We review de novo the district court’s conclusion that the plan administrator did not abuse her discretion in denying Plaintiffs’ benefits, applying an abuse of discretion review to the benefits denial and following a two-step process. We first ask whether the plan administrator’s determination was “legally correct.”

If it was, our inquiry ends here; if not, we ask whether the determination was an abuse of discretion. Because the administrator had a conflict of interest, we weigh the conflict of interest as a “‘factor in determining whether there is an abuse of discretion’” in the benefits denial, meaning we “take account of several different considerations of which conflict of interest is one.”

Crowell v. Shell Oil Co., 2008 U.S. App. LEXIS 17229 (5th Cir. Tex. Aug. 14, 2008)

Crowell v. Shell presents a number of interesting issues, including an in-depth look at when supplemental retirement benefits conferred through “letters of agreement” may constitute ERISA plans.

The conflict of interest issue, however, is of particular interest given the fresh look it provides into how the Fifth Circuit will incorporate that holding into its precedent on judical review of benefit denials. It appears the Court has acknowledged at least one significant change.

When a plan administrator operates under a conflict of interest?

Under prior authority, the conflict of interest issue in Crowell would have been averted. Tracking the issue as developed in Glenn, however, plaintiff’s contended that the administrator operated under a conflict of interest since whatever benefits were awarded under the supplemental retirement plan would be paid our of the employer’s assets.

On the point, the Court stated:

Until recently, this bare assertion was insufficient to establish a conflict of interest claim. As we observed in MacLachlan v. ExxonMobil Corp.,

“The mere fact that benefit claims are decided by a paid human resources administrator who works for the defendant corporation does not, without more, suffice to create an inherent conflict of interest. Were that enough, there would be a near-presumption of a conflict of interest in every case in which an employer both offers a plan and pays someone to administer it, making a full application of the abuse of discretion standard the exception, not the rule.”

Post-Glenn, however, the Fifth Circuit held that the conflict must be conceded and judicial review must take this conflict into account.

Although formerly insufficient under MacLachlan, this claim meets the conflict of interest standard recently elucidated by the Supreme Court in Metropolitan Life Insurance Company v. Glenn. The Supreme Court held that “the fact that a plan administrator both evaluates claims for benefits and pays benefits claims creates the kind of ‘conflict of interest’” discussed in Firestone – wherein “[i]f ‘a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest,’” we must take that conflict into consideration.

The Court did not back away from its sliding scale approach, however, observing that:

We review de novo the district court’s conclusion that the plan administrator did not abuse her discretion in denying Plaintiffs’ benefits, applying an abuse of discretion review to the benefits denial and following a two-step process. We first ask whether the plan administrator’s determination was “legally correct.” If it was, our inquiry ends here; if not, we ask whether the determination was an abuse of discretion.

Because the administrator had a conflict of interest, we weigh the conflict of interest as a “‘factor in determining whether there is an abuse of discretion’” in the benefits denial, meaning we “take account of several different considerations of which conflict of interest is one.

Citing MacLachlan, 350 F.3d at 479, the Fifth Circuit concluded that the plaintiffs crossed the Metropolitan Life threshold for a conflict of interest claim, but “failed to further substantiate that claim.”

Note: On the first step, the Fifth Circuit applies a three-prong analysis:

To determine whether the district court erred in finding that the administrator’s interpretation of a plan is legally correct, we look to:

(1) whether the administrator has given the plan a uniform construction,

(2) whether the interpretation is consistent with a fair reading of the plan, and

(3) any unanticipated costs resulting from different interpretations of the plan.

“[W]hether the administrator’s interpretation is consistent with a fair reading of the plan” is “the most important factor to consider” in the three-step analysis.”

No Tie-Breaker Needed – The Court, in further reference to Glenn, stated:

Nor do are we convinced that the district court’s failure to find a conflict of interest merits reversal, as the conflict of interest is not a “tiebreaking” factor here. Given the evidence that the administrator’s reading was a fair one, and a lack of evidence of a non-uniform application of the Fifth Amendment to income from the exercise of 1997 stock options, this is not a case where the “factors are closely balanced.”

No Evidence Of Bad Faith – And on the issue of motives, the Court noted:

It is also not a case “where circumstances suggest a higher likelihood that . . . [the conflict of interest] affected the benefits decision,” as Plaintiffs have not argued in their brief, nor pointed us to evidence, of, for example, “a history of biased claims administration” or other factors suggesting a greater risk of a conflict of interest in this benefits decision.

Future Of Sliding Scale Precedent – The Ninth Circuit retreated from the sliding scale metaphor pre-Glenn, adopting a combination of factors approach that seems prescient now in view of the Glenn holding. Though the sliding scale can be worked into the Glenn approach I suppose, it seems anachronistic, if not problematic, under the indeterminate factor-based approach advocated in Glenn which eschews any particular procedural or evidentiary constraint.