Divided Loyalties: How the Metlife v. Glenn Standard Discounts ERISA Fiduciaries' Conflicts of Interest
39 Pages Posted: 5 Feb 2010
Date Written: December 1, 2009
Since Firestone Tire & Rubber Co. v. Bruch was decided two decades ago, federal courts have been giving employer health and disability benefit plans, regulated under the Employee Retirement Income Security Act of 1974 (“ERISA”), the enormous advantage of deferential review whenever plan members and beneficiaries challenged benefit denials by plan fiduciaries. As a result, ERISA plan members and beneficiaries faced a substantial, and often insurmountable, hurdle. In order to reverse a denial of benefits, the claimant needed to prove that the fiduciary’s decision was arbitrary and capricious, or unreasonable.
Making for an even tougher challenge for plan members and beneficiaries, often the fiduciary that had denied the claim had operated under a conflict of interest. A claim denied was a claim that the fiduciary employer or insurance company providing coverage did not have to pay, so that the fiduciary was arguably incentivized to deny claims due to financial self-interest. Although courts considered whether the fiduciary had operated under a conflict of interest as a factor in determining whether the fiduciary had abused its discretion, often the presence of a conflict did not influence the outcome.
In the recently-decided Metropolitan Life Ins. Co. v. Glenn, the Supreme Court had an opportunity to revisit the deferential standard of review applied to claims denials by conflicted ERISA fiduciaries, and opted to reaffirm the Firestone standard. As a result, the substantial obstacles faced by ERISA plan members and beneficiaries when they challenge a benefit denial remain unchanged. For ERISA health and disability plans in particular, this is a harsh result, for an unfairly denied claim may leave a member without benefits for an expensive and urgently needed medical procedure, or without financial support after suffering a catastrophic disability.
This Article examines the historical development of the standard of review applied to ERISA plan benefit denials by conflicted fiduciaries, and takes a critical look at the Supreme Court’s recent reaffirmation of the Firestone standard in Metropolitan Life Ins. Co. v. Glenn. Ultimately, the author concludes that the standard operates to discount a fiduciary’s conflict of interest as a determining factor in the review. This means that conflicted decisionmaking in the context of ERISA health and disability plans will continue to be a key feature of these plans, raising a question of whether the “undivided loyalty” promised by ERISA to plan members and beneficiaries truly can be achieved.
Keywords: ERISA, Denial of Benefits, Firestone, Undivided Loyalty
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