:: Circuit By Circuit Survey Of Claims Administrator Conflict Of Interest Cases
As recently noted by Workplace Prof Blog, the federal government has recommended that the Court grant certiorari in Glenn v. MetLife, 461 F.3d 660, 667-69 (6th Cir.2006), petition for cert. filed, 75 U .S.L.W. 3368 (U.S. Jan. 3, 2007) (No. 06-923) on the issue of the proper standard to apply when a claims administrator also funds plan benefits. The various circuit courts of appeal have reached different views on this fundamental question. The catalog of these points of view has been undertaken on several occasions, including Stephen Rosenberg’s article “A Survey of All the Circuits on the Effect on the Standard of Review of Structural Conflicts of Interest” and my own summary in :: Standard of Review – A Circuit By Circuit Overview
Stephen noted the recent district court decision in Island View Residential Treatment Center, Inc. v. Blue Cross Blue Shield of Massachusetts, which addresses the standard of review issue, stating:
In the opinion, the judge covers, among other topics: standing to bring an ERISA claim; the application of federal common law to ERISA disputes; the statute of limitations applicable to ERISA disputes; exhaustion of administrative remedies; and the standard of review. Of particular note with regard to the standard of review, the judge presents the current status of the law in the First Circuit concerning so-called structural conflict of interests, which I have discussed many times on this blog, most recently in my post yesterday, and identifies the internal debate in the circuit over whether the law on that issue should be revised, a bone of contention in the circuit that I also noted before, in my post yesterday. Judge Woodlock comments that it appears the First Circuit may be waiting for possible guidance from the Supreme Court in the case of MetLife v. Gillis, discussed in yesterday’s post, before venturing into that issue.
See, Will the Critics Get Their Wish? The Supreme Court Gives Some Thought to Structural Conflicts of Interest, for more analysis on the subject from Stephen. For additional analysis from Paul Secunda, see his previous article here.
To round out the treatment of the standard of review issue, I am adding below a catalog of the circuit court opinions on the issues which I largely excerpted from the Solicitor General’s brief in Glenn v. MetLife, but reorganized a bit for easier access.
Issue 1 – Should The Dual Role Make A Difference On Review?
The Solicitor General notes that there is a circuit split on the threshold question whether “the fact that a claim administrator of an ERISA plan also funds the plan benefits, without more, constitutes a ‘conflict of interest’ which must be weighed in a judicial review of the administrator’s benefit determination†and states that:
Because the Sixth Circuit in this case reviewed respondent’s claim under abuse-of-discretion review, tempered by the particular factors warranting increased scrutiny here, the decision below conflicts with decisions of the Second, Tenth, and Eleventh Circuits, thereby exacerbating an existing circuit split.
3rd, 4th, 5th, 6th, 9th, 10th, & 11th
The Sixth Circuit explained the basis for that approach in a prior decision, reasoning that a plan administrator that both funds and administers the plan has a financial incentive to deny benefits because it “incurs a direct expense as a result of the allowance of benefits,†and it “benefits directly from the denial or discontinuation of benefits.†Killian v. Healthsource Provident Adm’rs, Inc., 152 F.3d 514, 521 (1998).
The Third, Fourth, Fifth, Ninth, Tenth, and Eleventh Circuits have agreed that a plan administrator that also pays plan benefits operates under a conflict of interest that must be taken into account on judicial review of a benefit determination. See, e.g., Post v. Hartford Ins. Co., 501 F.3d 154, 161-164 (3d Cir. 2007)1; Carolina Care Plan Inc. v. McKenzie, 467 F.3d 383, 386-387 (4th Cir. 2006), cert. dismissed, Nos. 06-1182 & 06-1436 (July 30, 2007); Vega v. National Life Ins. Servs., Inc., 188 F.3d 287, 295-296 (5th Cir. 1999) (en banc); Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 965-966 (9th Cir. 2006) (en banc); Fought v. UNUM Life Ins. Co. of Am., 379 F.3d 997, 1003 (10th Cir. 2004), cert. denied, 544 U.S. 1026 (2005); Brown v. Blue Cross & Blue Shield of Ala., Inc., 898 F.2d 1556, 1561, 1566-1567 (11th Cir. 1990), cert. denied, 498 U.S. 1040 (1991). (The Third Circuit has suggested, however, that there is no conflict of interest when an employer “both funds and administers the plan, but pays benefits out of a fully funded and segregated ERISA trust fund rather than its operating budget.†Post, 501 F.3d at 164 n.6.)
1st, 2d, 7th & 8th
The First and Seventh Circuits have come to the contrary conclusion, holding that the mere fact that a plan administrator also pays claims does not present a conflict of interest that must be taken into account on review of a discretionary benefit determination. See, e.g., Wright v. R.R. Donnelley & Sons Co. Group Benefits Plan, 402 F.3d 67, 74-75 (1st Cir. 2005); Perlman v. Swiss Bank Corp. Comprehensive Disability Prot. Plan, 195 F.3d 975, 981 (7th Cir. 1999). Those courts have reasoned that although there is a potential conflict of interest in such circumstances, there is no need to adjust the level of scrutiny because market forces will counterbalance that potential. See, e.g., Perlman, 195 F.3d at 981 (explaining that “the award in any one case will have only a trivial effect on [the administrator’s] operating results,†and plan administrators “want to maintain a reputation for fair dealing with†plan beneficiaries).
The Second Circuit appears to take the same view, holding that the mere fact of a plan administrator’s dual roles does not “trigger stricter review†unless the plaintiff shows that “the administrator was in fact influenced by the conflict of interest.†Pulvers v. First UNUM Life Ins. Co., 210 F.3d 89, 92 (2000) (quoting Sullivan v. LTV Aerospace & Def. Co., 82 F.3d 1251, 1255-1256 (2d Cir. 1996)). The Eighth Circuit’s approach is similar, requiring, as a condition for heightened review, “material, probative evidence demonstrating that (1) a palpable conflict of interest or a serious procedural irregularity existed, which (2) caused a serious breach of the plan administrator’s fiduciary duty to her.†Woo v. Deluxe Corp., 144 F.3d 1157, 1160-1161 & n.2 (1998).
Issue 2 – If The Answer To Issue 1 Is Affirmative, What Standard Should Apply On Review?
The brief then notes that the courts of appeals also have divided on the closely related question of how a conflict of interest should be weighed on review of a plan administrator’s discretionary benefit denial. The courts have adopted essentially three approaches:
- abuse-of-discretion review on a “sliding scale,â€
- de novo review, and
- burden-shifting.
3rd, 4th, 5th, 6th, & 9th – Abuse-of-Discretion Review On A “Sliding Scaleâ€
The first approach, followed by the great majority of courts of appeals and utilized in the decision below, applies abuse-of-discretion review on something of a “sliding scale,†whereby the plan administrator’s decision is reviewed for reasonableness, and the particular degree of deference afforded depends on the seriousness of the conflict. The Third, Fourth, Fifth, Sixth, and Ninth Circuits utilize variations of this approach. See, e.g., Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 392 (3d Cir. 2000); Doe v. Group Hospitalization & Med. Servs., 3 F.3d 80, 87 (4th Cir. 1993); Vega, 188 F.3d at 297; Borda v. Hardy, Lewis, Pollard & Page, P.C., 138 F.3d 1062, 1065-1069 (6th Cir. 1998) (applying abuse-of-discretion review that is “shaped by the circumstances of the inherent conflict of interest†but not calling it a “sliding scale†(internal quotation marks omitted)); Abatie, 458 F.3d at 967 (rejecting the “sliding scale†metaphor but adopting an approach that “is substantially similar to†the sliding-scale approach). In addition, although they do not view an administrator’s dual roles alone as a conflict of interest, in circumstances where they do identify a conflict of interest, the First, Seventh, and Eighth Circuits increase the degree of scrutiny of a benefit denial using essentially the slidingscale approach. See, e.g., Wright, 402 F.3d at 74-75; Mers v. Marriott Int’l Group Accidental Death & Dismemberment Plan, 144 F.3d 1014, 1020-1021 & n.1 (7th Cir.), cert. denied, 525 U.S. 947 (1998); Woo, 144 F.3d at 1162.2
2d – De Novo Review
The Second Circuit follows an entirely different approach. Although it does not engage in heightened scrutiny based on an administrator’s dual roles alone, when a claimant provides evidence that a potential conflict of interest exists and “ ‘the administrator was in fact influenced by the conflict of interest,’ †the court utilizes de novo review. Pulvers, 210 F.3d at 92 (quoting Sullivan, 82 F.3d at 1255-1256).
10th & 11th – “Burden-Shifting”
Finally, both the Tenth and Eleventh Circuits utilize burden-shifting approaches. In the face of a conflict of interest, the Tenth Circuit shifts the burden of proof to the plan administrator to establish “the reasonableness of its decision pursuant to [the] court’s traditional arbitrary and capricious standard.†Fought, 379 F.3d at 1006. Under that approach, the “administrator must demonstrate that its interpretation of the terms of the plan is reasonable and that its application of those terms to the claimant is supported by substantial evidence.†Ibid. Under the Eleventh Circuit’s approach, a reviewing court first determines, de novo, whether or not the denial of benefits was “wrong.†Brown, 898 F.2d at 1566. If the benefit denial was correct, the administrator’s decision is affirmed; if it was wrong, “the burden shifts to the fiduciary to prove that its interpretation of plan provisions committed to its discretion was not tainted by self-interest.†Ibid . If the administrator meets that burden, abuse-of-discretion review applies. See HCA Health Servs. of Ga., Inc. v. Employers Health Ins. Co., 240 F.3d 982, 993-995 (11th Cir. 2001). If the administrator does not meet that burden, the court reverses the administrator’s decision, having already determined on de novo review that it was erroneous. Ibid.
8th – De Novo/Sliding Scale
The Eighth Circuit applies a de novo standard in “egregious circumstances,†but otherwise applies abuse-of-discretion review that is adjusted to account for the seriousness of the conflict. See Woo, 144 F.3d at 1161-1162.
Note: To read the Solicitor General’s opinion in full, you may access it here.
