Why Structural Conflicts of Interest, Standing Alone, Are Irrelevant
0 Comments
Permalink |
Workplace Prof passes along today this opinion out of the Seventh Circuit by Judge Easterbrook addressing the question of structural conflicts of interest and their effect on the standard of review in ERISA governed benefit cases. Anyone who has read the bulk of my past posts on this subject knows that I do not buy the idea that the mere existence of the structural conflict standing alone - without more, such as an inference of distorted decision making that can be drawn from the administrative record itself - should affect the standard of review. There are a number of reasons for this, many of which I have explored in past posts on the question. One of the most persuasive of which, however, has always been that the assumption that the structural arrangement by definition is affecting the decision making is frequently belied by close observation of the evidence concerning the processing of particular individual claims in situations where the administrator was also the payor; the evidence simply does not support the view that outcomes are typically varying simply because the administrator is also the payor of the benefits at issue.
Judge Easterbrook presents a very interesting take on this idea, focusing on the actual decision making by the administrator in any particular case, and suggesting why the mere fact that the same organization will also pay any covered benefits does not logically lead under those circumstances to improper claims processing. As the judge writes, in a section discussed by the Workplace Prof:
[O]ne must not anthropomorphize “the administrator.” Rarely is a pension or welfare plan’s administrator a person whose own welfare is at stake. Administrators commonly are large organizations, and the real people who make decisions on its behalf are no more interested in the outcome than federal judges are “interested” in the resolution of a tax case. True, judges’ salaries won’t be paid if taxes can’t be collected, but the effect of any one case on federal finances is so small that the judge does not care who prevails. Just so with the people who act on requests for pension or welfare benefits. Corporations often find it hard to align employees’ incentives with stockholders’ interests; they use stock options, bonuses, piece rates, and other devices. Administrators usually don’t try. There would be a real conflict of interest if a given administrator put in place a method of linking decisionmakers’ income to the substance of their decisions. A quota system (“grant no more than 50% of all applications”) or some other means of tying the wages or promotion of staff to its disposition of claims could call for non-deferential judicial review. But [the claimant here] has not argued that anyone who handled his claim had any personal interest in the outcome.
To which I would say, exactly. Note as well that the judge emphasizes one important distinction that I fear often gets overlooked when critics get their back up when anyone, myself included, suggests that structural conflicts of interest should not affect the standard of review. He is not saying that it can never affect the standard of review and that an administrator who also pays the benefits may not be acting under a conflict, but is instead recognizing that, given the realities of claim administration, it is inappropriate (perhaps more accurately, illogical) to assume that this alone is corrupting the claim determination process. Rather, as the judge points out, something more is needed in this situation to justify such an inference, something such as, in the judge’s example, evidence of a quota system or other activity that would suggest that the process was corrupted and not impartial.
The case is Williams v. Interpublic Severance Pay Plan.
Some Thoughts on the Oral Argument in MetLife v. Glenn
0 Comments
Permalink |
I had a chance over the weekend after a busy few days to ruminate on the oral argument in MetLife v. Glenn, a transcript of which you can find here; you can find Workplace Prof’s review of the argument here and a thorough recap of the argument here, at SCOTUS blog. My take? There will be some sort of rule announced governing the standard of review that a court is to apply when presented with an appeal from a decision by an administrator functioning under a so-called structural conflict of interest - how’s that for going out on a limb, since that’s what the Court accepted cert to address? Moreover, there can’t help but be a rule of general applicability of some type set forth by the Court for these situations, since, as I discussed in detail here for instance, there is wide divergence among the circuit courts of appeals in the decision making rules they apply when confronted with that situation; given the idee fixe that ERISA is supposed to give rise to uniform rules governing employee benefits across the country (an idea that in practice, tends to be honored more in the breach, something particularly illustrated at the district court level where you can often find two judges in the same circuit reaching opposite conclusions on the same open issue), this is not a situation that can be allowed to continue. That said, however, those hoping this case would lead to a wholesale reinterpretation of the standards of review that apply to ERISA cases, and more particularly to an overall rejection of both the “arbitrary and capricious” standard of review and of the existing formulations as to when that standard of review applies, are going to be soundly disappointed; I read the argument as telegraphing a fixation on determining, and creating (and then announcing), exactly what the technical rule should be when arbitrary and capricious review is applied by a supposedly conflicted administrator, and as telegraphing a lack of interest in changing the overall structure of the case law governing the standard of review question.
MetLife v Glenn in a Nutshell
0 Comments
Permalink |
On Wednesday, the Supreme Court is holding oral argument in MetLife v. Glenn, the case that will supposedly tell us once and for all what the effect is on ERISA litigation when the party who has to pay ERISA governed benefits is also the one who decides whether to pay those benefits. Given the Court’s history when it comes to addressing issues related to litigating ERISA cases, starting with Sereboff (at a minimum) and running up through the recent ruling in LaRue, you can predict that the Court’s ruling will add as many questions and issues to litigating such cases as it will resolve. I have discussed before here on this blog my view that the actual evidence in a particular case should be the basis for deciding how to handle any particular instance in which one party is both the administrator and the payor, and that it is specious to instead impose and enforce blanket assumptions that a meaningful conflict always exists in such situations. But I can tell from the responses to my prior posts to this effect how many people simply don't agree with me on that, and this case offers the Court the opportunity to make the call on that one. In any event, now that I have whet your whistle for all things Glenn, you can find all things Glenn, including everything you need to know in advance of the oral argument if this is something of interest to you, right here.
Supreme Court to Weigh In on Structural Conflicts of Interest
0 Comments
Permalink |
I suggested some time ago that the Supreme Court looked poised to weigh in on some of the more tempestuous ERISA issues floating around the circuit courts of appeal, and there is probably no single issue that has raised more hackles than the question of so-called structural conflicts of interest, which exists when the administrator who decides a claim for benefits under ERISA is also the party who will have to pay the benefits if the claim is allowed. The lower courts have created a wide range of rules as to how, and when, such a conflict can alter the standard of review that a district court is to apply when passing on a benefit determination made by such an administrator.
SCOTUSBlog reported on Friday that the Supreme Court has now accepted cert on a case presenting this exact issue. To quote SCOTUS:
An ERISA case added to the docket tests whether the manager of an employee benefit plan has an illegal conflict of interest if the plan gives that individual the authority both to pay benefits and to rule on eligibility for benefits (MetLife v. Glenn, 06-923). In addition to that question, the Court added a second issue to be addressed: if that is a conflict of interest, how should that be taken into account by a court reviewing a specific benefit decision. The Sixth Circuit Court, in conflict with some federal appeals courts but in agreement with others, ruled that the dual role of funding and decider for plan administrators is a potential conflict of interest that must be weighed in judging a plan manager’s benefit eligibility ruling.
There is certainly benefit to the Court weighing in on this issue and hopefully adding some conformity across the federal courts on this issue; as I have discussed in other posts, such as here, different rules apply to this type of situation in different circuits, and it obviously makes no sense for a federal statute to be interpreted and applied differently dependent simply on the state in which a lawsuit over the issue is filed. However, as I have argued before in these digital pages, I think the whole issue of this so-called structural conflict of interest is something of a tempest in a teapot, and I do not agree with those, such as the Workplace Prof in his post on this same subject, who think that the mere existence of such a dual role on the part of the administrator warrants treating the decision maker as suspect and the decision as unworthy of the deference normally granted to an administrator operating under the appropriate grant of discretionary authority. Rather, either there is evidence before a court from which it can be determined or at least inferred that the administrator’s dual role affected the outcome, or there isn’t. While it may make sense to take that conflict into account in the former instance, where evidence exists that the administrator actually acted in a conflicted manner, there is no logical basis to do so in the latter instance; in the absence of evidence that the dual role actually affected the outcome, changing the standard of review constitutes nothing more than punishing the administrator simply based on its status, and not on evidence of misconduct. Last I looked, that’s not generally how we do things in the courts of this country.
Two for the Price of One: An Excellent District Court Ruling Worth Reading, and More on the First Circuit's Decision in Gillis
1 Comments
Permalink |
A couple of notes on cases today. Before the holidays, I posted about the First Circuit’s decision in Gillis, concerning an administrator’s discretion in calculating possible pension payments and how the discretionary authority granted to the administrator drove the conclusion that a challenge to the pension calculations would not be upheld in the courts. Suzanne Wynn, who writes on pension plan issues at her Pension Protection Act blog, has this very detailed analysis now of the issues concerning cash balance conversions that were at play in Gillis, for those of you looking for more information on that aspect of the case.
In addition, in the little window of time between the first holiday weekend of Christmas and the second holiday weekend of the New Year, Judge Woodlock of the United States District Court for the District of Massachusetts issued a very comprehensive and detailed opinion in the case of Island View Residential Treatment Center, Inc. v. Blue Cross Blue Shield of Massachusetts, which basically reads as a mini-treatise on a number of interesting issues arising in ERISA litigation. 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. And finally with regard to the Island View case, I think, in a blogger’s version of professional courtesy, I would be remiss if I did not mention that one of the parties to the case was represented by fellow law blogger Brian King out of Utah, who blogs on ERISA issues - from what is probably a decidedly more participant oriented perspective than my own - at his excellent ERISA Law Blog.
Will the Critics Get Their Wish? The Supreme Court Gives Some Thought to Structural Conflicts of Interest
0 Comments
Permalink |
Unlike me, Appellate Law and Practice, the scrivener who covers all things appellate, didn’t take New Year’s Eve off, and noted that day that the federal government had recommended that the Supreme Court accept cert in a case addressing the question of how a structural conflict of interest - that is, where the administrator who is deciding benefits under an ERISA governed plan is also the party responsible for paying such benefits if they are awarded - should affect the standard of review applied by a court to a challenge to a benefit determination. SCOTUSBlog sums up the issue here, noting that the government recommended granting cert in the case of “MetLife v. Glenn, limited to the question presented of whether an ERISA plan administrator that both evaluates and pays claims operates under a conflict of interest that must be weighed on judicial review of benefit determinations.”
The question of how this type of situation should affect the standard of review has been subject to a variety of answers in a variety of different circuits, as surveyed here, and the current rules concerning this issue have been subject to extensive academic and judicial criticism, to the point that in the First Circuit, appellate panels have criticized the rules governing the issue even as they have applied them. Personally, I am not convinced that the dispute over the issue isn’t really academic to a certain extent, in that, in the realpolitik world of litigation, it has been my experience that the underlying facts point towards the right outcome regardless of the standard of review applied in cases involving such alleged structural conflicts; I won’t reiterate that entire argument here, but you can find some of it here in this post.
Anyway, there is obviously enough background noise in the system over this particular issue of so-called structural conflicts of interest that it would make sense for it to be on the Supreme Court’s radar, and probably eventually its docket. I have noted before that I think the Supreme Court is looking for vehicles to weigh in on some of the more problematic areas of ERISA jurisprudence, and I think you see another instance of that here.
What Critics of The Standard of Review In Cases Involving Structural Conflicts of Interest Are Really Complaining About
0 Comments
Permalink |
There’s a very interesting long term disability decision that was just issued by the District of New Hampshire that is worth a read, not so much for the case itself as for its commentary concerning the standard of review under ERISA in instances where the administrator has been granted discretionary authority by the plan. The court’s facts and the reasoning themselves are nothing out of the ordinary: the arbitrary and capricious standard applies, there is enough evidence in the record to support the administrator’s denial, and thus the administrator’s decision is, quite properly under current law, upheld. But what is interesting is the court’s discussion of its views as to the standard of review and how it affects the outcome of the case, and how those comments shed some light on the criticism that is out there of the law governing the standard of review.
The court acknowledged that the insurer of the plan, which was also the administrator of claims under the plan, had “fully and carefully reviewed [the claimant]'s medical history and thoroughly investigated her claims,” and that there was substantial evidence in the record to support the insurer’s denial of the claim for benefits; the court, however, nonetheless went on to make clear that it disagreed with the applicable body of law governing the standard of review and which mandated the outcome under those facts. The court expressed its displeasure with the First Circuit’s treatment of what are known as structural conflicts of interest, which is a fancy way of saying the circumstance in which the claim administrator deciding the claim for benefits is also the insurer of the benefits who has the obligation to pay the benefits. The court’s exact words? That:
[N]umerous courts, including this one, have questioned the propriety, and even fairness, of the "arbitrary and capricious" standard of review in cases where the same entity that makes eligibility determinations also funds benefit payments. Two judges on a split panel of the First Circuit Court of Appeals recently suggested that the full court, sitting en banc, ought to revisit the standard of review applicable to ERISA cases in which the plan administrator determines benefits eligibility and also funds benefit payments. Denmark v. Liberty Life Assurance Co. of Boston, 481 F.3d 16, 31 (1st Cir. 2007) (Judge Lipez wrote: "I think it is time to reexamine the standard of review issue in an en banc proceeding. Although Judge Howard dissents from the judgment agreed to by Judge Selya and myself, he agrees with me, as indicated in his dissent, that we should reexamine the standard of review issue."). A petition for en banc review is apparently pending in Denmark. But, unless and until the court of appeals (or the Supreme Court) changes the governing standard of review, this court is obliged to apply the law as it currently exists.
Now, I don’t necessarily join in the belief that the First Circuit’s current law on the effect of such structural conflicts of interest is the wrong approach or needs to be modified, in the absence of Supreme Court changes to the law governing the standard of review in circumstances in which the administrator has been granted discretionary authority. You can find my thinking on that point here and here. As the District Court explained the law:
Under the current law of this circuit, merely pointing out that a plan administrator is also the entity that pays any benefits found due under the plan is insufficient to warrant departure from the applicable arbitrary and capricious standard of review. See, e.g., Wright v. R.R. Donnelley & Sons Co. Group Benefits Plan, 402 F.3d 67, 75 (1st Cir. 2005) ("[T]he fact that the plan administrator will have to pay the plaintiff's claim out of its own assets does not change the arbitrary and capricious standard of review.") (citation and internal punctuation omitted); Doyle v. Paul Revere Life Ins. Co., 144 F.3d 181, 184 (1st Cir. 1998) (same). To warrant subjecting a plan administrator's benefits eligibility determination to a stricter standard of review, a plaintiff must point to some evidence suggesting that its decision was actually influenced by improper factors.
I don’t see anything wrong with this standard, and the actual facts of cases decided recently in this circuit and its district courts concerning this issue support maintaining, rather than changing, this standard. When, as in the case that was before the District Court, a claimant cannot point to anything concrete from inside or outside of the administrative record to suggest that the administrator’s decision was actually distorted by its dual role, there is no reason that the dual role should change the standard of review or the outcome of the case. This point is well illustrated by this case here out of the First Circuit, in which I represented the prevailing defendants, and in which a panel of the First Circuit again suggested that the law concerning structural conflicts of interest should be altered. Yet in that case, the panel found that changing the law was irrelevant for purposes of the case pending before it and that the administrator’s decision would be upheld regardless of the standard of review that was applied, because the claim was properly handled and properly evaluated.
When, as in both of those cases, there is no actual evidence suggesting that the dual role altered the outcome, there is no justification for believing or acting as though it did. The truth, which you see when you spend enough time in the courtroom with these types of cases, is that, as these two and a host of other cases (both in which an alteration of the standard of review was warranted and those in which it was not) show, there will be some sort of distortion or disjunct between the evidence in the administrative record and the administrator’s handling of the claim if an untoward motive was actually involved; it may be disguised, but if you look closely you will find it. In contrast, when you cannot find some sort of gap in logic or reasoning or documentation between the administrator’s decision and the administrative record, there is a reason for this, which is that the determination was on the up and up. Thus, in the absence of evidence founded in the record to suggest an ulterior motive, namely the impact of the structural conflict of interest, there is no reason to assume the conflict affected the outcome and should be allowed to change the standard of review.
What’s more interesting is a second, almost throw away comment by the court, which I think goes more to the center of the complaints critics have about the standard of review, including in cases involving structural conflicts of interest. The court commented:
If this were a breach of contract case, in which [the claimant] sued her insurance company for disability benefits, the outcome might be different. There is, after all, substantial evidence in her medical records (including the opinions of two treating physicians) supportive of the view that [she] is disabled. But, because this case is governed by ERISA, what would otherwise be an insurance coverage or breach of contract case is, instead, one governed by principles of trust law. Liberty's adverse benefits eligibility determination is subject to a far more deferential standard of review.
I think this comment by the court goes directly to what critics of the standard of review are really complaining about, which is not really that the standards of review being applied are wrong, but that they are applied at all. I believe the real complaint of critics of the law on this subject is instead that long term disability claims should be treated and resolved in the same manner as any other type of breach of contract or insurance denial (non-ERISA division) case. This is a whole different kettle of fish than arguing over how the standard of review should be affected by a structural conflict of interest or other issue on the margin, and instead goes right to the heart of the ERISA regime. To some extent, these on-going disputes in the case law that are directed at altering the standard of review to make them more favorable to claimants, such as in cases where the administrator is also the insurer of the benefits, are really proxy wars being fought instead of the real dispute that critics of the system have with denial of benefit claims under ERISA, which is the very application of ERISA doctrines, rather than traditional breach of contract doctrines, to these types of cases.
The First Circuit's Road Map for Terminating Benefit Plans
0 Comments
Permalink |
Just a fairly short post on a technical ERISA issue that the First Circuit ruled on a few days ago, namely the steps that have to be followed to terminate or amend a benefit plan, at least with regards to the documentation and formalities needed to do so. In Coffin v. Bowater, Inc., the First Circuit provides a clear and definitive road map to follow to effectuate such a termination, and the court makes clear that veering off of that road map will result in a finding that the benefit plan has not been terminated. While the legal rule itself presented in the case isn’t all that gripping, although it is certainly a technical point that is important to know, the context of the case and some of the discussion in it are interesting in and of themselves, for at least two reasons. The first is the fact pattern of the case itself, which involved the failure of a plan sponsor and an acquiring company to effectively terminate a benefit plan as part of a corporate acquisition, causing them to later have to try to convince a court - unsuccessfully - to create some sort of common law exception to the rules established by the courts and ERISA that would excuse their failure to follow the basic requirements for a plan termination. Its simply interesting to see this important issue poorly executed in a complex corporate transaction, and the end result of litigation and additional liability that results.
The second is that the panel ventures into the question of the standard of review - de novo or arbitrary and capricious - in this circuit with regard to benefit issues and interpretation of plan language. As certain judges of the First Circuit have done in a couple of earlier decisions, this panel suggests that the time may be right for the First Circuit to revisit this question en banc and reset the law in the First Circuit on this issue, although the panel makes clear that doing so is not necessary for purposes of Bowater because the result would be the same under any standard of review that could apply. One wonders how much more pot stirring of this nature on the issue of the standard of review there can be before the circuit chooses a case to fully review and possibly revise the law in this circuit on this issue.
High Cost Investments, Payments to Sponsors, and the National Education Association
0 Comments
Permalink |
Been away from the desk for a few days, but not away from my reading, and there’s been a whole series of things in the media that may be of interest to those who read this blog that I have meant to pass along and comment on. I am going to try to post frequent but shorter notes for the next day or three until I cover them all, starting with one that most clearly and directly falls within the jurisdiction of this blog, concerning the payment of fees to a quasi-retirement plan sponsor. Many of you may have already seen the story, from the New York Times, which concerns payments received by the National Education Association from financial firms whose investment products it recommended to members. As the article explains:
A lawsuit filed last week in federal court in Washington State contends that the National Education Association breached its duty to members by accepting millions of dollars in payments from two financial firms whose high-cost investments it recommended to members in an association-sponsored retirement plan. The case was filed on behalf of two N.E.A. members who had invested in annuities sold by Nationwide Life Insurance Company and the Security Benefit Group. It contends that by actively endorsing these products, which carry high fees, the N.E.A., through its N.E.A. Member Benefits subsidiary, took on the role of a retirement plan sponsor, which must put its members’ interests ahead of its own. By taking fees from the two companies whose annuities N.E.A. Member Benefits recommended to its members, the N.E.A. breached its duty to them, the suit contends.
The article goes on to explain some tricks and twists that the plaintiffs face in trying to press their suit against the N.E.A. related to the payments and the high cost products, namely that the plaintiffs need to shoehorn the case into ERISA by arguing that “because the N.E.A. actively promoted the annuity products to its members, it essentially stepped in as a plan sponsor [thereby making] it subject to Erisa’s fiduciary duty requirements.”
With regard to this problem, concerning the plaintiffs’ need to figure out the best manner to structure their lawsuit, what you are really seeing is the problem of forcing a square peg into a round hole. I have argued in other posts that, as we move decisively from a defined benefit plan world to a defined contribution world, and thereby make plan participants the bearers of all the risks of their retirement investments, we need to simultaneously provide those plan participants with the legal protections and tools to manage those risks, including the types of risks alleged in this case, of misleading investment recommendations, undisclosed payments, and excessive costs.
I hope to keep an eye on this case going forward, as it may provide an excellent window on the question of whether, and if so how, the law can evolve to deal with these changes in the real world environment in which people now must prepare for retirement.
The Latest Word Out of the First Circuit on Pre-existing Conditions, Long Term Disability Benefits, and Uncertainty Over the Standard of Review
0 Comments
Permalink |
No one is quicker to post about decisions out of the First Circuit than Appellate Law & Practice, who quickly had this post up on Friday about the First Circuit's opinion issued that day in a long term disability benefits case where the plan and the administrator prevailed at the District Court, and then again before the First Circuit. I represented the prevailing parties before both the District Court and the First Circuit in that one.
Appellate Law & Practice focused in its post on some of the issues addressed by the First Circuit that apply across the board to other types of litigation, and not so much on the issues specific to ERISA that were addressed by the First Circuit in its opinion. There are some points about that opinion that are specific to ERISA cases, and should be of interest to those who practice in this area. Sometime in the next couple of days, I will return to the opinion and discuss those issues, from the perspective of the lawyer - me - who briefed and argued them. For now, here is the opinion itself.
Still More on Structural Conflicts of Interest
0 Comments
Permalink |
Day 3 of my discussion of the First Circuit’s recent ruling concerning structural conflicts of interest and their impact on claims for benefits under ERISA: Workplace Prof blog has his take, and quotes from others, here, and one of my favorite, quirkier, law blogs, Appellate Law & Practice, has its take here.
A Survey of All the Circuits on the Effect on the Standard of Review of Structural Conflicts of Interest
0 Comments
Permalink |
One of the things lawyers learn early in their careers is that the time it takes to research a particular issue can be reduced dramatically by finding a good published decision out of one of the better federal courts on the issue; such an opinion will often include an excellent synopsis, at a minimum, of the key case law on the issue. In essence, the opinion offers up the outstanding work product, already concluded on the issue in question, of high quality law clerks. Wednesday’s decision in the Denmark case in the First Circuit, which I discussed in yesterday’s post, is a perfect example of this phenomenon, as it provides, in a four paragraph section of the lead opinion, a summary of the law in each circuit on the effect on benefit cases of so-called structural conflicts of interest. As the opinion states:
The circuits have adopted varying approaches to the issue of whether the structural conflict that arises when an insurer both reviews and pays claims justifies less deferential review. In addition to this court, the Seventh and Second Circuits have held that a structural conflict alone is insufficient to alter the standard of review. Instead, these circuits require an actual showing that the conflict of interest affected the benefits decision before there will be any alteration in the standard of review. See Rud v. Liberty Life Assurance Co., 438 F.3d 772, 776-77 (7th Cir. 2006) (holding that a structural conflict of interest, without more, does not affect the standard of review); Sullivan v. LTV Aerospace & Def. Co., 82 F.3d 1251, 1255-56 (2d Cir. 1996) (holding that a claimant must show that a conflict of interest affected the benefits decision, but if such showing is made, de novo review applies).
However, seven other circuits have held that a structural conflict warrants alteration to the standard of review, although six of these circuits apply less deferential review within the arbitrary and capricious framework. Of these six circuits, all except one have adopted a "sliding scale" approach to the standard of review, in which the court applies less deferential review to the extent that a conflict of interest exists. See, e.g., Fought v. Unum Life Ins. Co. of Am., 379 F.3d 997, 1004 (10th Cir. 2004) (per curiam) (explaining that "the court must decrease the level of deference given to the conflicted administrator's decision in proportion to the seriousness of the conflict" (internal citation and quotation omitted)); Pinto, 214 F.3d at 379 (expressly adopting a "sliding scale method, intensifying the degree of scrutiny to match the degree of the conflict"); Vega v. Nat'l Life Ins. Servs., Inc., 188 F.3d 287, 297 (5th Cir. 1999) (en banc) (explaining that "[t]he greater the evidence of conflict on the part of the administrator, the less deferential our abuse of discretion standard will be"); Woo v. Deluxe Corp., 144 F.3d 1157, 1161-62 & n.2 (8th Cir. 1998) (explicitly adopting the sliding scale approach while noting that "not every funding conflict of interest per se warrants heightened review"); Doe v. Group Hosp. & Med. Servs., 3 F.3d 80, 87 (4th Cir. 1993) (applying less deference "to the degree necessary to neutralize any untoward influence resulting from the conflict"). The Ninth Circuit employs a "substantially similar" approach, but with a "conscious rejection of the 'sliding scale' metaphor" on the ground that "[a] straightforward abuse of discretion analysis allows a court to tailor its review to all the circumstances before it." Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 967-68 (9th Cir. 2006)(en banc).
The Eleventh Circuit uses a different framework. It first determines, under de novo review, whether the decision was wrong; if it was, and if an inherent conflict of interest exists, "the burden shifts to the claims administrator to prove that its interpretation of the plan is not tainted by self-interest." HCA Health Servs., Inc. v. Employers Health Ins. Co., 240 F.3d 982, 993-94 (11th Cir. 2001). The claims administrator may then meet this burden "by showing that its wrong but reasonable interpretation of the plan benefits the class of participants and beneficiaries." Id. at 994-95.
Finally, the D.C. Circuit has not yet established a standard of review in cases involving a structural conflict of interest. See Wagener v. SBC Pension Benefit Plan-Non Bargained Program, 366 U.S. App. D.C. 1, 407 F.3d 395, 402 (D.C. Cir. 2005) (finding that the result would be the same under either arbitrary and capricious or de novo review).
Current First Circuit Thinking on Structural Conflicts of Interest
0 Comments
Permalink |
Interesting decision out of the First Circuit yesterday, in the case of Denmark v. Liberty Life Assurance Company, that focused on the proper standard of review to apply in cases in which the administrator both decides the claim for benefits and is also the party that will have to pay the benefits if the claim is upheld. I have addressed in other posts this Circuit’s approach to that issue, and my belief that, although some other circuits take a different approach, the approach taken by this Circuit is the correct one. I discussed that here, here and here. The Denmark appeal generated a separate opinion from each of the judges on the panel, with two judges believing that it is time for the Circuit to reconsider, en banc, its approach to this issue. The third judge emphasized his belief, much like mine, that the Circuit’s current approach is time proven and battle tested, and should not be overturned lightly; he also points out that, given the split among the circuits over this issue, it would make sense not to change course on this issue unless and until the Supreme Court resolves the split.
The Supreme Court, Abatie and Conflicts of Interest
0 Comments
Permalink |
I have written extensively before - including both here and here -about Abatie v. Alta Health, the Ninth Circuit’s relatively recent decision revising that circuit’s approach to structural conflicts of interest and the effect such conflicts should have on the standard of review in denial of benefit cases. The Ninth Circuit’s new rule, I noted, placed it in conflict with the position of other circuits on the same issue, most notably, for purposes of this blog, the First Circuit, whose approach is really diametrically opposed to that of the Ninth Circuit on this issue.
The internet is abuzz today with the story of the Supreme Court remanding a denied benefits case back to the Ninth Circuit for further consideration in light of the intervening decision from that circuit in Abatie. SCOTUS blog, really the gold standard in Supreme Court coverage, has the story here, as well as links here to the petition for certiorari filed by the administrator/insurer and here to the Supreme Court order remanding the case for further consideration.
What is perhaps more interesting, to me anyway, is the unknown future of the remanded case in light of that remand. I have written before that Abatie itself reads as though it was written in the hope of becoming the vehicle for the Supreme Court to return to the issue of standards of review and the effect of conflicts of interest on the arbitrary and capricious standard of review. Can we look forward to seeing the newly remanded decision back up to the Supreme Court later, after further consideration by the Ninth Circuit of it in light of the principles enunciated in Abatie, as the vehicle for that inquiry?
On a side note, by the way, the petition for certiorari is itself a terrific review of the split among the circuits on the issues noted above.
The Unum Provident Problem
0 Comments
Permalink |
I have spent some time recently reading a draft version of Yale Professor John Langbein's article, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials under ERISA. For those of you who have more socially redeeming hobbies (like mowing the lawn, watching paint dry, pretty much just about anything I suspect) than reading law review articles, the good professor essentially argues that the Unum Provident problem, referenced here, shows that the current regime under which ERISA benefit claims are litigated is one giant failure and that the Supreme Courts needs to alter the jurisprudence governing denied benefit claims. For those who would like more detail on what the article has to say in full, without having to spend the time reading the article in its entirety, the abstract of the article is here.
I have a few initial thoughts in response to the article, some of which perhaps I will flesh out in greater detail in future posts if time allows. Here they are, however, in a nut shell.
One, the good professor makes the case that Unum Provident's conduct in handling claims and the questionable conduct uncovered in investigations into its conduct show that the governing legal regime needs to be changed. Not really. To avoid the obvious fact that Unum Provident may simply be an outlier, which has already been caught by the system currently in place, Professor Langbein has to create a straw company, asserting that Unum Provident was caught, but only because it was clumsy and the regime should be fixed to protect against other companies acting the same way, only with more subtlety. I don't see any evidence that other companies are doing this, or that, if so, they are so good at what they are doing they won't be caught in the same way that Unum Provident was nabbed. Indeed, the professor points out that Unum Provident was partly caught by a long run of federal court decisions in which judges found Unum Provident's claims decisions to be highly questionable under the standards of review currently in force; a different insurer trying the same thing is going to run into the same problem. Hiding from shadows is what I would call it, changing an entire legal structure on the theory that somewhere, there might be someone doing something wrong, but we don't know about it.
Second, on a micro level, the truth is that unscrupulous claims handling of the kind described in the article is caught in litigation in the federal courts, and thus the improper rejection of a particular claimant's benefit claim can be and is resolved successfully under the current system and standards of review. In fact, if anything, we see courts providing an ever more skeptical review of administrators' decisions even under the arbitrary and capricious standard of review as it currently exists than we ever have, for the exact reason, I believe, of making sure no administrator is trying to hide improperly motivated decision making behind the cloak of judicial deference that is owed to an administrator who is acting with discretionary authority.
Third, on a macro level, litigation is an awfully blunt instrument for modifying long term corporate behavior, and I am skeptical that changing the standards of review that apply to denied benefit claims will have such an effect. It may well be that the combination of the current standards of review, which do contain effective protections of the rights of individual claimants, with a vigorous state level regulatory apparatus is the correct way to proceed. This combination did, after all, successfully handle the Unum Provident problem.
Fourth, I am not convinced that the Unum Provident problem really shows, as the article wants it to, a problem with courts relying on market place forces to provide some protection against biased and self-serving decision making by administrator/insurers. Courts assume that in the long run, such companies will be hurt by such conduct when competing for business in the marketplace, and that this will have a deterrent effect. Critics of this thinking like to point to Unum Provident and its size in the market to prove otherwise. But I am not sure it proves anything of the sort. As the professor points out, Unum Provident is the product of a series of mergers and acquisitions, and one has to ask whether a company that stands accused of the type of misconduct that Unum Provident is charged with could have grown so large organically. Unum Provident may well show that the problem/hole in the system is in the mergers and acquisition regime, not in the benefit review regime.
Finally, a quick note of thanks to Workplace Prof Blog and Benefits Blog, without whom I would never have noticed the professor's paper, since I generally don't spend time surfing faculty websites (their blogs, yes, but not their websites). You can find a link to the the actual paper, by the way, here.
The Long Term Impact of Conflicted Decision Making in ERISA Litigation
0 Comments
Permalink |
I have talked elsewhere, including here and here, about the extent to which market forces can be expected to protect against conflicted decision makers in ERISA benefits litigation, and my preference for the position of courts such as the First Circuit, who recognize the central role such forces should play in devising the appropriate legal regime that should govern this situation and these types of cases. Many, obviously, do not agree, and believe that the long term marketplace effect of bad conduct can't possibly have enough effect to deter bad actors, and it appears that the judges of the Ninth Circuit agree with this line of thinking. To those, I raise the question of whether being entirely thrown out of the market because of long term misconduct in handling employee benefit claims, as this article discusses, would be enough evidence that the market will punish the bad and reward the good, at least over time. It would, at a minimum, be ironic if the largest state in the Ninth Circuit proceeded in the manner discussed in the article and provided graphic evidence of a marketplace punishment for misconduct of this type, on the heels of the Ninth Circuit itself finding that something else is instead needed to deter such conduct.
Is More Supreme Court Review of ERISA Standards of Review in the Works?
0 Comments
Permalink |
With lawyers, how we view an opinion, and for that matter a blog post, frequently depends on the focus of our practices and the things that, as a result, we are looking for. I was reminded of this over the weekend when I came across this post on Appellate Law and Practice, a blog run by a self described group of federal law clerks and appellate lawyers who post about the recent decisions in the circuit courts of appeals that they cover. Being appellate practice oriented folk, a central aspect of their take on my recent posts about Janeiro and the contrary opinion, Abatie, out of the Ninth Circuit was to note that the two cases, and my posts on them, demonstrate a split in the circuits on the issues addressed in the two decisions.
Which was interesting because one of the things that jumped out at me right off the bat about the Ninth Circuit's decision in Abatie, a decision I discussed in detail here and here, but did not previously comment on, is that in reading it, one can almost see the court and its clerks targeting a spot on the Supreme Court's docket. From the detailed presentation of the interaction of the decision with current Supreme Court precedent, to the almost scholarly review of the various approaches of other circuits, it reads like an invitation to the Supreme Court to weigh in yet again on the standard of review and conflict of interest questions still open under current Supreme Court jurisprudence.
Abatie, Part II
1 Comments
Permalink |
I don't want to leave the impression that the Ninth Circuit's decision in Abatie is a wacky or fringe decision, or that I think that myself. Far from it. The new rule it announces for that circuit on the effect of structural conflicts is certainly well within the margins of current mainstream jurisprudence on the issue, probably more so than the somewhat Rube Goldberg like burden shifting contraption that the Abatie court described the circuit as previously applying to such conflict situations. It is fair to say, though, that with regard to the core of its ruling, I simply don't agree with the premise that the conflict of interest alone, without a showing that the conflict actually played a role in the decision making at issue, should affect the standard of review. It is not as though other circuits don't take such conflicts into account, as they do and they should. But I think the more appropriate rule is to have that conflict only matter if the claimant can show that it actually mattered; i.e., that it affected the decision made by the plan or its administrator. This is, in essence, what the First Circuit required in Janeiro, as discussed here. And requiring this simply should not be a significant issue, since proving a conflict of interest, based on documents or testimony, is - or at least should be - a standard arrow in the quiver of any competent trial lawyer; there is no quicker way to discredit testimony on cross examination than to show the speaker had agendas other than the truth in mind when he or she spoke. So at the end of the day, I don't think the broad, throw the baby out with the bath water condemnation of all insurers and of all administrators acting while burdened with a structural conflict that Abatie enacts is warranted; you can clearly protect against the undue influence of such conflicts in a more nuanced and fact specific manner than what the Ninth Circuit has chosen to do.
So to those I have heard from who are concerned that the reliance on the market argument that I presented here is too favorable to insurers/administrators and does not provide sufficient protection against having benefit determinations swayed by such conflicts, I can say only this in a short piece: I do think market discipline works against any tendency for such decisions to be swayed by conflicts of this nature, but when the market is not enough to prevent it, an aggrieved party is still protected against having a benefit determination affected by the conflict simply by proving that the conflict actually did affect the outcome of his or her particular claim. Market forces and an evidence based rule to protect claimants is a nice one - two punch, and certainly seems more preferable to me than simply assuming that all decisions made by an administrator who must pay any benefits that are awarded are always suspect.
And as to why I am not fond of that latter approach, I will hopefully return to that point in a subsequent post, for those of you who, like me (I hope I am not the only one), simply can't get enough of Abatie.
First vs Ninth, and Structural Conflicts of Interest in ERISA Litigation
6 Comments
Permalink |
A frequent correspondent, even though he normally runs from ERISA cases as though he 'd been handed a basket full of snakes, forwarded me the Ninth Circuit's decision from earlier this week in Abatie v Alta Health and Life Insurance. Fascinating opinion. I could write an article or even a book on the decision, given its themes, its discussion of the historical development of the law on certain issues, and the rules for benefit litigation in the Ninth Circuit it declares (but that is what this blog is for, to discuss these kinds of things in a more timely manner than could be done in these other forms of media). What this means is you will probably see multiple posts on it from time to time, on different facets that are worth shining a light on.
For now though, what I wanted to comment on is its central focus, namely the impact on the standard of review of what is known as a structural conflict on behalf of a plan administrator in cases where the plan grants discretion to the administrator (and as a result the court should be applying the arbitrary and capricious standard of review to any judicial review of the administrator's decisions). I discussed structural conflicts and their effects a couple of days ago in a post on how the First Circuit deals with such a conflict. To reiterate, as the Ninth Circuit phrased it In Abate, "an insurer that acts as both the plan administrator and the funding source operates under what may be termed a structural conflict of interest." The First Circuit recently reaffirmed that this type of conflict, without more - namely proof that the administrator actually had a real world, not just a hypothetical, conflict, and made a benefit determination that was truly influenced by it - does not alter the standard of review. In contrast, the Ninth Circuit believes it does affect it, and how it does so is the primary subject of the opinion in Abate.
The rationale for the belief of the First Circuit, and other circuits that follow the same line of thought, that such structural conflicts can be ignored is that market forces should be sufficient to dissuade administrators from declining to pay benefits simply because they are the source of the funds, the idea being that, over time, market forces will punish those who do and reward those who do not. These structural conflicts usually entail insurers who both insure the benefits at issue and administer the claims made for benefits under the plan. The idea is that there will be a flight to quality, if you will, by plans and the companies who run them to insurers/administrators who do not act to their own benefit and the detriment of the plan's participants as a result of such a conflict.
Now, I am not totally convinced by this line of thinking, and clearly the judges of the Ninth Circuit aren't either, but I am more inclined than not to agree with it. I have never been totally inclined because it has always felt too much like what happens when lawyers play at being economists; they find a nice sounding macroeconomic idea and apply it as though true, without it ever having really been rigorously tested. On the other hand, based on my own experience of seeing, both in my own practice and in the case law, hundreds of cases in which such a conflict existed, it seems to me that the anecdotal evidence is clear that this reliance on the market does in fact seem to work and account for any problems posed by this potential conflict. The better companies that insure and/or administer plans do not, in fact, act out this conflict, even without anything more elaborate in the case law to prevent them from doing so than the assumption that the market will take care of the problem. My own belief is that such an approach is just the natural outgrowth of the overall mentality -from hiring to training to accountability - of the better run companies, who seem to operate on the assumption that good business practices pay off, or as I am inclined to say, that good business is itself good business. Recent research suggests that this may just be the case, Enron and the like notwithstanding; research indicates that "ethical business practices generate better financial performance," at least in the insurance industry (on this point, see here and here and here as well).
Meanwhile, the lesser companies, who may - it is almost never, if ever, really proven on the evidence to my satisfaction that they are doing so - be acting based on such a conflict, usually get caught and defeated simply under the traditional arbitrary and capricious standard without any change being imposed on the standard of review based on the existence of a mere structural conflict. And why is this? Because the administrative record, on which the court is basing its decision if the scope of review is the arbitrary and capricious standard, won't sufficiently support the decision of such a conflicted administrator if the conflict is the real reason for the denial of benefits. If you think about it, it is both logical and points out the irrelevance of the structural conflict. If the administrative record actually supported the administrator's decision to deny the claim, than the conflict either didn't exist or was irrelevant: the record evidence justifies the denial, and it is irrelevant if the claim was also denied because the administrator was also acting due to the conflict it faced. On the other hand, if the record evidence doesn't support the denial (which will presumably be the case if the only reason for the denial is the administrator's conflict of interest), than the administrator's decision will be overturned by the court as having been an arbitrary and capricious decision since it lacked sufficient support in the record, regardless of whether or not the reason for the denial was the administrator's conflict of interest.
So maybe I am a bit of a hometown fan, but I'll go with the First Circuit on this one.
Proving a Conflict of Interest in the First Circuit
0 Comments
Permalink |
What happens when a long time business relationship falls apart, and the principal who had been serving as the administrator of the business' employee benefit plans starts making benefit determinations intended to avoid unnecessarily enriching the other principal? Well, one of the most interesting things that happens - besides expensive litigation and an eventual award that makes a significant impact on the plan's assets - is that the standard of review applied by the court changes, and the playing field becomes far better for the aggrieved party than it otherwise would. This according, at least, to a terrific decision issued last week by the First Circuit, Janeiro v. Urological Surgery Professional Association.
In Janeiro, the plans, which were apparently well - and professionally - designed, granted, as most such plans do, discretion to the administrator; such a grant normally requires a court hearing a dispute over benefit decisions by the administrator to apply a deferential level of review to such disputes, under which the administrator's decision must be upheld unless it was arbitrary and capricious. Normally, the plan participant or beneficiary tries to avoid the application of this standard by claiming that the administrator was acting with a conflict of interest, since it is correct that, as a general proposition only, a conflict of interest can preclude application of that deferential standard of review.
But the trick, however, is in the details. The First Circuit does not lightly acknowledge or recognize such conflicts, as I talked about in an earlier post, and the First Circuit emphasized this again in Janeiro, noting that so-called structural conflicts, which are situations where the administrator has a financial interest in whether or not to award the benefits, without more, do not justify an alteration in the standard of review. In Janeiro, however, the court went on to show what does constitute a conflict that justifies such a deviation in this circuit: evidence that the administrator was driven by animus towards the participant and actually misapplied the plan terms as a result. Of particular interest is the fact that the court made it a point to note that the evidence showed that the conflict on the part of the administrator played a "real role" in the administrator's decisions; it is notable that the court emphasized this point given that the First Circuit has reliably rejected claims of conflict on the part of the administrator where the claimant has not been able to show an actual linkage between the alleged conflict and the decisions made by the administrator.
Now Janeiro involved a small scale retirement plan, making it easier to show such a thing (and making it more likely as well that the parties involved knew each other well enough for personal animus to even come into play, since it is familiarity, after all, that supposedly breeds contempt). This is obviously much less likely to be the case with large employee benefit plans administered by independent third parties. As a result, while Janeiro can be understood as standing for the proposition that a conflict sufficient to alter the standard of review is shown by proving an actual linkage between the administrator's decision and the administrator's motivations, that window for proving a conflict is unlikely to be of much use in most cases.
Economic and Behavioral Distortions, and How Insurance and ERISA Law Cope With Them
0 Comments
Permalink |
One of the problems that insurers, and insurance law, have to confront is the distortion in behavior, economic and otherwise, that insurance can create. Insurance coverage law deals with this problem in a number of ways, such as by means of the known loss doctrine, which - although the specifics of its application vary from jurisdiction to jurisdiction - essentially holds that a person cannot insure against an expected, existing or highly probable loss. As such, it prevents an insured company or individual from insuring against something the company or the person intends to do and knows is likely to cause harm. One can think of the known loss doctrine in this context as protecting against people undertaking harmful activities that they would not otherwise have done if they did not think they could insure themselves against the consequences.
We can also understand the various treatments given by the courts of different states to the question of whether a punitive damages award against an insured is insurable as being part of the same thought process. . . .
An Interesting New ERISA Decision
0 Comments
Permalink |
Judge Woodlock of the United States District Court for the District of Massachusetts has issued a comprehensive 42 page summary judgment opinion concerning a challenge to the denial of benefits under an ERISA governed plan. The opinion, Kansky v. Aetna Life Insurance Company and Coca-Cola Enterprises, available on the court's website at http://pacer.mad.uscourts.gov/dc/cgi-bin/recentops.pl?filename=woodlock/pdf/kansky%20may%201%202006.pdf, surveys a number of issues, ranging from conflict of interests and their impact on the standard of review to penalties for failing to produce requested plan documents. At its heart, however, is the issue of when a preexisting condition restriction in a plan can be invoked to deny benefits.
Full disclosure and self-congratulatory note: I represented all of the prevailing parties in the case.