Under the Employment Retirement Income Security Act (ERISA), participants in employee benefit plans may bring suit in federal court to compel the payment of improperly withheld benefits. But while ERISA expressly grants federal courts jurisdiction to review the denial of employee benefits by a plan administrator or fiduciary, it does not specify what standard should govern that review. In Firestone Tire and Rubber Co. v. Bruch, the Supreme Court held that, if an administrator has been given discretion “to determine eligibility for benefits†under the terms of the benefit plan in question, federal courts can overturn eligibility determinations only if they find that the administrator has abused its discretion. In passing, the Court noted that such deferential abuse-of-discretion review might be more difficult to survive if the plan administrator’s objectivity were called into question: in a case involving “an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’†‘
In MetLife Insurance Co. v. Glenn, the Court will, after nearly twenty years, answer two fundamental questions that flow from Firestone’s brief reference to conflicts of interest: First, what constitutes such a conflict, or, more particularly with regard to the MetLife case, is such a conflict created when the same company both administers and funds a benefit plan? Second, when such a conflict does exist, how is it to be factored into a court’s review of an administrator’s denial of benefits?
Respondent Wanda Glenn worked as an employee of Sears, Roebuck, and Company for approximately fourteen years, beginning in 1986. During that time, Glenn suffered from the increasingly serious effects of a heart condition ultimately diagnosed as cardiomyopathy. In 2000, after observing that Glenn’s heart condition continued to worsen, cardiologist Rajendra Patel advised her that the physical and psychological stress associated with her job were complicating her illness, and suggested that she cease working. Glenn left her job and applied for disability benefits under Sears’s employee insurance plan, which was administered and funded by petitioner MetLife.
Under the terms of the benefit plan, Glenn was eligible for two initial years of benefit payments if she could demonstrate that she was no longer able to perform the central functions of her job with Sears. After reviewing documentation submitted by Dr. Patel, MetLife determined that Glenn had made the required demonstration and approved her claim. MetLife also encouraged Glenn to apply for disability benefits from the Social Security Administration, procuring an attorney to assist her. After the SSA formally determined that Glenn was disabled and thus entitled to regular benefit payments, as well as a retroactive payment for the previous two months, MetLife reduced its own payments to Glenn by the amount of her SSA benefits. Glenn was also instructed to remit her retroactive SSA benefits to MetLife to offset the cost of the benefits she had already received from Sears’s plan.
After she had received benefits from Sears’s plan for two years, Glenn was required by the terms of the plan to make a further showing to justify her continued receipt of disability payments: she had to demonstrate to MetLife that she was, because of her disability, incapable of holding any job for which she was qualified. Glenn submitted additional reports from Dr. Patel in which he opined that the psychological stress from even a sedentary job would cause Glenn’s heart condition to worsen, and so should be avoided. MetLife appointed its own medical specialist to review Glenn’s file—although not to examine her physically—and ultimately denied Glenn’s application on the ground that Glenn was physically capable of performing sedentary work, and that no evidence supported the contention that the psychological stress of working would exacerbate her condition.
Glenn brought an ERISA claim against MetLife in 2002, alleging that the company had wrongfully denied her benefits. The district court ruled against Glenn, finding that MetLife had not abused its discretion in denying her claim, and Glenn appealed to the Sixth Circuit.
The court of appeals overturned MetLife’s decision. After acknowledging that MetLife’s decisions were entitled to a deferential standard of review because MetLife was a plan administrator with discretionary authority, the court expressed concern that MetLife was operating under the “conflict of interest that results when . . . the plan administrator who decides whether an employee is eligible for benefits is also obligated to pay those benefits.†In the court’s view, it was “entitled to take†that conflict “into account†when evaluating the reasonableness of MetLife’s decision to deny Glenn’s claim. Having determined that MetLife’s conflict of interest would serve as one factor weighing against affirmance of the company’s decision, the court went on to find that MetLife had acted “arbitrar[ily] and capricious[ly]†in denying Glenn’s claim. While MetLife had justified the denial by referring to a report in which Dr. Patel had deemed Glenn physically capable of performing sedentary work, the company had never addressed numerous other letters from Dr. Patel in which he had explicitly opined that Glenn could not withstand the emotional stress of even sedentary work. The company’s own medical expert, who had not examined Glenn personally, had apparently never read those letters. Furthermore, MetLife did not address, or even mention, the ruling by the Social Security Administration that Glenn was completely disabled. Those omissions, according to the court of appeals, demonstrated that MetLife’s decision “was not the product of a principled and deliberative reasoning process.â€
MetLife’s petition to the Supreme Court presented two arguments for reversal: first, that the Sixth Circuit had wrongly concluded that MetLife’s role as both the administrator and the funder of the Sears benefit plan, “without more,†created a conflict of interest that should be factored into judicial review of an ERISA claim; and second, that the Sixth Circuit had erred in ruling that MetLife’s failure to address the success of Glenn’s SSA disability claim served as evidence that the company’s denial of Glenn’s benefits was an abuse of discretion. Only the first argument will be reviewed by the Supreme Court.
According to the petitioner, the Sixth Circuit’s ruling that MetLife’s dual role necessarily created a problematic conflict of interest was in accord with the law of six other circuits, but conflicted with the rulings of the First and Seventh Circuits. The resolution of that circuit split should be seen as “vital†because ERISA was intended to create a uniform set of standards applicable to benefit plans throughout the country. Multiple circuits have acknowledged the existence of the split, and have also commented on the difficulty of analyzing conflicts of interest under ERISA. Furthermore, the Sixth Circuit’s holding was incorrect because ERISA explicitly authorizes the same entity both to fund and to administer a single plan, and an arrangement authorized by ERISA should not be penalized by the courts.
In her brief in opposition to MetLife’s petition, Glenn attempted to distinguish her own case from the cases identified by MetLife as sources of conflicting authority from other circuits. According to Glenn, the court of appeals’ ruling in her case was not actually in conflict with the holdings of the First, Second, or the Seventh Circuits because MetLife’s dual role as funder and administrator was not the only evidence that the company had a conflict of interest. Specifically, MetLife demonstrated a conflict of interest by procuring legal counsel to facilitate Glenn’s application for SSA benefits, and then later denying that Glenn was disabled—a position inconsistent with the company’s support for Glenn’s SSA claim. This additional evidence of a conflict of interest brought the Sixth Circuit into line with the First, Second, and Seventh Circuits, which have declined to hold that an insurer’s dual role, in and of itself, creates a problematic conflict of interest, but will find a conflict of interest if additional evidence, beyond the dual role, points to possible self-dealing.
Glenn added that, even if the Sixth Circuit erred in finding a conflict of interest, the error was without import. MetLife’s denial of Glenn’s claim would have been overturned even if the conflict of interest had not been weighed by the court of appeals. MetLife’s decision-making process contained so many inexplicable gaps that its rejection of Glenn’s claim ranked as capricious and arbitrary, even without evidence of a conflict of interest.
On April 16, 2007, the Supreme Court invited the Solicitor General to submit a brief expressing the views of the United States. In its brief, the government recommended that the Court grant certiorari to review MetLife’s first Question Presented, and that it specify another: How should an administrator’s conflict of interest factor into a court’s review of a claim denial? Both questions were important, according to the government, because the law of the circuits regarding conflicts of interest under ERISA is confused and inconsistent. The circuits have adopted conflicting positions as to whether a single company’s role as both an administrator and funder of a benefit plan creates a conflict of interest that should be weighed by a court. Those circuits that have ruled that a dual-role company has a conflict of interest that must be considered on judicial review do not agree as to how that conflict of interest should be incorporated into judicial analysis of benefit denials. Several circuits, including the Sixth, review benefit decisions where such a conflict of interest is present under an abuse-of-discretion standard, but maintain that “the particular degree of deference afforded depends on the seriousness of the conflict.†Other circuits have adopted a different approach, shifting the burden of proof to the insurer when a conflict of interest exists, or employing a stricter de novo standard of review. In the government’s view, MetLife provides an opportunity for the Court to address those disagreements among the circuits.
The Court granted certiorari on January 18, 2008, selecting the two Questions Presented endorsed by the government.
Question One
MetLife argues that, by both administering and funding the Sears benefit plan, it “does not act under a conflict of interest that must be considered on judicial review.†In support of that contention, MetLife points to the language of ERISA, 29 U.S.C. § 1108(c)(3), which permits a single entity to serve both as a plan’s administrator and its payer. “It cannot be the case that an arrangement that was expressly contemplated—and authorized—by Congress, without more, changes the standard of review for discretionary benefit determinations.†That assertion, according to MetLife, is further confirmed by principles of trust law, under which a trustee is presumed to have “‘acted in good faith’ despite . . . a potential conflict, unless there is some affirmative evidence to the contrary.â€
MetLife’s dual role is, furthermore, consistent with the purposes of ERISA because it leads to more efficient resolution and payment of claims, which may in turn make benefit plans more attractive to employers and so result in the proliferation of such plans. Subjecting companies like MetLife to a more stringent standard of judicial review, on the other hand, might “invite wasteful litigation that can only diminish the assets that are ultimately available to provide and fund benefits.â€
Finally, in practical terms, MetLife’s administration of claims is unlikely to be affected by the company’s concurrent obligation to pay benefits, because of “the realities of the insurance business.†MetLife has strong business incentives to serve as a fair administrator; if it fails to do so, it will alienate plan participants and their employers, who will seek out alternative insurers. Additionally, the financial incentive for MetLife to deny claims to avoid having to pay benefits is less than it seems, because MetLife structures its business in anticipation of having to pay benefits, and because claim decisions are made by salaried employees who “do not have direct personal stakes in the outcome of their decisions.â€
According to Glenn, MetLife acts under “an obvious conflict of interest.†Every claim that MetLife denies represents payments that MetLife will not have to make. Other dual-role insurers, such as UnumProvident, have in the past adopted a practice of denying potentially meritorious claims for the precise purpose of enhancing corporate profits.
Although ERISA permits dual-role fiduciaries like MetLife, it neither endorses them nor prescribes a particular standard of review for their decisions. The Court in Firestone specifically held that ERISA did not establish standards of review, and it stated that a fiduciary’s conflict of interest “‘must be weighed as a ‘facto[r] in determining whether there is an abuse of discretion.’†Trust law supports the Court’s statement. While a trustee may operate under a conflict of interest with the consent of the settlor, the conflicted trustee’s conduct must bear up under “especially careful scrutiny.†MetLife’s contrary interpretation of trust law is “the legal equivalent of a skid-row shanty.â€
One of ERISA’s main goals is to protect plan beneficiaries, a purpose that is served by close scrutiny of dual-role fiduciaries. MetLife’s reassurances about the practical realities of the insurance business ring false. MetLife’s interest in maintaining a good reputation among employers will not deter improper denial of claims because employers cannot “police millions of claim denials.†Furthermore, MetLife operates a high-volume business in which the denial of many small claims translates into potentially massive increases in profits. Finally, MetLife’s employees, while salaried, nevertheless have an interest in the outcome of their claim decisions, because many insurers “give bonuses based on profits or that pressure adjusters to deny claims.â€
The Solicitor General’s brief largely dovetails with the respondent’s. It argues that a dual-role entity like MetLife “has a conflict of interest under the plain meaning of that phraseâ€: when MetLife awards benefits to plan participants, it incurs expenses as a direct result. MetLife does not truly attempt to deny that it operates under a conflict of interest; rather, it claims that the conflict of interest is insignificant for the purposes of judicial review of benefits determinations. In the government’s reading of trust law, that contention is untenable: “Under settled principles of trust law, courts routinely consider a trustee’s conflict of interest in reviewing the propriety of his decisions.†Such close scrutiny of a fiduciary’s conflicts also harmonizes with ERISA’s goals and with the Court’s decisions in cases such as Firestone and Pegram v. Herdrich (2000).
In particular, the government attacks MetLife’s assertion that benefit plans are sufficiently regulated by federal and state agencies, and that increased judicial scrutiny is unwarranted. That assertion is inconsistent with Congress’s decision to include a private right of action in ERISA, and ignores the fact that while the Secretary of Labor may “enforce fiduciary duties,†he is powerless to file claims for improperly denied benefits.
Question Two
MetLife asserts that, if a dual role in and of itself is to be considered evidence of a conflict of interest that must be considered on judicial review, then that conflict should be weighed by the courts as merely one factor among many, and courts should still employ an abuse-of-discretion standard of review. Further, “[i]n the absence of evidence that the claim administrator’s decision was infected by self-dealing, . . . such a conflict should be given only de minimis weight.†Abuse-of-discretion review, according to MetLife, was mandated by the Court in Firestone, and according a conflict of interest only de minimis weight comports with ERISA’s authorization and “endorse[ment]†of dual-role fiduciaries.
Under that standard, says MetLife, the Sixth Circuit’s ruling was erroneous, because it was overly searching, failing to accord MetLife’s decision appropriate deference. No evidence suggested that MetLife engaged in self-dealing, and as a result, its conflict of interest should have carried little weight. In addition, MetLife’s claim denial was supported by evidence, and so “[i]t was therefore well within the bounds of MetLife’s discretion to credit this evidence over Dr. Patel’s conveniently-timed†insistence that Glenn could not endure the psychological stress created by the vast majority of jobs.
Glenn counters that the decisions of dual-role insurers merit “especially careful scrutiny†under the tenets of trust law. While this standard is deferential, it requires courts to re-weigh evidence relied upon by the plan administrator. Furthermore, if courts detect indications that the conflict of interest has actually influenced the administrator’s decision, the level of deference accorded the decision should be decreased based on the strength of the evidence indicating self-dealing. Under this standard, the Sixth Circuit’s ruling should be affirmed, because the court of appeals properly re-weighed the evidence presented to MetLife and found that it did not support the insurer’s decision.
Finally, the government endorses a standard of review similar to, but somewhat less strict than, the one proposed by Glenn: “reasonableness under the totality of the circumstances.†This standard emerges from “settled principles of trust law,â€and from the Court’s reasoning in Firestone. In less abstract terms, the government’s standard “simply requires that the court’s review be as searching of the administrator’s decision as the facts and circumstances—including the existence of a conflict of interest—warrant.†Under that standard, the Sixth Circuit’s decision should stand, because the court properly considered MetLife’s conflict of interest as one factor among many in determining whether the denial of Glenn’s claim was reasonable.
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