Alaska Employment Law

Introduction

On June 19, 2008, the United States Supreme Court issued its opinion in Metropolitan Life Insurance Co. v. Glenn, holding that a plan administrator’s conflicts resulted in the invalidation of its decision to deny benefits.   

The Case

Metropolitan Life Insurance (MetLife) is both the insurer and plan administrator for Sears’ long-term disability plan. MetLife had authority as the plan administrator to exercise its discretion to determine whether or not to pay LTD benefits. If it determined that a claim was valid, MetLife would pay the claim. Glenn suffered from a heart condition and was awarded 24 months of benefits under the plan. As the insurer, MetLife encouraged Glenn to file for Social Security Disability benefits on the premise that Glenn could not work. However, as the plan administrator, MetLife denied Glenn extended LTD benefits because it determined that she was capable of performing some level of sedentary work. Glenn filed suit.

The district court denied her relief because the plan vested discretion in MetLife to determine eligibility, and the district court concluded MetLife had not abused its discretion. On appeal the Sixth Circuit reversed. The Sixth Circuit applied a deferential standard of review that is due to decisions of plan administrators where the plan confers discretionary authority on the administrator to make eligibility determinations. Nevertheless, the Sixth Circuit concluded that the plan administrator abused its discretion. This decision was based on the obvious conflict that existed and other considerations including but not limited to the fact that MetLife had encouraged Glenn to file for federal benefits by arguing that she could not work, but then disregarded the findings from the Social Security Administration conferring benefits, and that MetLife disregard medical reports that would have supported Glenn’s claim for benefits. MetLife sought review with the United States Supreme Court.

The Opinion

The Court affirmed in an opinion authored by Justice Breyer. The Court acknowledged that the conflict here was one that was commonly encountered in the ERISA context. Many if not most plans have administrators who both evaluate and pay claims. However, the Court carefully studied the Sixth Circuit’s analysis and concluded that the court appropriately applied a deferential standard of review. The Court emphasized, however, that applying a deferential standard of review did not automatically and invariably insulate a plan administrator’s decision to deny benefits. The Court viewed the conflict as being a relevant factor that could be considered when determining whether and to what extent discretion had been abused.

Chief Justice Roberts concurred in the judgment, but wrote separately because he believed that the manner by which the majority evaluated the conflict that existed had the potential to allow such conflicts to trump other factors, and thereby result in plan administrators’ decisions being subject to something closer to de novo review.

Justice Kennedy concurred in part and dissented in part. He concurred in the majority’s overall reasoning and conclusions. However, he read the majority’s opinion as establishing a revised Firestone analysis. Accordingly, he felt that the case should be remanded to the Sixth Circuit for application of (what he believed to be) the new standard.

Justice Scalia dissented, joined by Justice Thomas. Justice Scalia noted that conflicts of interest in the ERISA context were ordinarily not enough to disturb a plan administrator’s decision (where the plan vested discretion in the administrator to make such decisions) unless it could be said that the conflict “actually and improperly motivates the decision.” Justice Scalia criticized the majority for adopting what he perceived as being a “Judge liberating totality of the circumstances” test that would result in unpredictable decisions being reached.

Significance

The concurring and dissenting opinions see the majority’s result as potentially leading to more searching review of plan administrators’ decisions in ERISA litigation -  a result that could perhaps result in unpredictable or inconsistent decisions being reached. In the abstract, it is impossible to evaluate the merit of these concerns. However, counsel and managers involved in benefits administration will want to study this case closer to determine the extent to which, if any, it might impact Firestone review standards.

Conclusion

This legal summary is for informational purposes and is not intended as legal advice. Employers with questions or seeking additional information should confer with counsel.