Here the district court concluded Standard was operating under a conflict of interest, but found Hackett failed to prove a serious breach of fiduciary duty. Accordingly, the conflict of interest was not a factor in the district court’s review of Standard’s decision denying benefits. In light of the Supreme Court’s intervening decision in Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343, 171 L. Ed. 2d 299 (2008), however, the district court understandably erred in failing to consider the conflict.

Hackett v. Std. Ins. Co., 2009 U.S. App. LEXIS 5823 (8th Cir.) (S.D. Mar. 19, 2009)

This opinion from the Eighth Circuit shows a noticeably different tone than the previous regime imposed under the pre-Glenn Eighth Circuit case, Woo v. Deluxe Corp., 144 F.3d 1157, 1160 (8th Cir. 1998).  The facts presented are not remarkable.

One could easily envision the Court simply concluding that the omission of a Glenn conflict evaluation would have made little difference in the outcome.  The Court’s decision to remand the case  for evaluation of the conflict as a “tiebreaker” factor suggests that the Eighth Circuit may see a broader role for Glenn than has been the case in the Fourth Circuit thus far.  See, e.g., :: How Should Conflicts Of Interest Affect ERISA Judicial Review?

The Facts

Ms. Hackett suffered a brain hemorrage which caused headaches and vision impairment.  The headaches could be controlled with medication but they were recurrent and at time severe.  Her vision field was restricted 38% on the left side and she was therefore uncomfortable with night driving.  She met the minimu standards on cognitive tests, however, and was well spoken.  The facts go on and on like that, with one factor suggesting impediments to employment, and others showing capability.

The doctors’ opinions added no real insight.  The medical views simply confirmed the history of headaches, visual impairment and limited intellectual capacity for multi-task work.

The carrier did refer Ms. Hackett to a law firm for procurement of Social Security disability benefits and she was ultimately awarded SSD benefits.

Benefit Denial

The carrier, Standard, denied Ms. Hackett’s benefits claim.   While it acknowledged the social security decision awarding benefits, but it noted Hackett’s claim was evaluated under the terms of the Plan, which differed from those used by the Social Security Administration.

Standard noted the record did not demonstrate Hackett to have a “specific cognitive limitation or mental limitation from the brain hemorrhage,” and “Hackett’s headaches are under fair control and do not require significant intervention with medications.” Accordingly, Standard upheld its August 11, 2005,  decision denying Hackett “any occupation” benefits.

The Woo Test

The district court  held for Standard, applying the Woo test in view of the conflict of interest.  This was a two part test:

In Woo, this court approved a two-part test for determining whether a district court should apply a de novo or abuse of discretion standard of review to a plan administrator’s  denial of benefits. Under Woo, a claimant seeking de novo review by the district court, had to “present 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.” 144 F.3d at 1160.

Reversal For Glenn Analysis

The Eighth Circuit reversed, noting the intervening Supreme Court case, Met Life v. Glenn, which was unavailable to the district court at the time of decision.

Glenn’s Effect On Woo Analysis

#1 The first change wrought by Glenn was on the point of when a conflict may be considered:

Under Woo, if a claimant proved a conflict of interest,  he also had to prove a serious breach of the plan administrator’s fiduciary duty. If the claimant met the Woo test, the district court would review the administrator’s decision using a sliding-scale approach, decreasing the “deference given to the administrator in proportion to the seriousness of the conflict of interest.” 144 F.3d at 1161.

In Glenn, the Supreme Court made clear the conflict does not change the standard of review applied by the district court. Rather, “a conflict should ‘be weighed as a factor in determining whether there is an abuse of discretion.’” Glenn, 128 S. Ct. at 2350 .

#2 The second change was on the effect of a finding of conflict.  It was on this point that the Court suggested that the conflict could make the deciding difference as a tiebreaker, stating:

The importance of taking Standard’s conflict of interest into account is illustrated by the “combination-of-factors method” employed by the Court in Glenn, where the conflict serves “as a tiebreaker when the other factors are closely balanced” and is “more important . . . where circumstances suggest a higher likelihood that it affected the benefits decision” and “less  important . . . where the administrator has taken active steps to reduce potential bias and to promote accuracy.” Id. at 2351.

The carrier’s role in promoting application for SSD benefits, as well as the carrier’s selective review of the evidence, was noted:

In Glenn, the Court concluded the conflict took on even greater significance because, as in this case, the insurer 1) encouraged the claimant to apply for social security disability benefits, and then disregarded the Social Security Administration’s finding she could do no work, and 2) emphasized medical records which supported a denial of benefits over records suggesting a contrary conclusion. Id. at 2352.

The Eighth Circuit’s post-Glenn analysis will take some time yet to fully develop, but this decision suggests a more critical evaluation of conflicts may be in the future.

Note: This decision followed that approach taken in Jones v. Mountaire Corp. Long Term Disability Plan, 542 F.3d 234, 240 (8th Cir. 2008) (to apply the Glenn test in the first instance and remanding to the district court for reconsideration of the standard of review).

Tiebreaker Issue – From Glenn:

. . . 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.  The conflict of interest at issue here, for example, 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. See Langbein, supra, at 1317-1321  (detailing such a history for one large insurer). 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. See Herzel & Colling, The Chinese Wall and Conflict of Interest in Banks, 34 Bus. Law 73, 114 (1978) (recommending interdepartmental information walls to reduce bank conflicts); Brief for Blue Cross and Blue Shield Association as Amicus Curiae 15 (suggesting that insurers have incentives to reward claims processors for their accuracy); cf. generally J. Mashaw, Bureaucratic Justice (1983) (discussing internal controls as a sound method of producing administrative accuracy)