MetLife and Benefit Denials: The Good, the Bad and the Ugly

MetLife and Benefit Denials: The Good, the Bad and the Ugly

Last month, the United States Supreme Court addressed the issue of how courts should review a benefit plan’s denial of an application for benefits. The results were mixed for workers and retirees.

A little background first. An employee submits a claim for benefits from a pension, disability or health plan. The plan’s claims administrator denies the request for benefits. The employee appeals the denial to the plan. The plan turns down the appeal.

The employee’s next step is to go to court. What should a court do? Should it hear evidence, look carefully at the documents, and reach an independent decision on whether the employee should get her benefits? Or should it simply rubber-stamp the plan’s decision?

Almost 20 years ago, in a case called Firestone v. Bruch, the Supreme Court said courts should generally rubber-stamp decisions unless the plan “abused its discretion.” But, what does “abuse discretion” mean? One judge said that a plan abuses its discretion only if its decision is “off the wall.”

In the Firestone case, the Supreme Court also ruled that, when a court decides whether a plan has abused its discretion, one factor it should consider is whether the plan administrator had a conflict of interest when denying the claim for benefits. As can be expected, conflicts of interest can frequently occur, especially if the entity responsible for approving the claim is the same entity responsible for paying the benefit. In the Firestone decision the court did not offer any guidance on how to tell whether the plan administrator had a conflict of interest or what a court should do if there was a conflict of interest.

These were the questions answered by the Supreme Court when it decided MetLife v. Glenn.

These are the basic facts in MetLife v. Glenn. Wanda Glenn was covered by a disability insurance plan, which was managed by MetLife. She applied for disability benefits, which MetLife, as the insurer, would have had to pay out of its own pocket. MetLife denied the claim and her appeal.

Ms. Glenn sued MetLife. MetLife claimed that its decision should be upheld because it did not abuse its discretion in rejecting the benefit application.

Ms. Glenn claimed that MetLife had a conflict of interest because it denied a benefits claim it would have had to pay for, so the Court should not simply rubber-stamp the company’s decision. It should make its own independent decision, after considering the evidence and the terms of the plan.

MetLife replied: we don’t have a conflict of interest; we are just an insurance company making a routine benefit denial.

So what did the Supreme Court decide?

Was there a conflict? The Supreme Court said that, since MetLife was deciding whether it had to pay a benefit out of its own pocket, it had a conflict of interest. This part of the decision is obviously good for employees.

What should a court do when there is a conflict? Ms. Glenn’s attorneys argued that because there was a conflict of interest, the trial court should disregard the plan’s decision and make an independent judgment as to whether she is entitled to benefits. The Supreme Court disagreed, stating that, even though MetLife had a conflict of interest, the court should have upheld the benefit denial unless MetLife had abused its discretion. In deciding whether MetLife abused its discretion, the court should have considered the conflict as “a factor” when making its decision. (The Supreme Court did find that, in this case, MetLife had abused its discretion, so Ms. Glenn won.)

Unfortunately, the Supreme Court did not provide trial judges with any real instruction on how much weight they should give to conflicts of interest. Without instruction, judges will have to wing it. And when pro-business judges wing it, they will probably de-emphasize any conflict of interest and side with the plan if the benefit denial passes the “off the wall” test. Combined with the vagueness of what constitutes an “abuse of discretion,” MetLife v. Glenn ends up being a decidedly mixed bag for workers and business.

Want to know more? Read my in-depth discussion of MetLife v. Glenn.