DDBlog

The Supreme Court’s decision in MetLife v. Glenn, No. 06-923, 2008 U.S.LEXIS 5030 (U.S.Sup.Ct. June 19) is certain to have major repercussions in future ERISA litigation. In finding MetLife was conflicted due to its dual role as plan administrator and benefit payor, the Court improved the standing of claimants challenging benefit denials. Some of the key points made in the ruling are the Court’s recognition that ‘’ERISA imposes higher-than-marketplace quality standards on insurers.'’ Although the Court refused to issue new procedural rules or guidelines or set forth a specific test to adjudicate claims under the abuse of discretion standard, the Supreme Court signaled that more penetrating judicial review is necessary. The opinion concluded by citing Universal Camera Corp. v. NLRB, 340 U.S. 474, 490, 71 S. Ct. 456, 95 L. Ed. 456 (1951), as a guide for review of fact finding. There, the Supreme Court held:

‘’We conclude, therefore, that the Administrative Procedure Act and the Taft-Hartley Act direct that courts must now assume more responsibility for the reasonableness and fairness of Labor Board decisions than some courts have shown in the past. Reviewing courts must be influenced by a feeling that they are not to abdicate the conventional judicial function. Congress has imposed on them responsibility for assuring that the Board keeps within reasonable grounds. That responsibility is not less real because it is limited to enforcing the requirement that evidence appear substantial when viewed, on the record as a whole, by courts invested with the authority and enjoying the prestige of the Courts of Appeals. The Board’s findings are entitled to respect; but they must nonetheless be set aside when the record before a Court of Appeals clearly precludes the Board’s decision from being justified by a fair estimate of the worth of the testimony of witnesses or its informed judgment on matters within its special competence or both.'’

Substituting the words “plan administrator” for “Labor Board” in the quote above, the Court has signaled the current lenient regime of claim reviews is over.

The Supreme Court today refused to review the 10th Circuit’s decision in Jewell v. Life Insurance Company of North America, 508 F.3d 1303 (10th Cir. 11/30/2007). Jewell directly conflicted with a ruling issued by the Seventh Circuit, Diaz v. Prudential, 499 F.3d 640 (7th Cir. 8/23/2007). In Diaz, the Seventh Circuit ruled that de novo ERISA proceedings are not review proceedings, while Jewell maintained that the court reviews an administrative record. Our petition can be found on the Daley, DeBofsky & Bryant website - http://www.ddbchicago.com/archives/Jewell%20Pet.Cert.%20final.pdf.

Unfortunately, the Supreme Court’s actions will perpetuate the continuation of a court-made administrative law paradigm in the adjudication of ERISA benefit disputes. Instead of conducting a plenary proceeding with witnesses, courts will continue to render life and death health benefit determinations and disability findings solely by blindly accepting the opinions of doctors retained by insurers without giving claimants the opportunity to test the opinions of those doctors within the crucible of cross-examination.

A new case from California opens the door to challenging disability insurers’ efforts to offset permanent total workers’ compensation awards. In Alloway v. Reliastar Life Ins.Co., 2008 U.S.Dist.LEXIS 34853 (C.D.Cal. April 28, 2008), the court refused to dismiss a challenge to Reliastar’s practice of offsetting permanent total awards. The court found that under California law, the permanent total award is not made for loss of income, which would be a permissible offset, but “are provided for permanent bodily impairment, to indemnify for impaired future earning capacity or decreased ability to compete in an open labor market.” Illinois law is the same. The Illinois Supreme Court has also ruled “a primary purpose of the benefits paid under section 8(e)(18) [820 ILCS 305/8(e)(18)-permanent total disability] is to compensate the employee for the pain and inconvenience represented by the loss of both feet, both legs, both arms or both eyes, while the benefits payable for temporary total disability are calculated to replace his lost current earnings.” Freeman United Coal Mining Co. v. Industrial Com., 99 Ill. 2d 487, 496, 459 N.E.2d 1368 (1984). Thus, we will be challenging long term disability insurers’ offsets of permanent total workers’ compensation benefits.

The briefs have been filed in the Glenn case which will assess whether insurers who administer ERISA claim are acting under a conflict of interest; and, if so, whether the conflict should diminish deference accorded to insurers. The case is being argued on April 23 and a decision is expected by July 1. To view the briefs, the American Bar Assocaton has compiled a complete collection at http://www.abanet.org/publiced/preview/briefs/april08.shtml#metlife

Two courts issued rulings this week upholding the authority of the states to ban the inclusion of discretionary clauses in health and disability insurance policies that trigger an arbitrary and capricious standard of court review in benefit disputes governed by the ERISA law. The pernicious effect of that standard of court review means that claimants need to prove that the benefit claim denial is not merely wrong, but that it is downright unreasonable such that no rational person could have come to such a conclusion. Without discretionary clauses, the de novo standard applies, which means the court weighs the evidence and does not defer to either party. The rulings are American Council of Life Insurers v. Watters, No. 07 cv 631 (W.D.Mich. 2/29/2008) and Standard Insurance Company v. Morrison, cv-06-47-H-DWM (D.Mont. 2/27/2008). Both rulings are well-reasoned and provide a detailed rationale as to why the state regulations are not preempted by the ERISA law. These rulings will hasten the final demise of discretionary clauses.