Last week, the U.S. Supreme Court held in Metropolitan Life Insurance Co. v. Glenn, that a conflict of interest exists if an entity such as an employer or an insurance company evaluates claims for benefits under an employee benefit plan and also pays out those benefits from its own pocket. This conflict does not disqualify entities from occupying this dual role, however the dual role will be considered as a factor in determining whether the plan administrator abused its discretion in denying benefits. The decision is significant because it affects the plan administrator’s discretionary authority to determine eligibility for benefits and to construe the terms of the plan. Employers now need to worry about such a conflict whenever they make determinations about whether employees are eligible for benefits.
In Glenn, MetLife served as both the administrator and the insurer for the Sears Roebuck long-term disability plan. The terms of the plan granted MetLife discretionary authority to determine whether an employee’s claim for benefits was valid. Wanda Glenn, an employee of Sears, applied for disability benefits under the plan. Although the Social Security Administration found that Glenn was permanently disabled and unable to work, MetLife denied her claim for extended long-term disability benefits because it found that she was capable of performing full-time sedentary work.
Glenn challenged the denial of benefits in court. Although the district court found for MetLife, the Court of Appeals set aside MetLife’s denial of benefits based upon a number of factors, including a conflict of interest arising out of MetLife’s dual role of evaluating and paying claims for benefits and the inconsistency between MetLife’s decision and that of the Social Security Administration. The Supreme Court granted review of that decision, specifically to address whether a conflict of interest actually existed and the extent to which a court should take such a conflict into account.
The Court affirmed the decision of the Court of Appeals. It held that a conflict of interest exists whenever an employer or an insurance company both funds the benefits under the plan and evaluates claims for benefits. The Court explained that the entity’s fiduciary interest in granting a claim for benefits may be affected by its immediate financial interest against paying out claims.
The Court was less clear about how lower courts should take this type of conflict of interest into account when reviewing a benefit determination. The Supreme Court has long held that if the benefit plan grants discretionary authority to the plan administrator to make benefit determinations, then courts generally defer to those determinations. In Glenn, the Court explained that the existence of a conflict of interest does not alter this deferential standard. However, the Court provided little guidance regarding the effect of a conflict of interest, stating that a conflict was only one factor for consideration and that each case should be decided on its particular facts.
This multi-factor approach set forth in Glenn undermines predictability in benefit determinations. In close cases, plan administrators often have to choose between competing medical opinions regarding an employee’s ability to work. Glenn suggests that a court may treat the existence of a conflict of interest as a tie-breaker in such circumstances. To avoid such a result, employers as plan administrators must now consider whether a financial interest against paying out benefits creates a potential bias, particularly in close cases. They may need to take active steps to reduce any bias by walling off individuals who make benefit determinations from those interested in firm finances or by imposing management checks on decision-making.