On June 19, 2008, in Metropolitan Life Insurance Company v. Glenn (No. 06-923), 554 U.S. __ (2008), the US Supreme Court held that when the administrator of an employee benefit plan both determines whether an employee is eligible for benefits and is responsible for paying those benefits, the administrator operates under a conflict of interest. The Court further held that a court reviewing the administrator’s decision must consider that conflict of interest as one factor in determining whether the administrator abused its discretion. The Court made clear, however, that a complete, well-reasoned decision by the administrator will go a long way in minimizing the significance of any conflict.

The Glenn case stems from a suit filed by an employee who had been denied extended disability benefits under her employer’s plan, which was administered and insured by Metropolitan Life Insurance Company. Glenn argued that the insurance company had a financial incentive to deny claims, creating a conflict of interest that should weigh heavily in an employee’s favor when challenging the administrator’s decision in court. 

Writing for the majority in the 6-3 decision, Justice Stephen Breyer revisited the principles of judicial review of benefit determinations  that were established in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). In Firestone, the Court had held that where a plan vests an administrator with discretionary authority to determine eligibility for benefits, the administrator’s determinations are subject to a deferential abuse-of-discretion standard of review. The Firestone court noted further, in passing, that when that administrator is operating under a conflict of interest, that conflict must be weighed as a factor in determining whether the administrator had abused its discretion. The Court did not elaborate, however, on what constitutes a conflict, or how such a conflict should affect a court’s review when it exists.

Both issues were raised in Glenn. As framed by the parties, the first issue concerned whether an administrator’s dual role in both considering eligibility for benefits and paying claims, standing alone, creates the kind of conflict that should be a factor in a court’s review, or whether it was also necessary for the claimant to show that the conflict played a role in the denial of benefits. A majority of the Court held that the bare conflict of interest alone was sufficient to affect the standard of review. 

The more important question, however, is how the standard of review is affected by the conflict, and on that issue, the majority adopted a somewhat less than clear-cut “totality-of-the-circumstances” test. On the positive side (from the plan sponsor perspective), the Court held that the existence of the conflict does not change the standard of review, e.g., from abuse-of-discretion to de novo. Beyond that, however, it seems likely that the significance of the conflict of interest will vary from case to case. The Court noted situations where the conflict of interest factor will be less important in a court’s analysis, such as when the administrator has taken steps to reduce potential bias and promote accuracy in decision making. The Court also noted that the converse would also be true: that the conflict of interest would become a more important factor if, for instance, the administrator has not adequately explained its decision or has taken inconsistent positions that benefited it financially.

Further guidance will undoubtedly be forthcoming as the lower courts grapple with the significance of the Court’s decision in Glenn. In the meantime, there are steps plan administrators can take to minimize the potential adverse consequences of a dual role. All benefit decisions should be in writing. The decisions should be explained thoroughly, in writing. If the claimant presents evidence contrary to the decision the administrator has reached, the administrator should include the reasons it is rejecting that evidence. Any inconsistencies should be discussed, and relevant documents should be provided. These steps can and will go a long way toward convincing a reviewing court that the administrator is making fair and accurate decisions.

For more information on Supreme Court’s decision in Metropolitan Life Insurance Company v. Glenn and its potential impact on employee benefit plan administration, please contact:

Carol Connor Cohen
cohen.carol@arentfox.com
202.857.6054

Nancy Heermans
heermans.nancy@arentfox.com
202.775.5722

Caroline English
english.caroline@arentfox.com
202.857.6178 

Gretchen A. Dixon
dixon.gretchen@arentfox.com
202.775.5772