United States: Supreme Court´s Met Life Decision Spurs Second Circuit To Devise New Analysis For Discretionary Benefit Decisions

Second U.S. Circuit Court of Appeals

In McCauley v. First Unum Life Ins. Co., et al, __ F.3d __, 2008 WL 5377680 (2d Cir. (N.Y.) Dec. 24, 2008), the Second U.S. Circuit Court of Appeals reassessed its analysis of an administrator's discretionary benefit decision under an ERISA-governed plan following the U.S. Supreme Court's decision in Metropolitan Life Ins. Co. v. Glenn, ___ U.S. ___, 128 S.Ct. 2343 (2008).

John McCauley was diagnosed with cancer during his employment with Sotheby's Service Corporation and took short-term disability leave. He returned to work but over the next three years his condition worsened. In November 1994, he applied for long-term disability benefits under a Sotheby's-sponsored plan. McCauley's claim was denied, however, and he went to work for another company. McCauley's premiums on the Sotheby's plan were thereafter stopped, and he converted his coverage under the group policy to an individual policy. In 1996, McCauley applied for long-term disability benefits under the conversion policy. His claim was again denied because Unum asserted that his employment with Sotheby's ended in November 1994, and thus he failed to convert his policy within the required deadline.

The Southern District of New York granted judgment in favor of Unum because it held that the de novo standard of review did not apply and that Unum's benefit decision was not arbitrary and capricious. However, the Second Circuit reversed, and in so doing it abandoned its previous analysis of an administrator's benefit decision as set forth in Sullivan v. LTV Aerospace & Defense Co., 82 F.3d 1251 (2d Cir. 1996), and Pulvers v. First Unum Life Ins. Co., 210 F.3d 89 (2d Cir. 2000). Pre-Glenn, the Second Circuit first determined whether the administrator was given discretion to construe terms of the plan and determine eligibility for benefits. If such discretion was given, then the arbitrary and capricious standard applied, "unless the [plaintiff] can show not only that a potential conflict of interest exists, ... but that the conflict affected the reasonableness of the [administrator's] decision." Once a plaintiff showed that a conflict of interest affected the benefit decision, the court heightened the standard of review to de novo. Following Glenn, however, the Second Circuit held that where the administrator has discretionary authority, the court is to review the benefit decision under a deferential standard of review and weigh any conflict of interest as a factor in determining whether the administrator abused its discretion. The court should not, however, heighten the standard of review to de novo upon a showing that a conflict of interest affected the benefit decision.

The Second Circuit concluded that Unum's history of "abusive tactics" in the administration of claims, along with evidence that Unum ignored evidence of the McCauley's disability and failed to properly communicate to McCauley what was needed to perfect his claim, suggested that a conflict of interest affected Unum's benefit decision. The court held that Unum did abuse its discretion when it denied McCauley's claim, and ordered that judgment be entered in favor of McCauley.

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