Tuesday, May 6, 2008

MetLife Vs Glenn- "That Smells Bad"

A careful reading of the transcript of the US Supreme Court Oral arguments in the MetLife vs Glenn case provides both an entertaining and and an insightful look at the strange world of long term disability claim practices where ERISA case law theoretically intersects actual claim practices. Sausage manufacturing is by comparison a deliberate and sterile procedure that still produces the odd case of e-coli but alas I digress and the core issue before the court is;

Whether an ERISA plan administrator that both evaluates and pays claims
operates under a conflict of interest that must be weighed on judicial review of
benefit determinations.

Most insured LTD plans contain a discretionary clause where state law permits which allows insurers to make claim decisions that are enforceable providing the actions are neither arbitrary or capricious--the standard set down in Firestone Vs Bruch for ERISA plans by The Supreme Court. Trial Lawyers have been seeking to crack ERISA for years and desire a "de novo standard of review". In English we are talking about the difference between a deferential standard--arbitrary and capricious and a much lower bar--de novo. The former requires the claimant to prove an administrators actions were arbitrary and capricious to win and the latter allows a completely new and complete review of the case where a claimant is much more likely to prevail. At stake for employers is significantly higher costs should Firestone v Bruch be modified or should the NAIC prevail in its attempt to remove discretionary clauses from LTD policies( see brief for NAIC in Metlife Vs Glenn). You attorneys should consider that a gross simplification and not legal advice.

Jannell Grenier at Benefits Blog covers these matters very well from a legal perspective as do each of the bloggers linked to her thread.

Without question there are disability insurers who utilize the arbitrary and capricious standard to support claim decisions that would be suspect at best under a de novo review. It was interesting to read the exchange between MetLife's counsel and the justices below concerning how it is conceivable a claimant could be awarded Social Security Disability Benefits and denied benefits following the change in definition to inability to perform any occupation;

JUSTICE GINSBURG: But then you come to the
end of the line. You have to
prove that the authority
6 was misused. And as I understand the Sixth
7 decision, what those judges were doing, they say we're
going to look at this with some skepticism because of
9 the conflict. And
let me give you a concrete example.
This woman got Social Security
disability benefits and 11 she did it at the suggestion of MetLife is; that so?
12 MS. POSNER: She actually applied herself. 13 JUSTICE GINSBURG: But she got a
lawyer that 14 they recommended that she have.
recommended a lawyer to 16 her and also said she could use her own lawyer, which
17 was consistent with the plan design. 18 JUSTICE GINSBURG: But the point is
they 19 came to her and said: Get Social Security disability
benefits. Now,
to get those she would have to show that 21 she is totally and permanently
disabled. 22 MS. POSNER: Correct. 23 JUSTICE GINSBURG: So here is a company that
24 says: Tell the U.S. government that you are totally and
disabled, but -- and then we'll recoup all
11 Alderson Reporting Company 5
10 15 20 25 Official - Subject to Final Review
1 that money that we paid out
to you; but then when we get 2 a chance to look, look it over, we'll say you're
not 3 disabled. Why isn't it appropriate to regard just that 4 set of
circumstances with suspicion?
MS. POSNER: Because, Your Honor, at the 6 time
that that letter was written to the Respondent here 7 in October of 2000, in
fact MetLife had granted her 8 benefits. And the action of helping an employee
perfect 9 their entitlement to Social Security is in fact not a
conflict at
all. It's a fiduciary obligation under the 11 terms of a plan and it helps the
employee as well. 12 JUSTICE GINSBURG: Yes, I'm not questioning 13 that at all.
14 MS. POSNER: When -
JUSTICE GINSBURG: That sounds fine. It's a 16 question
of why, after helping her tell the government 17 that she was totally disabled,
they, after the initial 18 two-year period, turned around and said she's not. 19
MS. POSNER: The -- the reason is -- and
it's unfortunate that often Social
Security makes the 21 same decision that the plan fiduciary has made two years
22 earlier, and the government is looking backwards at 23 certain evidence that
may not be before the ERISA plan 24 fiduciary. The ERISA plan fiduciary at that
point is looking at that evidence at that time and at a
Alderson Reporting Company 5 10 15 20 25 Official - Subject to Final Review
1 change in the terms of the plan. 2 JUSTICE SCALIA: Ms. Posner, it seems to
me 3 that that ought to be looked at with suspicion, whether 4 or not the person
making the decision has a conflict. I
mean that smells bad or doesn't smell
bad, as you say, 6 either way. 7 MS.

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