Do You Have a Conflict of Interest Under Your ERISA Plan?
August 8, 2008

On June 19, 2008, the United State Supreme Court ruled on an issue that may affect your business each time you deny one of your employees a benefit under an ERISA plan. In a case called Metropolitan Life Insurance Co. v. Glenn, the Court found that there is a clear conflict of interest if the person who decides the ERISA claim for benefits is also responsible for funding any payment of the claim.

Most of you are familiar with the type of claim raised in the Glenn case, even if you have not heard of the case. Glenn involved a claim for long term disability benefits under her employer's ERISA plan. The ERISA plan had purchased an insurance policy to pay the benefits, but, like many plans, the employer had given the insurer final authority to grant or deny any claims for the benefits. The insurer denied Glenn's claim and she sued. The ERISA plan contained fairly typical language specifying that the insurer's decisions were to be given “deference” by any court reviewing them. (Generally, when courts give deference to ERISA claims decisions, they decide only whether the decisions are reasonable and not whether they are right.)

The Supreme Court ruled that there is a clear conflict of interest when an employer or insurance company is given responsibility for both administering an ERISA plan (which means granting or denying ERISA benefits claims) and funding any benefits provided under the plan. It further ruled that such a conflict must be taken into account as a "factor" to be weighed in determining whether deference should be given to the administrator's decision. Such a conflict of interest might “act as a tie-breaker when the other factors [that are relevant in deciding whether to uphold the claims denial] are closely balanced.” The Court also found that the conflict will weigh more heavily if it appears the conflict actually affected the administrator's decision.

The decision in the Glenn case may result in more lawsuits over denied benefit appeals, especially if the participant can argue that the claims denial benefits the decision maker. Therefore, you should take care to ensure that any claims denial is fully documented, including all of the steps taken during the claims review processes. The person(s) who are responsible for making claims decisions should consider ensuring that all relevant materials (particularly those submitted by the claimant) are addressed in the denial letter, and avoiding inconsistent comments in e-mails and other correspondence relating to benefit claims.

Also, to the extent practical, employers should separate the claims administrative function from the source of benefit payment. For a self-insured plan, this may mean hiring an independent claims administrator, or appointing employees to a claims review committee who are not associated with the financial performance of the company and who were not responsible for the original claim decision.

Please contact the T&L Employee Benefits and Executive Compensation Group if you wish to discuss any aspect of your fiduciary duties, including the impact of the Glenn decision.

If you have any questions, please contact:

Barry D. Berman, Esquire
bberman@tandllaw.com
(443) 927-2115

or

John R. Paliga, Esquire
jpaliga@tandllaw.com
(443) 927-2114