The Effect Of Conflicts Of Interest On The Scope Of Discovery (Unit 2)

Potential conflicts of interest resulting in a lower level of deference concern conflicts between the insurer and the administrator, not extraneous third parties. . . . The only conflict of interest applicable in this case is the internal conflict of Hartford due to its dual role as administrator and insurer.

Pylant v. Hartford Life and Accident Insurance Co., No. 3-05-CV-0379-G, op. at 4 (N.D.Tex. Jan. 20, 2006) (Kaplan, J.), aff’d, 2006 WL 3247314 (N.D.Tex. Nov.9, 2006)

As discussed in a prior article, the federal judiciary has permitted limited discovery beyond the “administrative record” as the inquiries may bear upon the question of a structural conflict of interest as, for example, where the administrator and the insurer are the same entity. Another level of conflict of interest may exist, namely, that of “third parties”, such as consultants, who review the record and advise the administrator.

Using the recent district court opinion in Alexander v. Hartford Life and Acc. Ins. Co., Slip Copy, 2008 WL 906786 (N.D.Tex.) (April 03, 2008) as a point of departure, the following discussion will take up this latter issue as it was presented to the district court.

The Facts

The case arose in the context of a claim for disability benefits. The plaintiff filed a motion to compel discovery.

At issue are document requests pertaining to: (1) the role of two Hartford employees who reviewed plaintiffs disability claim; (2) the role of two third-party medical consultants; and (3) the interpretation of the disability plan and the decision to deny benefits. In addition, plaintiff seeks an order requiring defendant to provide narrative answers to two contention interrogatories.

The Scope Of Discovery

I divided this case into two units to separate the issues before the court in a convenient way. In the first unit, I quoted the discovery requests directed to the structural conflict of interest issue, i.e., the conflict that inheres in the insurer also serving as claims adjudicator. The plaintiff, as discussed in Unit 1, had success along those lines.

Now the issue is that alluded to at the outset of this Unit 2 – to what extent may a plaintiff pursue discovery into the potential conflict of third party consultants?

Review

I hope this doesn’t sound pedantic, and to those who regularly practice in this field, it may. Nonetheless, to maintain continuity with Unit 1, I’d like to quote the general rule and exception here –

The court states that general rule that:

With limited exceptions, discovery in an ERISA action seeking judicial review of the denial of benefits is restricted to consideration of the administrative record. See Vega v. National Life Insurance Services, Inc., 188 F.3d 287,299 (5th Cir.1999) (en banc).

And, then, we have an exception that:

. . . where the participant or beneficiary alleges that the plan administrator operates under a conflict of interest. See, e.g. Faykus-Orr v. Liberty Life Assurance Co. of Boston, No. 3-06-CV-0750-D, 2006 WL 3734213 at *1 (N.D.Tex. Dec.18, 2006) (Kaplan, J).

(From :: The Effect Of Conflicts Of Interest On The Scope Of Discovery (Unit 1))

The Disputed Discovery Items

The plaintiff attempted to push the contours of the exception to include discovery about conflict of interest on the party of the insurer’s consultants. The discovery items at issue were:

Three other requests for production seek documents pertaining to the relationship between defendant and two of its outside medical consultants-University Disability Consortium and Dr. Elizabeth Roaf:

Request No. 7:

Any contracts governing the role played in the claims or appeal process of Pamela Alexander’s claim by University Disabiity Consortium.

Request No. 8:

Any contracts governing the role played in the claims or appeal process of Pamela Alexander’s claim by Elizabeth Roaf, M.D.

Request No. 12:

All invoices, payment ledgers or receipts, and correspondence with any consultants or other persons involved in the claims or appeal process, such as University Disability Consortium and Elizabeth Roaf, M.D.

Third Party Consultants’ Conflicts Deemed Irrelevant

The district court applied a very literal interpretation to the judicial conventions regarding discovery beyond the administrative record. Relying on another opinion in the same district (that excerpted at the outset of this post), the court opined:

As Judge Fish explained in Pylant v. Hartford Life and Accident Insurance Co., No. 3-05-CV-0379-G, 2006 WL 3247314 (N .D. Tex. Nov. 9, 2006), aff’d, 497 F.3d 536 (5th Cir.2007):

Potential conflicts of interest resulting in a lower level of deference concern conflicts between the insurer and the administrator, not extraneous third parties. The information sought by the plaintiff [ ] involved the relationship between Dr. Trock and the defendants and/or between University and the defendants. The only conflict of interest applicable in this case is the internal conflict of Hartford due to its dual role as administrator and insurer. The relationship between Hartford and Dr. Trock or between Hartford and University is irrelevant to the determination of whether Hartford, as the decision maker, was conflicted; neither Dr. Trock nor University was vested with the authority to terminate [plaintiff’s] benefits.

Pylant, 2006 WL 3247314 at *6 (internal citations omitted).

Thus, the district court denied the plaintiffs’ motion to compel, stating:

Like Pylant, neither University Disability Consortium nor Dr. Roaf made the decision to deny plaintiff’s claim for disability benefits. Therefore, any conflict of interest on the part of these third-party consultant is irrelevant to the abuse of discretion inquiry.

Note: The district court noted a split of authority on this issue, stating:

Courts are split as to whether an ERISA plaintiff is entitled to discovery materials relating to potential conflicts of interest involving third parties. See Faykus-Orr, 2006 WL 3734213 at *2 (citing cases). Although the Fifth Circuit has not addressed this precise issue, judges in this district have held that any conflict of interest on the part of a third-party consultant is irrelevant to the abuse of discretion inquiry. Id.; see also Bray v. Fort Dearborn Life Insurance Co., No. 3-06-CV-0560-B, op. at 3 (N.D.Tex. Dec. 13, 2006) (Kaplan, J.).

The Split Of Authorities – Here’s the cases cited by the court on this issue:

Jez v. Dow Chemical Co., 402 F.Supp.2d 783, 786 (S.D.Tex.2005) (allowing discovery of the number of files administrator referred to third party consultants and how much consultants were paid for a review)

Hall v. Standard Insurance Co., No. 7:04 CV 00285, 2005 WL 348266 at *4 (W.D.Va. Feb. 10, 2005) (rejecting similar discovery request) and Abromitis v. Continental Casualty Co./CNA Insurance Cos., 261 F.Supp.2d 388, 390 (W.D.N.C.2003), af’d, 114 Fed. Appx. 57 (4th Cir.2004) (same).

Beyond The Fifth

For the district court, the relevant authorities were evidently limited to a rather tight circumference, and perhaps justifiably so. Nonetheless, moving outside the Fifth Circuit (which has itself not addressed the issue), one finds that other courts have permitted discovery as to the third party consultants’ relationship with the insurer.

  • Bennett v. Unum Life Ins. Co. of America, 321 F.Supp.2d 925, 933 (E.D.Tenn.2004).
  • Johnson v. Connecticut Gen. Life Ins. Co., 2007 WL 2993920 (N.D.Ohio 2007);
  • Bradford v. Metro Life Ins. Co., 2007 WL 956640 (E.D.Tenn.2007)
  • Powell v. Hartford Fin. Servs. Group, Inc., 2007 WL 773732 (W.D.Ky.2007)

Limitations On Exception – Even when an exception applies, it must be limited to relevant evidence:

While evidence outside the record may be admissible to show the existence and extent of a conflict of interest, it is only admissible on the issue of what standard the court should apply in reviewing the administrator’s decision. Such evidence is not admissible to show that the administrator’s decision was unreasonable or incorrect. See Gooden v. Provident Life & Accident Ins. Co., 250 F.3d 329, 332-33 (5th Cir.2001); Vega, 188 F.3d at 298.

Jez v. Dow Chemical Co., 402 F.Supp.2d 783, 786 (S.D.Tex.2005)

Standing To Object? Does an insurer have standing to object to a subpoena directed to a third party consultant? Not addressed in Alexander, it was a subject of comment in Jez, but moot given the court’s ruling for the plaintiff on other grounds. Here’s the issue:

For a party to have standing to challenge a subpoena issued to a non-party, the party must either have “possession of the materials subpoenaed” or a “personal right or privilege with respect to the materials subpoenaed.” Brown v. Braddick, 595 F.2d 961, 967 (5th Cir.1979). MetLife asserts that it does have a personal right of privacy in these documents because they concern contracts between MetLife and NMR. The case law on what constitutes a “personal right or privilege” is scarce; the courts that have considered the issue have generally found standing when the party had an evidentiary privilege as to the documents. See, e.g., Hunter v. Copeland, No. Civ. A. 03-2584, 2004 WL 1161368, at *1 n. 1 (E.D.La. May 24, 2004) (attorney-client privilege); Stevenson v. Stanley Bostitch, Inc., 201 F.R.D. 551, 555 n. 3 (N.D.Ga.2001) (psychotherapist-patient privilege); Oliver B. Cannon & Son, Inc. v. Fidelity & Cas. Co. of N.Y., 519 F.Supp. 668, 680 (D.Del.1981) (attorney-client privilege).

Next – This issue will be taken up in more detail in a subsequent unit which will explore further the discovery permitted with examples and supporting authorities.