaries” of the plan, § 1104(a)(1);
  • ERISA simultaneously underscores the particular importance of accurate claims processing by insisting that administrators “provide a ‘full and fair review’ of claim denials,” Firestone, 489 U.S., at 113, 109 S. Ct. 948, 103 L. Ed. 2d 80 (quoting § 1133(2)); and
  • ERISA supplements marketplace and regulatory controls with judicial review of individual claim denials, see § 1132(a)(1)(B).

The insurance company standard of care discussion in Glenn was offered to justify why insurance companies should be coupled with employers as subject to the pull of conflicts of interest.  The counter-argument is:

Why, MetLife might ask, should one consider an insurance company inherently more conflicted than any other market participant, say, a manufacturer who might earn more money in the short run by producing a product with poor quality steel or a lawyer with an incentive to work more slowly than necessary, thereby accumulating more billable hours?

Refuting this argument, the Court cited the statutory duties enumerated above and, hence, arrived at the “higher-than-marketplace quality” standard of care imposed on insurers serving as administrators. There is something potentially very significant here though. Think about how the standard of care works in legal reasoning. The higher the standard imposed, the more exacting the requirements for an actor’s conduct to meet the reasonableness criterion.

So the insurance company standard of care rule, though nothing new really, now has a new emphasis as phrased by the Supreme Court. If marshaled well in briefs and argument, this rule may color the analysis of what is reasonable conduct for an administrator on a given set of facts and, as such, deserves special consideration in any conflict of interest evaluation