The United States Supreme Court recently issued a decision dictating how closely courts will scrutinize certain decisions by insurers and their administrators denying benefits. While the case itself involved a fairly narrow set of circumstances, the rigorous scrutiny that both the Supreme Court and the Sixth Circuit applied to the decision-making process strongly suggests that anyone involved in making a “close” claim decision in the insurance industry do so carefully, giving fair consideration to the claimant’s position and ensuring that objective documentary proof exists to support the determination. A failure to do so may well result in judicial reversal of the decision.
Before delving into the intricacies of this decision, it is important to recognize that by its terms, the decision is limited to the standard to be applied for judicial review of denials of ERISA claims either by insurance companies themselves or by claim administrators they have hired. However, pronouncements by the United States Supreme Court can be used to justify similar approaches in widely disparate areas, including subject areas having nothing to do with the original narrow issue. It is in this respect that the Supreme Court’s decision may have its greatest impact.
While recognizing that virtually every decision-maker faces a conflict of interest in deciding how to proceed, by holding that such a conflict of interest is a factor to consider in reviewing decisions, the decision has broad implications far beyond its narrow facts. Since the Supreme Court carefully sets forth some factors that a reviewing court should consider in assessing the propriety of a claim denial decision, it is important that insurance agents, brokers, claims administrators, and insurers themselves be aware of those factors and follow them, as well.
The decision
Metropolitan Life Insurance Company (MetLife) was the insurer and administrator of Sears’ long term disability ERISA plan. MetLife determines the validity of claims and, if valid, pays them. Wanda Glenn was a Sears employee who was granted 24 months of benefits because of a serious heart disorder.
MetLife encouraged Glenn to apply for, and she received, Social Security benefits based on a determination that she could not work. When the initial 24-month period of benefits ran out, MetLife denied further benefits due to its determination that she could perform sedentary work. The District Court denied Glenn’s appeal; however, in a decision affirmed by the Supreme Court, the Sixth Circuit reversed.
Justice Breyer, writing for the Court, initially observed that “often the entity that administers the [insurance] plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket.” Finding that this “dual role creates a conflict of interest,” the Court held that a “reviewing court should consider that conflict as a factor in determining whether the plan administrator has abused its discretion in denying benefits.”
While the Court’s holding itself gave little guidance on how significant a factor such a conflict would be, finding that its significance “will depend upon the circumstances of the particular case,” the decision itself provided illustrations of how insurers and their representatives can lessen the significance of this omnipresent factor. As such, a detailed review of the decision may be a useful guide as to how those involved in claims-making decisions can best insulate the claims-making decision process from “second guessing” by the courts (and avoid substantial legal charges in the process).
Analysis
The Court first reviewed the Sixth Circuit’s decision, which had set aside MetLife’s rejection of benefits based on five factors:
- The conflict of interest
- MetLife’s failure to reconcile its conclusion that Glenn could work with the Social Security Administrator’s conclusion that she could not
- MetLife’s reliance on one doctor’s report concluding that Glenn could work to the exclusion of other, more persuasive, reports that she could not
- MetLife’s withholding of medical reports from its experts
- MetLife’s failure to consider evidence that stress could aggravate Glenn’s condition.
Met Life sought certiorari on the issue of whether there was, in fact, a conflict. The United States asked the Supreme Court to consider how such a conflict should be taken into account on judicial review of a discretionary benefit determination.
Addressing the former question first, the Supreme Court found that when the employer “both funds the plan and evaluates the claims” the answer “is clear” that a conflict of interest exists. The answer as to whether a conflict exists was “less clear” when the plan administrator is “not the employer itself, but rather a professional insurance company.”
The Supreme Court recognized that strong arguments existed as to the absence of a conflict of interest: Such a company, Met Life would argue, likely has a much greater incentive than a self-insuring employer to provide accurate claims processing.
Why, MetLife might ask, should one consider an insurance company inherently more conflicted than any other market participant, say, a manufacturer who might earn more money in the short run by producing a product with poor-quality steel or a lawyer with an incentive to work more slowly than necessary, thereby accumulating more billable hours?
Justice Breyer conceded the validity of these differences but nonetheless found that “for ERISA purposes, a conflict exists.” The Court based this determination on three factors: First, the employer’s conflict may influence its selection of an insurance company; second, ERISA imposes “higher than marketplace quality standards on insurers;” and, third, including conflict of interest as a factor still allows particular “circumstances” to diminish the “significance or severity of the conflict in individual cases.”
Turning to the question posed by the United States of how the conflict identified by the Court should be taken into account, the Court found that benefits decisions arise in so many varied contexts that it rejected a “one-size-fits-all procedural system.” Rather, in reviewing benefits denials, “conflict of interest” would be one of several different considerations that courts are required to consider. In such cases, “any one factor will act as a tiebreaker when the other factors are closely balanced.” In providing a practical guide to how claims evaluators should conduct themselves, the Court laid out a road-map as to how important each factor will be:
The conflict of interest at issue here, for example, should prove more important 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 decision making irrespective of whom the inaccuracy benefits.
The Supreme Court then turned to the Court of Appeals decision to evaluate whether that court’s review of the circumstances justified reversal of the District Court and MetLife’s benefits decision. It found that the Sixth Circuit’s evaluation justified reversal of the denial of benefits decision and, in doing so, explained how various factors, including conflict of interest would be weighed based on the circumstances of each case.
The Court of Appeals’ opinion in the present case illustrates the combination-of-factors method of review. The record says little about MetLife’s efforts to ensure accurate claims assessment. The Court of Appeals gave the conflict weight to some degree — its opinion suggests that, in context, the court would not have found the conflict alone to be determinative. The court instead focused more heavily on other factors. In particular, the court found it questionable that MetLife had encouraged Glenn to argue to the Social Security Administration that she could do no work, received the bulk of the benefits of her success in doing so (the remainder going to the lawyers it recommended), and then ignored the agency’s finding when they concluded that Glenn could, in fact, do sedentary work.
This course of events was not only an important factor in its own right because it suggested procedural unreasonableness, but it also would have justified the court in giving more weight to the conflict, since MetLife’s seemingly inconsistent positions were both financially advantageous. Furthermore, the court observed that MetLife had emphasized a certain medical report that favored a denial of benefits, de-emphasized certain other reports that suggested a contrary conclusion, and failed to provide its independent vocational and medical experts with all of the relevant evidence. All these serious concerns, taken together with some degree of conflicting interests on MetLife’s part, led the court to set aside MetLife’s discretionary decision.
The Court, turning to a “different context” observed that there are no “detailed set of instructions” or “formulas” that reviewing courts should employ in assessing decisions. This lack of “certainty” reflects the “intractability of any formula to furnish definitions of conduct for all the impalpable factors involved in judicial review”
Agents and insurers: What this means for you
Put simply, a court reviewing the decision of an insurance company or its representatives is free to consider all relevant factors. To enhance the likelihood that their decisions will be upheld — and challenged less frequently — there are clear steps that insurers and their agents must take.
As the Met Life decision makes clear, steps should be taken to reduce the inherent conflicts that exist and improve the accuracy of the decisions. For example, the claims evaluation process should be screened off from other parts of the company, especially those relating to the company’s profitability and finances. Claim reviewers should avoid taking inconsistent positions, as it is clear that the Supreme Court and the Sixth Circuit were distressed that Met Life argued that Glenn was disabled to the Social Security administration but then rejected that argument itself. Insurers, agents, and claims evaluators must employ objective standards and consider all the evidence. A decision that ignores expert reports and doctors’ evaluations will not be sustainable. A believable non-pretextual basis must be articulated for accepting one opinion (favorable to the insurer) and rejecting an opinion favorable to the claimant. Further, claim evaluators must maintain careful records of past decisions and the decision- making process itself to show that personal factors, or, more likely, self-interested factors, did not play a role in the decision and to demonstrate that there is a history of fair and impartial decision-making.
Given the Supreme Court’s recognition that there is an inherent “conflict of interest,” administrators should consider using independent, objective review panels or decision-makers whose appointment and compensation can be shown (conclusively) are unrelated to their decisions. Objective appellate systems should be in place to ensure that the first-level review system is fair. Rubber stamping denials will not be useful; instead, reliable, up-to-date, and accurate records showing that the “appellate review” system is objective and fair will prove invaluable.
The Supreme Court in MetLife made clear that all relevant factors must be weighed by reviewing courts in assessing a company’s denial of claim benefits rather than application of a specific formula. While this “want of certainty” may not be desirable, it is now the law of the land. Insurers and their representatives, then, must take heed of the Supreme Court’s guidance if they want their decisions upheld. A steady stream of affirmed benefit denials will soon discourage such appeals. That steady stream will only result if the insurer and its representatives can prove that the denial of benefits was fair.
Abraham E. Havkins is a partner with Havkins Rosenfeld Ritzert & Varriale LLP. He can be reached at 646-747-5100 or abbie.havkins@hrrvlaw.com.