How does that work? I don't understand

In an announcement May 5, 2008 The Tennessee Department of Commerce and Insurance released a report documenting the results of a multi-state settlement concerning disability claim practices by Unum and its subsidiaries since 2004 and the results are fascinating; 45.1% of group LTD claim decisions were reversed resulting in an additional $558.6M of additional benefits either paid or reserved for future benefit payment.

When you reverse 45.1% of your group LTD claim decisions on appeal you have a fundamentally flawed claim process. Keep in mind the majority of these contracts were likely to be ERISA plans.

Just for fun lets take a look at a portion of the transcript from the oral arguments in the Metlife vs Glenn case argued recently before The US Supreme Court as the justices attempt to discern the standards required to trigger a de novo review when an insurers behavior stemmed from its own self interest creating a conflict in exercising its discretionary authority as both decisionmaker and financial payor under the group LTD policy.

JUSTICE KENNEDY: Does it have to be just 12 the specific decisions? Suppose that
the company does 13 not have clear rules of, what do you call them, 14 firewalls
between the profit side and the claims
processing side. Would that be enough
to cause a 16 greater, more searching standard of review, say de novo? 17 MS. POSNER: I don't think it
would ever 18 result in a de novo review. I think what it is is a 19 factor that
should be weighed with all the other factors
that go to the actual benefits
decision. 21 JUSTICE KENNEDY: So then you're saying, A, 22 the fact that there
is a potential conflict is not 23 enough; B, the fact that there are no
procedures in the 24 company to ensure that the conflict doesn't affect the
judgment, that is not enough either.

1 MS. POSNER: No. I'm not saying that. I'm 2 saying that
if -3 JUSTICE KENNEDY: I'm positing. Does the 4 fiduciary at least have the, the
burden of production to
show that it has established clear lines of
demarcation, 6 firewalls, whatever you call them, within the company? 7 Does it
have at least that obligation going forward? 8 MS. POSNER: No, Your Honor, it
does not, 9 and as the United States -
JUSTICE KENNEDY: Well then, I don't
know 11 what effect you're giving to the fact, as the earlier 12 questions have
indicated, that there is a structural 13 conflict. 14 MS. POSNER: That's a
structural conflict
that ERISA anticipates and, as the United States said in
16 its brief to this court in Pegram v. Herdrich, that 17 ERISA tolerates this dual role and this level of 18
conflict in order to keep these plans that are so vital 19 in our country's
economic interests in underlying the
employee's well-being -21 JUSTICE
KENNEDY: You want us to write an 22 opinion to say that it's irrelevant that a
company does 23 not have procedures to insulate the profit section from 24 the
claims processing section? I'll use those terms.
MS. POSNER: No, Justice
Kennedy, absolutely
7
1 not. But what we are saying is that if there were
such
2 a fiduciary that factor must be weighed, but it doesn't
3 change
the abuse of discretion standard.
4 CHIEF JUSTICE ROBERTS: How does that
work?
I don't understand. You go through, you've got a
6 decision,
whatever, it's a health insurance decision
7 that this procedure -- to
determine that this procedure
8 is not covered under the, the plan, that the
fiduciary
9 has the discretion to make that determination. But you
say,
aha, he's got a conflict of interest, so that's a 11 factor we take into
account. Well, how does -- what 12 does that mean? 13 MS. POSNER: It means again,
remembering 14 that these are claims under 29 U.S.C. 1132(a)(1)(B) for
benefits due under the terms of the plan, it's very 16 important that the
courts remember to look at the terms 17 of those plans -18 CHIEF JUSTICE
ROBERTS: All right, you've 19 got two cases, one where the person does not have
a
conflict of interest under a particular plan, the other 21 where he does.
It's the same decision: We're not going 22 to cover this procedure. How is the
review different in 23 each of those cases as a practical matter?

Of course it is relevant that a company have procedures to insulate the profit section from the claims processing section. That was the impetus behind Unum reorganizing its claims department as a condition of its multi-state settlement. One should keep in mind Unum reversed 45% of its claim decisions while operating under the deferential arbitrary and capricious standard of Firestone

Somehow in these oral arguments Metlife's counsel manages to baffle each and every Justice asking a question and the central 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. Metlife showed up with a knife at a gunfight.