It has been 18 months since the U.S. Supreme Court in MetLife Ins. Co. v. Glenn, 128 S.Ct. 2343 (2008) addressed lingering questions about the appropriate standard of review in an ERISA denial of benefits case where the plan administrator is the party that both determines benefits eligibility and pays claims. Twenty years earlier, the court in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), had held that where a plan administrator has discretionary authority in making benefits decisions, its determinations are entitled to deferential review under an abuse of discretion standard. The Bruch court had noted, however, that if the plan administrator’s objectivity were called into question – such as where the administrator is both adjudicator and payor of a claim – such conflict must be weighed as a “facto[r] in determining whether there is an abuse of discretion.” Id. at 115.
The Glenn decision was much-anticipated as potentially resolving questions arising from Bruch’s passing reference to conflicts – namely, what constitutes a conflict and how should any conflict be factored into a court’s review of an administrator’s denial of benefits? In its ruling, the Glenn court confirmed that a possible conflict of interest should be taken into account in determining the appropriateness of a claim denial, and instructed reviewing courts to consider the existence of a conflict when determining if there had been an abuse of discretion. Id. at 2346. The court further instructed that the conflict could act as a tiebreaker when other factors are closely balanced, warranting greater weight where there is evidence the conflict affected the benefits decision, and lesser weight where an administrator took steps to promote accuracy and reduce potential bias in its decision-making process. Id. at 2351.
Application of Glenn
The Glenn decision did not delineate precisely how reviewing courts should weigh a conflict of interest in a benefits decision, offering instead a “factor” approach to be used in determining whether there was an abuse of discretion. Accordingly, appellate courts have wrestled with its application, and decisions have been varied, raising the concern that lack of clear guidance on the issues detracts from ERISA’s goal of uniform standards and predictable results. See, e.g., Marrs v. Motorola, Inc., 577 F.3d 783, 788-89 (7th Cir. 2009) (acknowledging that there are two ways to read Glenn and that the Seventh Circuit itself has applied Glenn with differing standards). A number of recent decisions applying Glenn demonstrate the challenges that its application presents to reviewing courts.
In Denmark v. Liberty Life Assur. Co. of Boston, 566 F.3d 1 (1st Cir. 2009), the First Circuit interpreted Glenn as counseling courts to give the presence of a conflict some weight, but not to treat it as a dispositive factor in the absence of evidence of arbitrariness or bias. However, according to the First Circuit, “courts are duty-bound to inquire into what steps a plan administrator has taken to insulate the decisionmaking process against the potentially pernicious effects of structural conflicts.” Id. at 8-9. The Ninth Circuit followed a similar approach in Montour v. Hartford Life & Accident Ins. Co., No. 08-55803, 2009 WL 2914516 (9th Cir. Sept. 14, 2009), stating that “[t]he manner in which a reviewing court applies the abuse of discretion standard…depends on whether the administrator has a conflicting interest” and “the degree to which the conflict appears improperly to have influenced a plan administrator’s decision.” Id. at *4. See also Marrs, 577 F.3d at 788-89 (holding that “[t]he likelihood that the conflict of interest influenced the decision,” as inferred from the gravity of the conflict and surrounding circumstances, “is therefore the decisive consideration” in determining the reasonableness of the administrator’s determination). The Fifth and Tenth Circuits have incorporated their prior “sliding scale” approach into the Glenn factor approach, reducing the amount of deference given to a conflicted administrator’s decision based on the degree of the conflict as demonstrated by the plaintiff. See Crowell v. Shell Oil Co., 541 F.3d 295, 311 n.66 (5th Cir. 2008); Weber v. GE Group Life Assur. Co., 541 F.3d 1002, 1010 (10th Cir. 2008).
In contrast, the Fourth Circuit follows Glenn more strictly, treating the conflict as only a factor under the abuse of discretion standard, and upholding a conflicted administrator’s decision if it was reasonable. See Champion v. Black & Decker, Inc., 550 F.3d 353, 359 (4th Cir. 2008). This approach, followed by other courts as well, allows for the possibility that, even where a conflict played a significant role in denying a claim, the decision will be upheld. See also Jenkins v. Price Waterhouse Long Term Disability Plan, 564 F.3d 856, 861-62 (7th Cir. 2009) (conflict of interest does not alter the standard of review, and decision will only be reversed if “downright unreasonable”); Schad v. Stamford Health Sys., Inc., No. 08-5962, 2009 WL 4981271, at *2 (2d Cir. Dec. 21, 2009) (considering conflict of interest as only one factor and upholding denial of benefits on substantive grounds).
From these decisions it is clear that, while Glenn confirmed that the abuse of discretion standard of review applies even where there is a conflict of interest, how that standard is applied remains very much a live issue.
In another pending case, Conkright v. Frommert, the Supreme Court has occasion to revisit the issue of what deference should be accorded an administrator’s benefits decision. Conkright, which involves benefits plans sponsored by Xerox Corp., poses the question of whether a reviewing court has an obligation to defer to a plan administrator’s reasonable interpretation of the terms of the plan where such determination was made outside the context of an administrative claim for benefits. The Second Circuit took the view that the administrator’s interpretation of plan documents outside of the benefits context was merely an opinion and did not constitute a decision entitled to deference by the reviewing court. Oral argument before the Supreme Court was heard on January 20, 2010.
Discovery under Glenn
Appeals courts are also wrestling with the possibility that Glenn permits additional discovery into the presence of a conflict of interest. Although a court’s review of a benefit decision is typically limited to the administrative record, and Glenn counseled against creating “special procedural or evidentiary rules” regarding the presence of a conflict, Glenn, 128 S. Ct. at 2351, some courts are expanding the scope of discovery to address the challenges posed by perceived conflicts. For example, in Denmark, the First Circuit observed that the majority opinion in Glenn “fairly can be read as contemplating some discovery on the issue of whether a structural conflict has morphed into an actual conflict.” 566 F.3d at 10. Accordingly, the court stated that administrators should expect that any procedures used to prevent or mitigate the effect of structural conflicts will be part of the record on review, and narrow and targeted discovery may be necessary to fill in gaps in the record to clarify whether the administrator followed its procedural safeguards. Id. See also Wilcox v. Wells Fargo & Co. Long Term Disability Plan, 287 Fed. Appx. 602, 603-04 (9th Cir. 2008) (“Glenn materially altered the standard of review applicable to the review of a plan administrator’s denial of benefits under ERISA, permitting consideration of evidence outside of the administrative record . . . .”).
Other circuits have found that the Glenn decision left discovery in benefit denial cases essentially unchanged. For example, the Sixth Circuit in Johnson v. Connecticut Gen. Life Ins. Co., 324 Fed. Appx. 459 (6th Cir. 2009) stated that, unless there are “procedural challenges” to the administrator’s decision, discovery on matters outside the record is rarely permitted. Id. at 466-67. Even under this approach, courts wrestle with whether the plaintiff must make some threshold showing of actual bias in order to warrant discovery. Id.
In sum, 18 months after Glenn, there still remains great uncertainty as to how alleged conflicts of interest will factor into the review of benefits denials, and what discovery regarding internal procedures and guidelines a claimant will be entitled to upon filing suit. Administrators acting with discretionary decision-making authority can expect that, in defending a benefit decision, discovery might extend beyond the administrative record and into their policies and records of actual claim denials as the claimant attempts to uncover evidence of a structural conflict. This means that, at the discretion of the court, a plaintiff might seek discovery into an administrator’s history of claims administration, denial rates, structural and procedural safeguards against bias and conflicts of interest, contracts with file reviewers, relationships with reviewing physicians and perhaps discovery on an administrators’ internal financial documents. Accordingly, administrators responsible for both determining benefits eligibility and paying claims should be prepared to demonstrate, depending on the jurisdiction in which they are sued, the policies and practices employed to mitigate the potential bias of their dual role.