Originally published May 5, 2008
Keywords: Metlife, Glenn, ERISA benefits, Firestone Tire, Bruch, benefit denials, abuse of discretion
On April 23, 2008, the US Supreme Court heard oral argument in Metlife v. Glenn, No. 06-923, a case that could settle important questions about the standard courts use to review denials of ERISA benefits. We usually publish client alerts after decisions, not arguments, but in this case the argument and issues at stake are important enough to warrant consideration now.
In Glenn, the Court is taking up unfinished business left by Firestone Tire v. Bruch, 489 U.S. 101 (1989). Drawing largely from the common law of trusts, the Court held in Bruch that benefit denials are reviewed de novo unless the plan confers discretion on the administrator to determine eligibility for benefits or to interpret the plan, in which case the standard of review is deferential. (This deferential standard is sometimes called "abuse of discretion" or "arbitrary and capricious.") Because the plan at issue in Bruch was never memorialized in writing, there was no grant of discretion and therefore the administrator's decision would be reviewed de novo. Although not directly applicable to the case at hand, the decision included dicta regarding the impact of a conflict of interest (e.g., where the administrator is responsible for evaluating claims as well as funding them, sometimes referred to as a "structural conflict") on the standard of review where a plan does grant the administrator discretionary authority. According to Bruch, when a plan administrator operates under a conflict of interest, the conflict does not affect the standard of review, but rather it should be "weighed as a factor" by the courts in evaluating whether the administrator's decision was, in fact, an abuse of discretion. But Bruch gave no guidance as to how courts should weigh the conflict, and the courts of appeals have adopted a variety of approaches, such as the application of a "sliding scale of deference" depending on the degree of conflict, or shifting the burden of production or burden of proof to the administrator to demonstrate that its decision was not tainted by self-interest. As a practical matter, virtually all plans now in operation grant the administrator discretionary authority, largely to provide deferential review for the administrator's decisions.
The Supreme Court took Glenn to resolve whether and how a structural conflict of interest should affect the standard of review for benefit denials. At argument the justices focused on how to weigh the fact that Metlife both evaluated Ms. Glenn's disability benefit claim and paid any benefits that she was owed. The justices were skeptical of Metlife's position, which was that a "structural conflict of interest" was merely a potential conflict that courts should not consider unless the claimant proved that it had actually tainted the benefits denial. Nor did the justices seem persuaded by arguments from Ms. Glenn's counsel and the Solicitor General's office that the structural conflict should be given weight, but an unspecified amount of weight, as substantive evidence in deciding whether the administrator's decision was reasonable. Throughout the argument, the justices struggled to find a standard that would give practical guidance to lower courts.
The justices did not seem inclined to embrace any of the options before them. But the argument did suggest a real possibility that the Supreme Court will prescribe more aggressive review in "structural conflict" casesan outcome that would likely have a significant impact on the industry. As a practical matter, one of the best ways to prepare for the outcome in Glenn is to review certain practices that several justices suggested could affect the standard of review. Justices Kennedy, Breyer, and Alito all hinted in their questioning that the standard of review might be affected by how a plan administrator compensated the personnel who review benefit claims and whether the plan administrator "walled off" its claim-review and benefit-funding units. To prepare for the significant consequences that could come from the Supreme Court's decision in Glenn, plan administrators may wish to begin reviewing their claims review practices and corporate policies that might affect the degree of deference that courts give their determinations.
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