Boston ERISA Law Blog

Posted By Stephen D. Rosenberg In Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Long Term Disability Benefits , Standard of Review
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A colleague - who, to protect the innocent, shall remain nameless (sort of a blog witness protection program) - passed along this remarkable decision out of the Fourth Circuit this month, Evans v. Eaton Corporation Long Term Disability Plan. The decision is an elegant and sustained defense of the granting of discretion to administrators and the application of the arbitrary and capricious standard of review under ERISA. The opinion reads almost as though the court set out to answer, and perhaps even to throw down a gauntlet to, critics who complain that the Supreme Court should not have established discretionary authority and the corresponding level of review, explaining, among other points, that such review is instead entirely consistent with the purposes and operation of ERISA, as well as with congressional intent. It’s a fine decision, whether you agree or disagree with the court’s analysis and conclusions. I would go beyond that, and suggest that critics of arbitrary and capricious review need to confront and provide a persuasive response to the court’s analysis of these issues, if they are going to criticize, with any credibility, the arbitrary and capricious review standards applied by the courts.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Benefit Litigation , ERISA Statutory Provisions , Pensions , Retirement Benefits , Standard of Review
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Oddly, this appears to be “calculating benefits” week among the courts of the First Circuit. In addition to the LeBlanc case I discussed in the last post, the First Circuit just ruled on a case involving a challenge to the calculation of pension benefits. Just as in the LeBlanc case, where a district court found that the method of calculation would stand because the administrator had discretion in conducting that effort under the terms of the plan and the calculation method was reasonable, so too does the First Circuit conclude, in Gillis v SPX Corporation, that the administrator’s determination of certain factors in calculating retirement benefits would not be overturned because the administrator had discretion and the determinations made were reasonable given the plan’s terms and purposes.

Appellate Law & Practice, who chronicle all rulings out of the First Circuit regardless of topic, has this somewhat more tongue in cheek take on the case here. While the Gillis case, as the Appellate Law & Practice post reflects, concerns certain issues beyond just the reasonableness of the calculation approach, there isn’t much to the court’s analysis of those issues; the real take away is in the requirement of reasonableness in the calculation activity, and then proceeding from there, the court finds, without too much in-depth analysis of the issues, that the other issues raised by the participant simply don’t support a challenge to that reasonable approach to calculation that was applied by the administrator.

Posted By Stephen D. Rosenberg In Benefit Litigation , ERISA Statutory Provisions , Equitable Relief , Fiduciaries , Standard of Review
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Does the fact pattern below allow for a remedy under ERISA, particularly as the Sereboff/equitable relief line of cases has been interpreted in the First Circuit to date? 

The plaintiff employee says that she purchased a life insurance policy on her husband through her employer's group coverage. When her husband was dying, she resigned her employment to care for him. She asked her employer for the proper forms to convert the group life insurance coverage to individual coverage, as she was entitled to do. Her employer refused or failed to provide the forms despite several in-person and telephone requests. In the meantime, the time for conversion (31 days) expired, her husband died, and now the life insurance company has denied her any benefits.

The United States District Court for the District of Maine just found in the case of Mitchell v. Emeritus Management that the fact pattern does not support a cause of action under any of ERISA’s remedial rights - for breach of fiduciary duty, for denied benefits and for equitable relief - available to a plan participant, a situation the court found “very troubling.” The court found that: (1) the participant could not recover the insurance benefits by means of an action for equitable relief because it was truly a claim for payment of the benefits at issue, rather than for equitable relief; and (2) the participant could not recover the proceeds on a claim seeking benefits because, under the facts at issue, there was no right to life insurance proceeds under the actual plan terms since there was no timely conversion, and therefore the administrator did not act arbitrarily and capriciously in denying the claim.

I guess two things jump out at me. One, the court rightly acknowledged that this result flows from the fact that ERISA simply leaves some harms incapable of remediation, something that is understood to have simply been part of the balancing act engaged in by Congress in enacting the statute, in which a decision was made to grant only limited rights of recovery in exchange for enacting a statute that would encourage the creation of employee benefits. Second, however, and at the same time, I think this is more what the Workplace Prof had in mind last month when he complained about what he considers the “grand irony” of ERISA, that a statute intended to protect employees can end up depriving them of a remedy, than was the case of the Wal-Mart equitable lien, that I discussed here, in which the Prof proffered the “grand irony” thesis, one which I took issue with in the context of that particular case.

Posted By Stephen D. Rosenberg In Benefit Litigation , Exclusions , Standard of Review
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There’s an interesting, if brief, ERISA case out of the United States District Court for the District of Massachusetts decided last week that enforced a suicide exclusion in an employer provided supplemental life insurance program. The court found that the evidence in the administrative record supported the administrator’s determination that the employee had committed suicide within two years of electing the coverage, and that the benefits were therefore not available because the plan excluded death by suicide in the first two years of coverage. The case itself is not very noteworthy, other than to the parties themselves of course, except for one thing that jumped out at me. Many critics of the current legal regime under ERISA complain that the arbitrary and capricious standard of review that applies to cases, such as this one, where the administrator retains discretion to interpret and apply the plan, terribly distorts the outcome of cases in ways unfair to claimants. I have argued before that I am not convinced that, in the vast overwhelming majority of cases, this is true at all. Rather, most of the time, the same administrative record that would justify upholding a denial under the arbitrary and capricious standard on the theory that the administrator’s decision is reasonable given the evidence in the record, also contains enough evidence to prove the administrator correct under a de novo standard of review, where the court makes its own independent determination of the claimant’s entitlement to benefits. This case illustrates that point yet again: while the court upheld the ruling while applying the arbitrary and capricious standard, the evidence detailed in the opinion should have led to the exact same result even if the issue were considered de novo or the case treated as simply a breach of contract case under standard common law governing contracts. Indeed, in my other hat as an insurance coverage litigator, it seems clear to me that the result here, on the evidence detailed in the opinion, would have been the same even if this policy was not controlled by ERISA and was instead simply a private contract of insurance between the deceased and the insurance company; the policy language and the facts would have led to a finding of no coverage even if litigated as an insurance coverage, rather than an ERISA, case. The case is Keiffer v. Shaw Group, and you can find it here.

Posted By Stephen D. Rosenberg In Standard of Review
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Brian King has an interesting post over at his ERISA Law Blog, concerning my recent suggestion that the Supreme Court was poised to shift the currents of the river that is the law of ERISA. Brian’s take? Ain’t happening, although in truth Brian’s point is a little more subtle than that, and is that the Supreme Court certainly isn’t about to make any big changes in the law of ERISA in a way that will be of great help to claimants. I can’t say I disagree. I do suspect, however, that the Court is about to wade into these issues and begin addressing some of the technical points that are in dispute at the lower courts, in a way that will affect the general contours of the law of ERISA. I think the Court just did that on a more dramatic level with patent law, and is looking at ERISA cases with the same skeptical eye. There are subtle points affecting such topics as 401(k) plans and the application of the arbitrary and capricious standard to certain issues that I think the Court may be about to address. But a wholesale rewriting of precedent in a way that loosens up the whole kit and kaboodle in a manner that makes it dramatically easier to sue plans and administrators? Well, no.

But I will say that, as an aside, one of the great pleasures of blogging is exactly this type of opportunity to consider multiple viewpoints on the same issue in real time (rather than have to wait a few years for a law review to issue a special edition collecting pieces on both sides of an issue).

Posted By Stephen D. Rosenberg In Standard of Review
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Conventional wisdom holds that the Supreme Court set out last term to change the direction of patent law, and did so. Are they out to do the same thing now with the law of ERISA? I think so. They already have LaRue up on their plate, a case I have said will result in a reversal of the circuit court and an expansion of plan participants’ ability to avoid some of the procedural hurdles to filing suit, and on Monday SCOTUSBLOG reported that: 

Among 85 pages of orders [issued by the Supreme Court] on pending cases, the Court asked the U.S. Solicitor General for the federal government’s views on four cases [including]:
06-1398, AT&T Pension Benefit Plan v. Call, an ERISA benefits case involving a split in the Circuit Courts over the question of deference to a benefit plan administrator’s interpretation of the plan.
06-1458, Geddes v. United Staffing Alliance, another ERISA case involving a conflict among federal Circuit Courts over the standard for judging denials of medical benefits by plan administrators.

Workplace Prof, reporting on these same developments, gives a little more detail about the two cases, describing the AT&T case as involving “whether an employer is entitled to deference for its determination that the actuarial assumptions it used to calculate lump-sum distributions were not considered accrued benefits” and the Geddes case as concerning “whether a nondiscretionary standard of review applies in an ERISA action when the benefit plan administrator delegates its discretionary authority to someone who is not a fiduciary.” As the Prof points out, the Court’s request to the Solicitor General’s office for input does not necessarily mean the Court will take the cases, but certainly raises the possibility that it will; at a minimum, it reflects the interest of at least some segment of the Court in how the law governing ERISA is evolving.

Regular readers of this blog and ERISA practitioners know that there has been a fair amount of discontent at the district court and circuit court levels when it comes to the issue of standards of review and the discretion granted to administrators, including a decision out of the Ninth Circuit that I described awhile back as looking as though it had been written for the express purpose of bringing conflict among the circuits over some of these issues to the direct attention of the Supreme Court. The Court may be about ready to start delving into these issues and concerns.

Posted By Stephen D. Rosenberg In Long Term Disability Benefits , Standard of Review
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I wanted to take a moment over the next couple of posts to return to a couple of cases from earlier this month that are worth a look and a comment, but that I haven’t had a chance to talk about yet. One of them is a decision by Judge Lindsay of the United States District Court for the District of Massachusetts from the beginning of the month, Dickerson v. Prudential Insurance Company, in which the court considered the question of whether plan documents actually conferred discretionary authority on the administrator of an ERISA governed long term disability plan; as most of you already know, if it did not, then the court had to decide a dispute over benefits under that plan de novo, while if it did, the court was to decide the dispute by applying a deferential standard of review.

Now, we see many cases finding that discretionary authority is conferred and that deferential review applies, but cases finding the opposite are actually not quite as common. This is usually because the plan in question in a case either clearly grants discretion, or doesn’t do so at all. As a result, it is comparatively infrequent that a court has to address in any depth whether or not particular plan language grants discretion. Into this relative void steps the Dickerson decision, which is an interesting example of a case finding that the particular language used in a plan did not clearly confer discretionary authority. I liked Judge Lindsay’s description of the applicable standard, which was that: 

Courts have recognized that "there are no magic words determining the scope of judicial review of decisions to deny benefits." Brigham, 371 F.3d at 81 (quoting Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000)). Until insurance plans include language that "could leave no doubt about the administrator's discretion . . . we must in fairness carefully consider existing language that falls short of that ideal." Id.

"[T]he critical question is notice: participants must be able to tell from the plan's language whether the plan is one that reserves discretion for the administrator." Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, 637 (7th Cir. 2005). Language that merely requires a determination of eligibility by the administrator and proof of the applicant's claim "does not give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary." Herzberger, 205 F.3d at 332. Cf. Diaz, 424 F.3d at 639 (for Plan language to confer discretion on the administrator, it must "communicate the idea that the administrator not only had broad-ranging authority to assess compliance with pre-existing criteria, but also has the power to interpret the rules, to implement the rules, and even to change them entirely.").

The Court concluded that the particular language in the plan at issue in Dickerson gave the administrator the “ the power to make the determination” but imposed a list of specific conditions on the exercise of that power. As a result, the judge held that “[b]ecause the Plan language” suggests that "the plan administrator is to make a judgment within the confines of pre-set standards [and does not have] the latitude to shape the application, interpretation, and content of the rules in each case . . . the language [was] insufficient to trigger deferential review by the court.”

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Long Term Disability Benefits , People are Talking . . . , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Long Term Disability Benefits , Standard of Review
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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).

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Long Term Disability Benefits , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Benefit Litigation , Long Term Disability Benefits , Standard of Review
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They say that professional football is far and away the most successful entertainment business - let alone sports league - in the country, but behind the scenes all is not tea and roses, quite clearly. Anyone who follows the sport knows the physical toll it takes on many of its best players, and a dark story of that aspect of the sport has been playing out in the courts for some time now, involving the debilitating injuries, and subsequent claim for disability benefits, of one of football’s bigger stars, the former Pittsburgh Steelers center Mike Webster. Webster, we learn from a lawsuit his estate brought seeking higher benefits than those awarded to him by the administrator of the National Football League’s retirement plan, “was diagnosed in 1998 with brain damage resulting from multiple head injuries he incurred while playing football.” He thereafter received from the retirement plan the lesser of two possible disability benefit awards available under the league’s retirement plan.

Lawyers for Webster eventually sued the retirement plan, alleging that the plan was governed by ERISA and that the plan administrator abused its discretion in denying the higher of the benefit awards to Webster, and in awarding him only the lower of the two. Discretion was reserved to the administrator in no uncertain terms, and yet the courts had no trouble concluding that the discretion had been abused, and in therefore overruling the plan’s benefit decision. As any of you who practice in this field or regularly read this blog know, a finding that an administrator acted arbitrarily and capriciously and abused its discretion - warranting rejection of the administrator’s determination - is a relatively uncommon event.

As a result, when one gets beyond the sports story interest raised by the case, the interesting question that is left behind is what was it about the administrator’s determination that drove the court to such a conclusion. And the answer to that question is telling: the Fourth Circuit had little trouble concluding that an abuse of discretion had occurred because “[w]hile recognizing that the decisions of a neutral plan administrator are entitled to great deference, we are nevertheless constrained to find on these facts that the Board lacked substantial evidence to justify its denial here. In particular, the Board ignored the unanimous medical evidence, including that of its own expert, disregarded the conclusion of its own appointed investigator, and relied for its determination on factors disallowed by the Plan.”

Well, if you think about it, how can those facts be anything but an abuse of discretion? And in many ways, that is what is different about this case from most denial of benefit cases, in which claimants routinely assert that an administrator wrongly weighed the evidence in the administrative record and therefore committed an abuse of discretion; in those typical cases, the evidence in the administrative record is subject to differing possible conclusions, and ERISA grants the administrator - so long as it was granted discretion by the plan documents - the freedom to select which of those possible conclusions should apply. Here, however, the administrator was not picking among possible conclusions warranted by the evidence, but was instead selecting a conclusion that was entirely contradicted by the overwhelming - and it appears possibly unanimous - evidence before it. That, we see quite clearly in this case, is beyond the outer edge of an administrator’s discretion.

The case, which is interesting for those of you interested in football, in Mike Webster, or in ERISA, is Sunny Jani, Administrator of the Estate of Michael L. Webster v. the Bert Bell/Pete Rozelle NFL Player Retirement Plan, out of the Fourth Circuit this week.

Posted By Stephen D. Rosenberg In ERISA Statutory Provisions , Standard of Review , Summary Plan Descriptions
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Here is an interesting post concerning a recent decision from the Second Circuit on the impact - there is apparently none in that circuit, given this post and the Second Circuit decision, Tocker v. Phillip Morris Companies, discussed in the post - of an administrator reserving discretion in determining claims for benefits only in the plan documents and not in the summary plan description itself.

Now I don’t necessarily agree with the writer of the post, who feels that if a participant cannot locate in the summary plan description the magical Firestone language that reserves discretion to the administrator, then de novo and not arbitrary and capricious review should apply. The writer’s view is that the summary exists to educate the participant, and the participant ought to be able to rely on it and find the reservation of discretion there, or else not have it applied against him or her. Personally, I favor a more realpolitik view of the world when it comes to establishing litigation rules, based on how we can expect people in the real world to act. Most participants, frankly, unless they have been educated about Firestone, discretionary language and standard of reviews by some other source, will have no idea what the Firestone language means or its effect, even if they find it in the summary plan description; for those who have been or choose to educate themselves sufficiently to understand that issue under the employee benefit plans provided by their employers, they will likewise understand that there are other sources of documents that they need to examine that govern the plan. The Second Circuit ruling in Tocker seems to fit that understanding of the real world quite well.

And some of this goes back to a fundamental issue, of whether participants really understand - or even read - the summary plan description, or whether it is instead simply something that gets pulled out by a participant’s lawyer after a claim for benefits has been denied. The summaries exist because we need to mandate disclosure, and certainly the more the better - but I don’t think it is realistic to structure a legal rule and indeed an entire regime around the myth that participants actually do read them, rely on them and understand them. When we do that, we move into simply creating traps that make the administration of plans more difficult and create loopholes to be exploited in litigation; while this may be good for lawyers’ wallets, I think we are all better served by legal rules that fit comfortably with how non-lawyers actually conduct themselves in their day to day lives.

On a more practical and technical level, the Tocker opinion provides an excellent overview of the law governing summary plan descriptions, and the role of those documents in the ERISA regime, for those of you interested in more information on those subjects.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Long Term Disability Benefits , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Benefit Litigation , Preemption , Standard of Review
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The First Circuit released its most recent ERISA decision, Carrasquillo v. Pharmacia Corp., a few days ago. Of interest in the decision, the court notes the standards that the appellate court should apply in reviewing a district court's entry of summary judgment when the arbitrary and capricious standard applies. The court reiterated that while the First Circuit reviews a district court's summary judgment decision de novo, if the district court's decision was governed by "arbitrary and capricious review, [the First Circuit] evaluate[s] the district court's determination by asking whether the aggregate evidence, viewed in a light most favorable to the non-moving party, could support a rational determination that the plan administrator acted arbitrarily in denying a claim for benefits;" if not, then the First Circuit will uphold the plan administrator's determination.

The First Circuit also spends a little time in this case reemphasizing that an administrator's interpretation of the plan terms, and not just its ultimate benefit determination, is to be accepted and applied by the court in ruling on the challenge to the benefit determination so long as the administrator's interpretation was not arbitrary and capricious, if the plan reserved discretion over such interpretation to the administrator. And what does it mean to be an interpretation that is not arbitrary and capricious? It simply means the interpretation needs to be reasonable.

The court also returned to what was once a common point of contention in this circuit, namely whether and to what extent judicial review of a benefit determination is limited to the administrative record that was before the administrator at the time the administrator decided the claim for benefits. A series of First Circuit opinions issued in the last few years put an end to any question over this issue, to the point that in this most recent decision, the First Circuit saw no need to make any further comment on this point than to note that "there is a presumption that judicial review is limited to the evidentiary record presented to the administrator."

And finally, in something I liked, the court summed up the state of preemption law in this circuit, and provided a nice little handy one paragraph starting point for lawyers who might brief preemption issues before the district courts of the First Circuit in the future, stating:

We next turn to the district court's finding that Otero's state law claims are preempted by ERISA. In light of ERISA's goal to promote uniformity in the nationwide regulation of employee benefit plans, Congress designed the statute to supersede "any and all State [causes of action] insofar as they may now or hereafter relate to any employee benefit plan." Id. (emphasis added). The Supreme Court has identified two instances where a state cause of action relates to an employee benefit plan: where the cause of action requires "the court's inquiry [to] be directed to the plan," or where it conflicts directly with ERISA. . . . Because the resolution of Otero's Commonwealth law claims for fraudulent inducement and intentional infliction of emotional distress would require analysis of the Plan, the district court correctly concluded that they are preempted.

Posted By Stephen D. Rosenberg In Benefit Litigation , Standard of Review
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We have talked a lot about the different standards of review that courts should apply when reviewing an administrator's decision concerning a claim for benefits under ERISA. But what about if the administrator never applied any review at all before the dispute ended up in the courts? Courts differ on whether this should change the standard of review, with many finding that, under those circumstances, a reviewing court should apply a de novo standard of review even if the plan reserved discretion to the administrator (something which would normally mean that the more deferential arbitrary and capricious standard of review should apply).

The First Circuit has not passed on this issue, but the federal district court here has just come out with its conclusion: it means nothing more than that the entire matter is remanded back to the administrator to actually perform the required review. You can find the case here.

Posted By Stephen D. Rosenberg In Benefit Litigation , Standard of Review
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Allright, here's another law review article, this time out of the Oklahoma Law Review by way of Workplace Prof, complaining about the standards of review currently applied by the courts to ERISA benefit denial cases. Although I haven't yet read it - I just finished Langbein's on the same topic, and I'm not ready to delve into another article on the same subject just yet -the article proceeds as follows:

Part II below provides background analysis of the ERISA standard of review controversy. This Part illustrates the continuing failure of the circuit courts to produce a consistent and just claims process in employee benefit cases where courts defer to self-interested plan administrators. The analysis begins with Firestone and its pronouncement that trust law should guide review of challenged benefit claim denials.

Next, Part II argues that the lower courts have struggled to tease a clear message from Firestone's "opaque" standard of review analysis. In particular, this Part explores the Tenth Circuit Court of Appeals's attempt in Fought to cure this wounded process, and we describe the unfortunate failure of the Tenth Circuit to discover a trust law-based antidote to Firestone.

Finally, Part III of this comment works within the parameters of Firestone to re-introduce the historic trust law-based solution to the problem of self- dealing fiduciaries: the no-further-inquiry rule. Here the article capitalizes on prolific trust law and ERISA scholar Professor John H. Langbein's recent examination of the no-further-inquiry rule. Professor Langbein's analysis is adapted to support a thesis that he did not reach, by applying his discussion of the no-further-inquiry rule to ERISA benefit cases. This Part describes how the summary adjudicative process, invented by contemporary ERISA courts under the guise of deferential review, mimics the archaic circumstances existing in courts of equity that spawned the no-further-inquiry rule.

Finally, Part IV concludes that ERISA courts should apply the no-further-inquiry rule to irrebuttably counter the mischief that courts have historically presumed attach to the actions of self-dealing fiduciaries. Ultimately, by application of the no-further-inquiry rule in ERISA benefit claims, courts can, and should, return federal Article III trial judges to their role as neutral, de novo referees in plan participant claims for benefits due under ERISA.

There is an assumption, as one can see from this, in the academic literature that self-interested fiduciaries are up to no good, can't be trusted, and won't be caught by the current standards of review applied by the courts. Poppycock I said, in essence, here. But this emphasis on an academic and hypothetical level as to whether the applicable standards of review are appropriate raises an interesting real world question: namely, how often would court decisions reached in cases decided under the arbitrary and capricious standard (a level of review that law school faculty appear to uniformly find fault with when applied by a conflicted decision maker) be different if the court had instead applied the de novo standard of review (which the academy seems to uniformly prefer)? I wouldn't mind seeing an article that took fifty denied benefit cases and presented the findings of such a review. With courts applying an ever more searching scope of review when applying the arbitrary and capricious standard of review than they may have done in the past, I don't see that high a percentage of cases, either in my own practice or in the reported decisions, that would end up with a different result under one standard of review than under the other. The litigation over the case, including the extent of discovery and the expense, might change, but I am skeptical whether the outcome would be different if you changed the standard of review.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Long Term Disability Benefits , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Benefit Litigation , Long Term Disability Benefits , Rules of Policy Interpretation , Standard of Review
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ERISA on the web generally does a nice job of chronicling ERISA decisions out of the Eleventh Circuit, but one of its recent posts, about an August 8th decision by the United States Court of Appeals for the Eleventh Circuit, jumped out at me more than most. The post discusses the case of Billings v UNUM Life Insurance Company, a case involving whether a pediatrician was entitled to continued disability benefits after being disabled due to obsessive compulsive disorder, or whether, instead, the mental health limitation in the plan limited the length of time to which he was entitled to benefits. Although the case presents a somewhat unusual, and certainly curiosity invoking, fact pattern, that is not what drew my attention. Instead, what caught my eye when reading the post was that it discussed the decision and described the court's reasoning in a manner that made me think not of ERISA litigation, but instead of the other focus of this blog, insurance coverage litigation. As the post described and the court's opinion reflects, the Eleventh Circuit decided the question by applying rules of policy construction to the plan language at issue that we more often see in insurance coverage disputes, such as the doctrine of contra proferentem (a fancy way of saying construe ambiguities in the document against the drafter, which in the insurance context most often means against the insurer); the court then decided on that basis whether or not the plan language limited the physician's benefits.

The post left hanging the question of why such an approach was applied, rather than the more typical approach of the court yielding to the administrator's interpretation of the plan language and ultimate decision so long as both were reasonable and rationally supported by the evidence, but it was easy to guess the reason, and a quick jump over to the opinion itself confirmed it; the plan at issue did not grant discretion to the plan administrator, meaning that the court, and not the administrator, was the ultimate decision maker on the issues presented by the claim.

What interested me most about the case, and the post, was that it illustrated the extent to which if you remove the deferential standard of review usually required of courts deciding benefit cases under ERISA from the equation, they would become, essentially, insurance coverage cases, consisting of a dispute over the plan language and an eventual decision by a court over which interpretation - that favored by the plan or that favored by the claimant - should be selected, with the outcome of that determination essentially deciding who wins. That is insurance coverage litigation in a nutshell, but normally is not ERISA benefits litigation in a nutshell.

Posted By Stephen D. Rosenberg In Benefit Litigation , ERISA Statutory Provisions , Employee Benefit Plans , Standard of Review
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This being - roughly - the start of a new month, I engaged in my usual habit of reviewing any ERISA decisions issued in the past month by the courts in the First Circuit, just to make sure I didn't miss anything while busy with the usual run of business. As it turns out, on July 20th, the United States District Court for the District of Rhode Island issued its opinion in Holm v. Liberty Mutual Life Assurance Co. and Bank of America , a case in which an employee who had resigned from a company without first seeking disability benefits thereafter sought them later. In many ways, this is a traditional denial of benefits decision in this circuit, with the court finding that the plan granted the administrator sufficient discretion to invoke the arbitrary and capricious standard of review and then finding that under that standard the administrator's denial of benefits must be upheld since there was sufficient evidence in the record to support the decision. The court does offer some good language, and a good synopsis of the circuit's most popular decisions, on these points, and, frankly, you can tell on one read of the opinion that the outcome should have been the same regardless of the level of review applied by the court.

What makes the decision more interesting than most, however, is that the case presented the somewhat unique situation of the defendants raising the question of whether the benefit was even provided under an ERISA governed plan, and the court provides a nice summary of the law in this circuit for making that determination. As per the court (I have left out the cites):

ERISA provides a broad definition for employee benefit plans, and this definition has been divided by the First Circuit into "five essential constituents:"
(1) a plan, fund or program (2) established or maintained (3) by an employer or by an employee organization, or by both (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits ... (5) to participants or their beneficiaries. . . . In determining whether a specific plan is an ERISA plan, the First Circuit reviews the extent of the employer's role in administering the benefits. Those obligations are the touchstone of the determination: if they require an ongoing administrative scheme that is subject to mismanagement, then they will more likely constitute an ERISA plan; but if the benefit obligations are merely a one-shot, take-it-or-leave-it incentive, they are less likely to be covered. Particularly germane to assessing an employer's obligations is the amount of discretion wielded in implementing them.

The court had little trouble concluding that the benefit plan in question was "clearly an employee benefit plan as defined by the ERISA statute" in light of the actual facts of the matter.

Posted By Stephen D. Rosenberg In Long Term Disability Benefits , Standard of Review
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An article in the New York Times yesterday on men who simply won't go back to work caught my eye because at times expressly and at other times by implication, it delves into the potent mix of cultural and behavioral forces that seem to impact what we offhandedly refer to as "work ethic." The behavioral and cultural issues noted in the article circle back to an interesting point in litigation involving ERISA governed long term disability plans, which is that - so long as certain legal requirements are met - the plans and their administrators have a great deal of discretion in deciding whether or not someone is disabled or should, instead, be expected to return to work in some capacity or another. In real world terms, in the course of litigation, this grant of discretion provides plans and administrators with a certain amount of power over plan beneficiaries with regard to the question of whether the beneficiary is truly disabled or instead belongs at work.

The general ins and outs of the discretion granted to administrators in that circumstance, I won't discuss in much detail here. For present purposes, it is sufficient to note that when an ERISA governed disability plan grants the administrator discretion in interpreting and applying the plan's terms, the administrator has a great deal of latitude in its decision making, generally subject only to the requirement that the decision be reasonable (with the case law providing further detail as to what reasonable means in that context). This issue is delved into in more detail here. Although lawyers for claimants often object to this line of thinking, this grant of discretion is usually considered to be acceptable on the thesis that it fits with Congress' intention to encourage employers, by making it relatively easy to provide them and by limiting employers' exposure to liability, to provide such benefits.

But the New York Times article points to another possible - and real world - justification for granting such discretion to plans and their administrators, and for granting them great leeway in determining whether a claimant is sufficiently employable to be expected to work rather than collect long term disability benefits. Discussing disability benefits under social security, the article points out:

The ailments that qualify them are usually real, like back pain, heart trouble or mental illness. But in some cases, the illnesses are not so serious that they would prevent people from working if a well-paying job with benefits were an option.

The disability program, in turn, is an obstacle to working again. Taking a job holds the risk of demonstrating that one can earn a living and is thus no longer entitled to the monthly payments. But staying out of work has consequences. Skills deteriorate, along with the desire for a paying job and the habits that it requires.

"The longer you stay on disability benefits," said Martin H. Gerry, deputy commissioner for disability and income security at the Social Security Administration, "the longer you're out of the work force, the less likely you are to go back to work."

Now I have no basis to know whether these statements are correct, or whether there is independent research to support - or for that matter to discredit - these points. If true, however, they may suggest an independent justification - possibly intended but more likely simply fortuitous - for granting such authority to plans and their administrators, namely that it may counterbalance a disabled employee's own tendency to prefer the safe harbor of disability benefits to the riskier and harder course of returning to work.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Homeowners Insurance , Known Loss Doctrine , Punitive Damages , Standard of Review
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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. . . .

Posted By Stephen D. Rosenberg In Standard of Review
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I mentioned West Legalworks' upcoming ERISA Litigation Conference in a recent post. Of interest - to me anyway, and I think to anyone who litigates denial of benefit claims - is that in the marketing materials for the conference, the organizers note "shifting standards of review" on benefit denials as an important subject.

To the extent the conference organizers may be referring to actual precedential changes in the applicable standards of review in certain circuits, that is one thing. But in my own practice I have noticed a subtle shift in the way judges are applying standards of review that have long been on the books, and that have not formally been shifted by any superceding appellate rulings.

When applying the arbitrary and capricious standard, I have noted a more skeptical eye being applied by judges. Whereas in the past judges would typically be satisfied that the standard was met so long as there was a reasonable amount of evidence in the administrative record that supports the administrator's finding, now they seem more often than not to actually look at the pieces of evidence in the record with a critical eye and decide for themselves whether it supports the finding. Another way to think about this is that in the past the mere existence of supporting evidence in the record was enough for the administrator to prevail; now it seems that judges are looking more closely at the quality of that evidence as well in deciding whether or not it was reasonable for the administrator to reach its determination.

It is a more skeptical application of the same standard, and as such something of a quiet and barely perceptible shift in the case law, one that, if I am right about this and this thought holds up across time and over a broader sampling of cases, is occurring without any appeals court rulings announcing an actual change in the law.

At this point, it is somewhat of a small sampling on which I base this impression; I will be curious to see what the future holds in this regard.

Posted By Stephen D. Rosenberg In Benefit Litigation , Conflicts of Interest , Standard of Review
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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.

Posted By Stephen D. Rosenberg In Standard of Review
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The First Circuit has raised a strong bulwark over the years against challenges to the application of a strict arbitrary and capricious standard of review to cases in which the employee benefit plan at issue granted discretionary authority to the plan or the administrator. The circuit has, if anything, been hostile to attempts by participants to lessen the extensive deference shown to the plan and its administrator in such cases. The most common line of attack has been the argument that the administrator or other decision maker is operating under a conflict of interest, and that the court should not grant the usual degree of deference to the decision as a result. To say that this argument has done little to advance the ball for plan participants in this circuit would probably be an understatement.

The United States District Court for the District of Puerto Rico has just issued a decision that nicely sums up the law in this circuit at this point in time on this issue. As the court framed it:

If a plan administrator or fiduciary is operating under a conflict of interest, "the conflict must be weighed as a factor in determining whether there is an abuse of discretion." Firestone Tire & Rubber Co., 489 U.S. at 103, 115. "In this Circuit, if a court concludes there is an improper motivation amounting to a conflict of interest the court 'may cede a diminished degree of deference--or no deference at all--to the administrator's determinations." ' Wright v. R.R. Donnelley & Sons Co. Group Benefits, 402 F.3d 67, 74 (1st Cir.2005) (quoting Leahy v. Raytheon, 315 F.3d 11, 16 (1st Cir.2002)). "However 'a conflict of interest must be real. A chimerical, imagined or conjectural conflict will not strip the fiduciary's determination of the deference that otherwise would be due." ' Id. (quoting Leahy v. Raytheon C