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.