Glenn v. MetLife

U.S. Supreme Court Turns ERISA On Its Head

Courts May Now Consider Insurer Conflict of Interest in Claims Disputes

By Michael E. Quiat, Esq.

A recent U.S. Supreme Court decision made it easier for employees to collect on disputed group insurance claims by establishing that when an insurance company plays the dual role of ERISA claims administrator and insurer, there is an inherent conflict of interest. The landmark 5-4 decision in Glenn v. MetLife held that this conflict must be considered by a court that is reviewing the denial of claim - - regardless of whether that conflict influenced the administrator’s decision. Heretofore, such a conflict could not be considered without overwhelming evidence that it contributed to an arbitrary and capricious decision.

The issue has long bedeviled the courts and has produced varying judicial results throughout the U.S.

The case stemmed from a long-term disability claim, but the principle will hold for all ERISA-administered insurance plans: life, health, long-term care and disability.

ERISA, the Employee Retirement Income Security Act, was enacted in 1974 to provide an expeditious mechanism for employees to pursue their claims without having to hire a lawyer. It set up an administrative system that has to be followed before a case can go to court.

But, over the years, it has become common for an employer to hire as the plan or claims administrator the same insurance company that is underwriting the group plan. The employers needed expertise in plan administration and the insurance companies were happy to oblige, even encouraging the practice by giving employers more favorable rates, terms and conditions. Since ERISA gives claims administrators considerable discretionary power over whether a claim is paid, an inherent conflict of interest was created. Instead of curbing litigation, ERISA encouraged more.

The Supreme Court case originated with a Michigan woman on disability because of a heart problem. MetLife, her carrier and claims administrator, helped her get Social Security disability benefits, which were subsequently deducted from her MetLife benefits. Then MetLife terminated her, saying she was no longer disabled. A federal district court upheld the action, citing ERISA law.

Then a Circuit Court of Appeals overturned the decision, ruling that conflict of interest must be considered. MetLife then took the case to the Supreme Court, arguing that absent evidence that the conflict of interest affected the decision to deny benefits, the court need not consider it. The Supreme Court rejected this argument.

But the Court made it clear that it did not want to change the standard of review in ERISA cases from the long-standing deference given to an administrator. Rather, it is just requiring a court that reviews an administrator’s denial of benefits to take into account the conflict of interest when the administrator and the insurer are one-and-the-same.

The Court denied that its ruling would open the flood gates to courts assuming the role of administrators and made it clear that conflict of interest was just one of many factors that reviewing courts must consider in determining if a denial of benefits was an abuse of discretion.

Significantly, the Court cited precedent from one of its rulings 19 years ago to confirm that an ERISA administrator is a trustee who owes a special fiduciary duty to claimants to assure that those entitled to benefits will receive them.

The majority decision was written by Justice Stephen G. Breyer. Concurring were Justices John Paul Stevens, David Souter, Ruth Bader Ginsburg and Samuel Alito. Chief Justice John G. Roberts and Justice Anthony M. Kennedy joined in a separate opinion that supported MetLife’s position on the conflict of interest issue, but thought the company’s action was abusive and needed to be reversed. In an outright dissent, Justices Antonin Scalia and Clarence Thomas held that the intent of ERISA was to keep the courts out of ERISA claims disputes unless abuse is proven.

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