After six years of litigation, Wanda Glenn now knows for certain that her ex-employer Sears Roebuck should not have turned down her application for long-term disability benefits.
At least that much is clear from the Supreme Court's eagerly anticipated June 19 ruling in MetLife v. Glenn. The top court affirmed a 6th Circuit decision that set aside the denial of Glenn's benefit claim by MetLife, Sears' insurer and plan administrator. MetLife had deemed Glenn to be capable of sedentary work despite her severe heart condition.
The top court's 6-3 decision addresses an oft-litigated ERISA issue that has produced sharp differences of opinion among the circuits: How much scrutiny should federal courts give to employee benefit denials in cases where the plan administrator--an insurer or self-insured employer--both determines and pays the claims?
Thousands of ERISA plans involve these "structural conflicts of interests." And, in practice, the standard of review used by the judge hearing an employee's appeal of a benefit denial frequently determines the case's outcome.
Unfortunately for the thousands of other workers and employers across the country who might clash over health, disability or other ERISA-governed employee benefits, Glenn offers neither certainty nor predictability about which side is likely to prevail when benefit disputes land in court, ERISA experts say.
"People on both sides were disappointed, although I'd say the plaintiffs bar was more disappointed than the defense bar," says Roy Harmon III, a Greenville, S.C., attorney who writes a popular blog on U.S. health plan law.
For nearly two decades, federal courts have struggled to figure out how much deference to pay to the decisions of ERISA claims fiduciaries that both fund the plan and make the final benefit decisions.
In a win for employers, Justice Stephen Breyer's majority judgment affirms a high standard of review,
permitting judges to overturn benefit denials only if the plan administrator abused its discretion. But as important was the court's pro-employee view that plan administrators who both pay and determine claims face a conflict of interest. A six-judge majority held that such a conflict must be "weighed as a factor" by a court reviewing the denial of a claim, with the weight to be accorded depending on the circumstances of the particular case.
Critics contend the majority's new self-described "combination-of-factors method of review" is vague and leaves too much discretion to judges.
"The law is clearer than before--which is not saying much because the status quo ante was about as clear as bog in a rainstorm," says Robert Eccles, a partner with O'Melveny & Myers. Eccles represented the amici curiae U.S. Chamber of Commerce, America's Health Insurance Plans and American Benefits Council.
Indeed, dissenters Antonin Scalia and Clarence Thomas denounced the majority's approach as "painfully opaque gobbledygook," which is "nothing but de novo review in sheep's clothing."
According to Glenn's counsel Joshua Rosenkranz, a shareholder with Heller Ehrman, the tone and approach of the Supreme Court's ruling make it clear that a structural conflict is not, as MetLife argued, a factor that should be given minimal weight. "My read of it is that the Supreme Court has heightened the scrutiny over what [many] lower courts were doing," he adds.
The majority held that a structural conflict like MetLife's is but one of a number of factors judges should take into account when deciding whether a plan administrator abused its discretion.
According to Breyer, such a conflict is likely to be more important where circumstances suggest a higher likelihood that the conflict affected the benefits decision. "It should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy," he elaborated.
The Supreme Court concluded that the 6th Circuit properly took into account MetLife's conflicting interests, along with factors such as the insurer's de-emphasis of medical reports indicating that Glenn was completely disabled. In the wake of Glenn, circuits such as the 10th and 11th, which adopted pro-plaintiff standards, and the 1st and 7th, which favored defendants by minimizing the effect of conflicts of interest among dual-role claims administrators, will have to adjust their thinking, says Ronald Dean, counsel for the amicus National Employment Lawyers Association.
Yet other circuits, which used various forms of sliding-scale analysis to determine the variable degree of deference appropriate in each case, will probably be able to tweak their jurisprudence. "In about half the circuits, it won't have much impact at all," Dean suggests.
Indeed, within weeks of Glenn, the 8th Circuit ruled that its approach to conflicts of interest in ERISA benefit denial cases remains viable, while a California District Court concluded that the 9th Circuit's approach also is consistent with Glenn.
One change may be in the area of evidence. Waldemar Pflepsen, co-author of an ERISA litigation handbook notes, "Plaintiffs may seek more extensive discovery than they have in the past, and courts may feel compelled to allow them a peek where previously they might not have."