Court Case could be watershed for benefit claims

By Leah Carlson Shepherd
April 15, 2008


The Supreme Court plans to hear a case that could have widespread ramifications for employee benefit plans and insurers across the country.
In MetLife vs. Glenn, the justices will consider how courts should weigh the apparent conflict of interest when the same benefits administrator is authorized to both pay the benefits and determine eligibility for the benefits.
The decision would apply to ERISA-governed plans, such as health, life and disability coverage. At press time, the Court had agreed to hear the case, but had not yet set a date for a hearing.
David Godofsky, a partner at the law firm Alston and Bird, comments, "It could really have a broad impact. This is a very big case, a very important one. It has the possibility of dramatically changing the landscape in either direction as far as how claims are handled."
If the Supreme Court decides the conflict of interest should be granted a lot of weight in court decisions, "companies would really have to reorganize the way they handle benefit claims. That would take a huge amount of effort. It would maybe create a whole new business for third-party administrators of benefit plans," he says.
On the other hand, he says if the justices decide that the conflict of interest doesn't deserve a lot of weight, "employers may have a lot to gain here. There may be coming out of this a very strong statement that strengthens the employer" and benefit administrator. Up until now, the conflict of interest "has been given some weight, but not a lot of weight" in past court decisions, he says.
Tom McCord, a partner with the law firm Nixon Peabody, explains, "The insurers and administrators have a duty to follow the plan documents and explain their decisions, and those procedural safeguards have been deemed to be enough to overcome any presumption that a conflict of interest taints the decision-making."
Disability case
According to court documents, the plaintiff, Wanda Glenn, worked for Sears Roebuck from 1986 to 2000, when she filed a disability claim indicating that she had been diagnosed with a disease that causes the heart to become enlarged and pump inadequately. In letters to MetLife, her doctor said work-related psychological stress would exacerbate her heart problem, even if the work was sedentary.
As a benefit administrator, MetLife approved the disability claim for two years, but terminated Glenn's benefits in 2003, saying that she didn't meet the plan's criteria for long-term disability. It said the records she submitted did not prove that her heart problem would prevent her from doing full-time, sedentary work, according to court documents.
Meanwhile, in 2000, a Social Security judge ruled that she was totally disabled and entitled to Social Security disability benefits.
Glenn sued MetLife in U.S. District Court in Cincinnati, which agreed with the insurer, saying that the decision to terminate benefits was not arbitrary and capricious. Later, Glenn appealed to the 6th U.S. Circuit Court of Appeals, which ruled in her favor.
"We are entitled to take into account the existence of a conflict of interest that results when, as in this case, the plan administrator that decides whether an employee is eligible for benefits is also obligated to pay those benefits," Circuit Judge Martha Crag Daughtrey wrote.
"MetLife's decision to deny long-term benefits in this case was not the product of a principled and deliberative reasoning process," she added. "MetLife acted under a conflict of interest and also in unacknowledged conflict with the determination of disability by the Social Security Administration. In denying benefits, it offered no explanation for crediting a brief form filled out by [Glenn's doctor] while overlooking his detailed reports. This inappropriately selective consideration of Glenn's medical record was compounded by the fact that the occupational skills analyst and the independent medical consultant were apparently not provided with full information from [Glenn's doctor] on which to base their conclusions."
Daughtrey concluded: "There was no adequate basis for the plan administrator's decision not to factor in one of the major considerations in Glenn's pathology, that of the role that stress played in aggravating her condition and in preventing her return to [work]. Taken together, these factors reflect a decision by MetLife that can only be described as arbitrary and capricious."
Following that decision, MetLife appealed to the Supreme Court.