Thursday, June 19, 2008
In what I am sure will be an unsatisfactory opinion for many, the Supreme Court in Metlife v. Glenn, in a very fractured (5-1-1-2) decision has basically left the Firestone discretionary review standard alone in ERISA denial of benefit claims under Section 502(a)(1)(B).
Justice Breyer wrote the majority opinion for the usual suspects, plus Justice Alito (wow, maybe all the bad press was getting to him?). Breyer wrote:
We here decide that this dual role [of the plan insurer] creates a conflict of interest; that a
reviewing court should consider that conflict as a factor in determining whether the plan administrator has abused its discretion in denying benefits; and that the significance of the factor will depend upon the circumstances of the particular case.
In other words, split the baby and go with a totality of the circumstances, ad-hoc, case-by-case analysis. Prediction: there will be no uniformity or predictability in these "combination-of-factors method of review" cases and the conservative bent of the lower federal courts will mean that employee participants and their beneficiaries will continue to lose these denial of benefit cases involving dual-role insurers at an alarming rate.
Court will continue to be guided by the four factors set out by Firestone (U.S. 1989):
(1) In “determining the appropriate standard of review,” a court should be “guided by principles of trust law”; in doing so, it should analogize a plan administrator to the trustee of a common-law trust; and it should consider a benefit determination to be a fiduciary act (i.e., an act in which the administrator owes a special duty of loyalty to
the plan beneficiaries).
(2) Principles of trust law require courts to review a denial of plan benefits “under a de novo standard” unless the plan provides to the contrary.
(3) Where the plan provides to the contrary by granting “the administrator or fiduciary discretionary authority to determine eligibility for benefits . . . .Trust principles make a deferential standard of review appropriate.”
(4) If “a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘factor in determining whether there is an abuse of discretion.’”
Of course, it was the opacity of this decision which lead to courts of appeal to provide different opinions to what happens in the (4) instance. Although the Court correctly holds that a dual-role insurance situations creates a "conflict of interest," it does not go further than that. Justice Breyer merely states that, "we elucidate what this Court set forth in Firestone, namely, that a conflict should “be weighed as a ‘factor in determining whether there is an abuse of discretion.’” The Justice makes clear that this does not mean a change of standard (as I had advocated) to de novo review, but instead:
Trust law continues to apply a deferential standard of review to the discretionary decisionmaking of a conflicted trustee, while at the same time requiring the reviewing judge to take account of the conflict when determining whether the trustee, substantively or procedurally, has abused his discretion. In principle, as we have said, conflicts are but one factor among many that a reviewing judge must take into account. Benefits decisions arise in
too many contexts, concern too many circumstances, and can relate in too many different ways to conflicts—which themselves vary in kind and in degree of seriousness—for us to come up with a one-size-fits-all procedural system that is likely to promote fair and accurate review. Indeed, special procedural rules would create further complexity, adding time and expense to a process that may already be too costly for many of those who seek redress.
We believe that Firestone means what the word “factor” implies, namely, that when judges review the lawfulness of benefit denials, they will often take account of several different considerations of which a conflict of interest is one. This kind of review is no stranger to the judicial system. Not only trust law, but also administrative law, can ask judges to determine lawfulness by taking account of several different, often case-specific, factors, reaching a
result by weighing all together.
In the Glenn case itself, the Court affirms the Sixth Circuit's overturning the denial of benefits, stating:
The conflict of interest at issue here, for example, should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the
benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration . . . .
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, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.
In all, the majority notes "that our elucidation of Firestone’s standard does not consist of a detailed set of instructions." Great, even more uncertainty. Perhaps Justice Breyer (who I am still angry with after Engquist) is right that there can be "no talismanic words that can avoid the process of judgment,” but the just adopted combination of factors method is unlikely to provide the relief that ERISA participants and beneficiaries sorely need through a more bright-line rule in these conflict of interest cases.
As for the other three opinions: Chief Justice Roberts concurs and agrees that there is a conflict in these situation, but would "consider the conflict of interest on review only where there is evidence that the benefits denial was motivated or affected by the administrator’s conflict." Justice Kennedy, concurring in part and dissenting in part, concludes that, "the case should be remanded so that the Court of Appeals can apply the standards the Court now explains to these facts." Finally, Justice Scalia (joined by Justice Thomas) dissents, saying that although he agrees that there is a conflict in this case, "under [trust] law, a fiduciary with a conflict does not abuse its discretion unless the conflict actually and improperly motivates the decision. There is no evidence of that here."
Kudos to John Langbein who's article, Trust Law as Regulatory Law, 101 Nw. U. L. Rev. 1315, 1323–1324 (2007) (observing that employees are rarely involved in plan negotiations), was cited TWICE in the majority opinion.
My prediction: not too bad ("Here goes nothing: 4-1-4 remedialists with a controlling concurrence by Kennedy. He seems to want to provide for a compromise by providing for certain procedural mechanisms an employer can take (a la Faragher and Ellerth) to avoid liability."). Interestingly, I didn't foresee Alito making it a majority and didn't see a Roberts concurrence. One way of reading the Kennedy concurrence is that he did not get his way and Alito made his vote less critical.