The Standard of Review in ERISA Benefit Denials: Metropolitan v. Glenn in the Second Circuit

December 2, 2009

The following article was prepared for publication in the Newsletter of the Labor and Employment Section of the Connecticut Bar Association. It was prepared for experienced ERISA practitioners. If you are a prospective client, you may want to review other articles posted on the Employment Law practice area page on this website that are intended for you, at Employment Law .

1. Introduction/P>

The Supreme Court decision last year in Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343, 171 L. Ed. 2d 299 (2008) (hereafter, "Glenn") promised to change the landscape of courts' review of benefit denials under ERISA when the same entity that pays the claim decides the claim. [1] The effect of this inherent conflict on the standard of review was not uniform among the circuits prior to Glenn. For instance, in the Sixth Circuit, in which the Glenn case originated, the inherent conflict resulted in a sliding scale review, with a less deferential standard of arbitrary and capricious, depending on the degree to which the conflict affected the decision. In the Second Circuit, however, the inherent conflict was only a factor if the claimant could show that it actually affected the decision. If the claimant did show this, though, the review of the claim was de novo rather than arbitrary and capricious. Sullivan v. LTV Aero. & Defense Co., 82 F.3d 1251, 1256 (2d Cir. N.Y. 1996). The Supreme Court adopted the Sixth Circuit's analysis, and affirmed its decision in the Glenn case.

This article reviews how the Second Circuit and Connecticut , New York and Vermont district courts have applied the Glenn decision, along with some illustrative cases from other circuits, in the year since the decision was issued. So far, the effect of the Glenn decision has been evolutionary rather than revolutionary. There are few cases where it clearly made a difference in the standard of review. Courts are also still determining how the decision will affect that scope of allowable discovery. The article discusses the effect of the case in these areas, and what consequences the decision will have in the difficulty and expense of litigating benefit denial cases.

2. The Glenn Decision and it Effect in the Second Circuit

The case of McCauley v. First Unum Life Ins. Co., 551 F.3d 126 (2d Cir. 2008) discusses the effect of Glenn on Second Circuit case law regarding the appropriate standard of review. The Court remarked that before Glenn, the inherent conflict would only play a role in the review if the claimant could show that the conflict actually played a role in the denial decision. Sullivan, supra. If the claimant could show this, then the review was de novo rather than arbitrary and capricious. After Glenn, the inherent conflict had to be considered to some degree, depending on the presence of procedural irregularities or evidence that the conflict had affected the decision, but the review would remain arbitrary and capricious rather than de novo, so long as the plan reserves discretion to the administrator.

Prior to Glenn, the standard of review was largely binary: de novo review where the court acted like a claims administrator; or arbitrary and capricious where the decision is upheld if there is any reasonable justification for the decision. Now, with a flexible arbitrary and capricious standard, each case will be a new battle, with the court having to weigh the variety of factors discussed below in determining exactly where the standard of review will be in each case. Montour v. Hartford Life & Accident Ins. Co., 582 F.3d 933, 940 (9th Cir. Cal. 2009) ("The weight the court assigns to the conflict factor depends on the facts and circumstances of each particular case . . . Our court has implemented this approach by including the existence of a conflict as a factor to be weighed, adjusting the weight given that factor based on the degree to which the conflict appears improperly to have influenced a plan administrator's decision."). Justice Scalia claimed in his dissent in Glenn that such a multi-factor balancing test was "nothing but de novo review in sheep's clothing: "mindful of being deferential, [the court] should nonetheless consider all the circumstances, weigh them as it thinks best, then divine whether a fiduciary's discretionary decision should be overturned." Glenn at 2356. He stated "this [test] makes each case unique, and hence the outcome of each case unpredictable." 128 S. Ct. at 2356.

Judge Posner has pointed out the same potential problem:

That sounds like a balancing test in which unweighted factors mysteriously are weighed. Such a test is not conducive to providing guidance to courts or plan administrators. "Multifactor tests with no weight assigned to any factor are bad enough from the standpoint of providing an objective basis for a judicial decision; multifactor tests when none of the factors is concrete are worse."

Marrs v. Motorola, Inc., 577 F.3d 783, 788 (7th Cir. 2009).

How this multi-factor test will actually be applied by the Second Circuit hasn't been determined yet. The only other Second Circuit decision substantively to discuss Glenn is Hobson v. Metro. Life Ins. Co., 574 F.3d 75, 79 (2d Cir. 2009). There, the Court declined to accord any weight to the inherent conflict because the claimant presented weak evidence of any bias or procedural irregularities.

Connecticut district courts generally agree that Sullivan is no longer viable. One area in which the district courts appear to have disagreed is the continued viability of Sullivan after Glenn. In Lanoue v. Prudential Ins. Co. of Am., 2009 U.S. Dist. LEXIS 94896 (D. Conn. 2009), Judge Margolis stated the rule of Sullivan that a claimant was entitled to de novo review upon showing a conflict actually influenced a decision, but then stated that after Glenn, the same situation would result in arbitrary and capricious review. Accord. Sisavang Danouvong v. Life Ins. Co. of N. Am., 2009 U.S. Dist. LEXIS 90748 (D. Conn. , 2009) (Arterton, J.). Two Connecticut district court decisions implied that even after Glenn, review is de novo if the claimant shows that the inherent conflict actually affected the decision. See, Tritt v. Automatic Data Processing, Inc., 2008 U.S. Dist. LEXIS 98327, *6 (D. Conn. Dec. 1, 2008) (Droney); Bregman v. Hartford Life & Accident Ins. Co., 2008 U.S. Dist. LEXIS 72500, *12 - 13 (D. Conn. Sept. 23, 2008) (Droney). Unfortunately from a claimant's perspective, Judge Margolis' view is probably correct. Both Glenn and McCauley state that even then the claimant shows that a conflict of interest influenced the decision, the review is still arbitrary and capricious:

Following Glenn, a plan under which an administrator both evaluates and pays benefits claims creates the kind of conflict of interest that courts must take into account and weigh as a factor in determining whether there was an abuse of discretion, but does not make de novo review appropriate. See Glenn, 128 S. Ct. at 2348. This is true even where the plaintiff shows that the conflict of interest affected the choice of a reasonable interpretation. See id.

McCauley v. First Unum Life Ins. Co., 551 F.3d 126, 133 (2d Cir. N.Y. 2008).

a) Procedural Irregularities

Under Glenn, a crucial determination in the weight to give to the inherent conflict is whether "circumstances suggest a higher likelihood that [the inherent conflict] affected the benefits decisions." Glenn 128 S. Ct. 2351. Among the factors that the Court stated should lead a court to weigh the inherent conflict heavier against the insurer is if the insurer has a history of biased claims administration. A factor that would reduce the weight "perhaps to the vanishing point" is structural steps to reduce bias and promote accuracy. Id. The courts in Am. Soc'y for Technion-Israel Inst. of Tech., Inc. v. First Reliance Std. Life Ins. Co., 2009 U.S. Dist. LEXIS 82306 (S.D.N.Y. Sept. 3, 2009) and Fortune v. Group Long Term Disability Plan, 637 F. Supp. 2d 132, 144 (E.D.N.Y. 2009) both cited this provision in finding that sufficient steps had been taken to avoid bias, and thus the inherent conflict was given no weight.

The Glenn court stated specific facts that were present in the Glenn decision that properly lead the lower courts to weigh the inherent conflict against the insurer in that case, MetLife: MetLife required the claimant to file for Social Security Disability Income, but then ignored social security's benefit determination; MetLife had emphasized a certain medical report that supported its position while deemphasizing reports that were harmful; and had not provided vocational and medical experts with all the relevant evidence.

The Supreme Court made clear that the decision did not set forth a comprehensive list or detailed set of instructions regarding how to weigh the inherent conflict, stating that it was not creating a formula or "talismanic words that can avoid the process of judgment." Glenn at 2352. A number of district courts have discussed these and other procedural factors that should be taken into account in determining the weight to be given to the inherent conflict: Among the procedural irregularities identified in cases after Glenn are the following:

Denying benefits after benefits have been paid for a substantial period of time without a significant change in the claimant's condition or the applicable standard of disability. Smith v. Novelis, 2009 U.S. Dist. LEXIS 90094 (N.D.N.Y Sept. 29, 2009).

No financial separation of claims administration and the company's financial interests. The court apparently focused on the fact that the claim administrators were discussing claims reserves, showing that they were considering the effect of the decision on the company's finances. Solomon v. Metro. Life Ins. Co., 628 F. Supp. 2d 519, 529 (S.D.N.Y. 2009).

Failure to assess functional capacity prior to discontinuing benefits. Maxwell v. Metro. Life Ins. Co., 2009 U.S. Dist. LEXIS 78482 (N.D.N.Y Sept. 1, 2009).

Failure to consider that the claimant could have been disabled while he was working. Id. (Judge Posner issued a great decision on this point in Hawkins v. First Union Corp. Long-Term Disability Plan, 326 F.3d 914, 918 (7th Cir. 2003)

Cherry-picking parts of a treater's medical opinions helpful to the insurer while ignoring the harmful parts. Magee v. Metro. Life Ins. Co., 632 F. Supp. 2d 308, 321 (S.D.N.Y. 2009)

Claims administrators who were told to ignore social security determinations of disability. Solomon v. Metro. Life Ins. Co., 628 F. Supp. 2d 519, 529 (S.D.N.Y. 2009); but see, Kindig v. Anthem Life Ins. Co., 2009 U.S. Dist. LEXIS 27419 (W.D.N.Y. Mar. 30, 2009) (when social security determination issued after initial appeal denial, doesn't shift weight significantly).

Failure of the person deciding the appeal to conduct an independent analysis of the initial decision. Arnone v. CA, Inc., 2009 U.S. Dist. LEXIS 11542 (S.D.N.Y. Feb. 13, 2009) (inherent conflict weighed heavily when person reviewing the allegations of wrongdoing on which the company based denial of severance merely accepted the factual determinations of the employees who had made the initial decision).

Evidence that the reviewing doctors' financial interests were not separate from the insurers, especially when there was a continuing relationship between the doctors and the insurer, and the correspondence between the insurer and the doctors cast doubt on their independence. Burgio v. Prudential Life Ins. Co. of Am., 253 F.R.D. 219, 231 (E.D.N.Y. 2008)

b) Discovery

Courts interpreting Glenn have disagreed whether it changes the standard for permissible discovery. Generally, discovery in ERISA benefit denial cases is limited to the record developed in the course of the administrative appeal. Muller v. First Unum Life Ins. Co., 341 F.3d 119, 125 (2d Cir. 2003). Even prior to Glenn, discovery relating to potential conflicts of interest was sometimes discoverable if there was evidence of bias. Locher v. UNUM Life Ins. Co. of Am., 389 F.3d 288, 294 (2d Cir. 2004); DeFelice v. Am. Int'l Life Ins. Co, 112 F3d 61, 67 (2d Cir. 1997). The question is whether Glenn has expanded this scope.

Most courts have held that Glenn means there is a wider scope of discovery:

Were there any doubt about [allowing non-record discovery], Glenn removed it. It rejected special procedural or evidentiary rules and, in this Court's view, thus abrogated the limitations on discovery unique to ERISA cases . . . Moreover, it provided significant guidance for this case in its comments concerning the manner in which conflicts of interest are to be considered in such cases.

Hogan-Cross v. Metro. Life Ins. Co., 568 F. Supp. 2d 410, 415 (S.D.N.Y. 2008)

Other courts have cited Glenn in supporting non-record discovery. Kruk v. Metro. Life Ins. Co., 2009 U.S. Dist. LEXIS 46454 (D. Conn. May 26, 2009); Kagan v. UNUM Provident, 2009 U.S. Dist. LEXIS 100955 (S.D.N.Y. Oct. 29, 2009) (citing Glenn in allowing discovery regarding persons involved in original 2002 denial in connection with an appeal from a reassessment performed in connection with UNUM's 2005 50-state settlement). In Mergel v. Prudential Life Ins. Co. of Am., 2009 U.S. Dist. LEXIS 85594 (S.D.N.Y. Sept. 1, 2009), the insurer tried to claim that Glenn's endorsement of arbitrary and capricious review even when an inherent conflict existed meant that discovery outside the record was not permitted. In rejecting this argument, the insurer was confusing the standard of review with the standard for discovery. At least in some instances, Glenn may not mean that there is expanded discovery. In both Strope v. Unum Provident Corp., 2009 U.S. Dist. LEXIS 19383 (W.D.N.Y. Mar. 4, 2009) and Kellner v. First Unum Life Ins. Co., 589 F. Supp. 2d 291, 304 (S.D.N.Y. 2008), the courts refused to order additional discovery after the Glenn decision was issued.

Glenn also makes it more likely that discovery of claims practice history may be permitted. Glenn states that a history of biased claims administration is one factor in determining the weight to give the inherent conflict, so discovery regarding a history of biased claim procedures should be allowed. Glenn, 128 S. Ct at 2351. In Siemionko v. Bldg. Serv. 32B-J Pension Fund, 2009 U.S. Dist. LEXIS 92131 (E.D.N.Y. Sept. 30, 2009) and Durakovic v. Bldg. Serv. 32B-J Pension Fund, 2009 U.S. Dist. LEXIS 66523, at *14 (E.D.N.Y. July 31, 2009), the courts denied discovery that would tend to show a conflict of interest on grounds there was no evidence, based on the courts' own survey of cases, that the plans had a history of unfairly denying benefits. It is hard to see how in a normal disability denial case counsel could conduct any survey of cases that would be anything other than anecdotal, but each case decided against an insurer should increase the likelihood that claims practice discovery will be ordered in future cases.

3. Conclusion

ERISA benefits litigation in the Second Circuit had tended not to involve extensive motion and discovery practice, though there are certainly exceptions. The standard of review and scope of discovery were well-established, depositions were absent or few and short, and some case could be decided on a "trial on the papers" that did not involve actual testimony. Muller v. First Unum Life Insurance Company, 341 F.3d 119, 124 (2d Cir. 2003)

After Glenn, litigating ERISA benefits cases is likely to be more expensive. The standard of review, while likely to be arbitrary and capricious, may be subject to extensive motion practice. Discovery will be more extensive and likely to require frequent motions to compel as the scope of permissible non-record discovery is determined. To the extent there is documentary or testimonial evidence of conflicts of interest, "trials on the papers" are less likely to occur. While these effects have not yet been significantly reflected in cases decided to date, practitioners in this area are probably seeing the changes now in their practices, and can expect to see them in the future in the case law.

[1] For those not familiar with ERISA benefit litigation, the decision of a plan to deny benefits to a claimant (which most commonly arises in connection wit