VOL. 22, NO. 4
WINTER 2009
BENEFITS LAW
JOURNAL
Judge Posner Explains MetLife v. Glenn:
Clarifying What the Supreme Court
Really Meant
I
n a judicial version of P. G. Wodehouse’s Jeeves and Wooster, Judge
Posner of the Seventh Circuit (serving as the butler Jeeves) recently
untangled the Supreme Court’s muddled ruling in Metropolitan Life
Ins. Co. v. Glenn. Glenn concerned the proper judicial standard for
reviewing a claims denial by a conflicted fiduciary. Since a large
percentage of ERISA disputes revolve around a denial of benefits,
Judge Posner’s clear thinking in Marrs v. Motorola should be welcomed by courts and plan administrators alike. But, let’s start at the
beginning.
Since 1989, if a plan document contained a talismanic statement
granting the administrator the “discretion” to decide claims, litigation over a denied claim is resolved in the plan’s favor unless the
decision was unreasonable. (Without the magic words granting discretion, the court will review the denial de novo.) This deferential
standard of ERISA review was mandated by the Supreme Court’s
landmark Firestone v. Bruch decision, 489 U.S. 101, which extended
to ERISA plans the common law principle that the settlor of a trust
may give the trustee discretion to determine which beneficiary
gets what.
There is a perceived distinction between trust/beneficiary and
plan/participant controversies. Disputes over trust funds generally
are zero sum contests (what Beneficiary #1 receives reduces what’s
left for the others), while in the ERISA context, the plan (funded by
an insurance company or employer) may appear to have “unlimited”
money to pay claims. Of course, higher claims eventually lead to
increased plan costs and lower benefits and/or wages, making the
distinction illusory.
From the Editor
Still, the perception of open-ended funding to pay plan benefits,
and the understandable difficulty in ruling against retirees, widows,
and the sick and disabled when they have a reasonable argument
supporting their claim, have troubled a number of courts. Skeptics
questioned whether any employer or insurance company could be
a fair claims administrator when it would be paying the claim out of
its own pocket. Thus, over the 19 years since Firestone was issued,
a dispute has simmered between empathetic and cold-hearted circuit
courts over how much deference to give a conflicted administrator (or,
put another way, how reasonable the administrator needs to be). Over
time, a number of courts developed various versions of a sliding scale
approach: the more conflicted the administrator, the less deferential
the review. Other courts preferred a de novo–like standard, based on
whether the plan’s decision maker seemed to have too much of an
economic interest at stake.
The controversy finally prompted the Supreme Court in 2008 to
take a second look at this key issue in Metropolitan Life Ins. Co. v.
Glenn, 128 S. Ct. 2343. Glenn involved an employer-sponsored longterm disability (LTD) plan of which MetLife was both the insurer and
the claims administrator. MetLife had determined that Ms. Glenn no
longer satisfied the LTD plan’s “any occupation” disability definition
and cut off her benefits. Ms. Glenn appealed the denial and, after
roughly six years of administrative and judicial action, the case came
before the Supreme Court. The nine Justices agreed both that the
denial was proper and with Firestone’s basic premise that Congress
intended the courts to apply a common law–like deferential standard
of review. But with a five-person majority opinion by Breyer, a concurrence by Roberts, a concurrence/dissent by Kennedy, and a dissent by Scalia, that is about all they agreed on.
The Glenn majority ruled that the existence of a conflict is only
one of many factors to be considered by a reviewing court. Reining
in both the pro-participant virtual de novo and strict deferential
approaches, the majority Justices adopted a vague and un-calibrated
sliding scale rule. Essentially, the ruling left it to the lower courts
to figure out how much weight, if any, to give the existence of an
alleged conflict. Or, in the pithy dissent of Justice Scalia, the majority’s standard called on the trial judge to “chuck” the conflict and all
the other relevant factors “into a brown paper bag and shake [it] up
to determine the answer.”
Enter Judge Posner to offer a workable standard of judicial review
by explaining what the majority in Glenn really intended. Marrs v.
Motorola, 7th Cir., No. 08-2451 (8/14/09), also involved an LTD plan,
which gave Motorola the discretion to decide claims and interpret
its terms. Mr. Marrs had been receiving benefits for a psychiatric disability for six years when Motorola amended the LTD plan to add a
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From the Editor
two-year cap on disability benefits resulting from mental-, nervous-,
alcohol-, or drug-related conditions. (The Mental Health Parity Act
applies only to health plans.) Despite the new limit, Motorola continued providing benefits to Mr. Marrs for an additional two years before
stopping payment. Running unsuccessfully through the gamut of
plan-level administrative appeals and then the District Court, the participant found himself before Judge Posner and the Seventh Circuit.
The parties agreed: that Mr. Marrs’s disability came under the
mental health limitation; that welfare benefits are not covered by the
ERISA vesting rules; and that Motorola had the authority to amend
the plan. The key issue before the Seventh Circuit therefore was
whether the LTD plan itself provided that a disabled participant in pay
status was vested in his benefits—in other words, whether Motorola
had the right to change the rules mid-disability. The plan stated that
plan amendments cannot “adversely affect the rights of any participant to receive benefits with respect to periods of disability prior to
adoption [of the amendment].” As the administrator, Motorola interpreted that to mean already-paid benefits could not be taken away,
but that future disability payments could be reduced or eliminated.
Mr. Marrs argued that because Motorola labored under a conflict of
interest, under Glenn its decisions were subject to a “more penetrating inquiry” by the court. This gave Judge Posner an opportunity to
expound on Glenn. He began by confirming that a deferential standard of judicial review extends beyond deciding claims and includes
an administrator’s interpretation of the plan terms, as long as the plan
document grants discretionary authority “to disambiguate ambiguous language.” [Note: The Supreme Court has granted cert to review
a Second Circuit holding that did not defer to Xerox’s interpretation
of its pension document but, instead substituted its own reading of
the plan. Conkright v. Frommert, U.S., No. 08-810 (6/29/09). A future
issue of Benefits Law Journal will have more to say on this.]
Next, Judge Posner discussed whether and how a conflict of interest might influence an administrator’s decision. He first noted that
since the administrator is also paying the claim, in close cases it has
a natural incentive to deny benefits. But the Court also recognized
that the employer might take into account its interest in protecting its
reputation for fair dealing in terms of recruiting, retaining, and motivating employees. Additionally, Judge Posner observed that employees in the trenches who actually make claims decisions may not be
overly concerned with the cost to their employer of granting a claim.
Nevertheless, he reasoned that short-term cost savings may influence
the decision rendered in a benefits appeal, especially at a financially
strapped company.
Finally, with an almost audible sigh, he noted that the Glenn majority ruled that a “potential conflict of interest of a plan administrator
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From the Editor
[must be] given weight in a judicial review of the denial of benefits.” The question after Glenn, Judge Posner posed, is “how much
weight.” The Marrs opinion then proceeds to quote extensively from
the majority opinion in Glenn that in deciding whether an administrator was reasonable, the trial court in each case must consider
the particular circumstances (history of bias, Chinese wall around
decision makers, etc.). Next, Judge Posner jumped to Justice Scalia’s
dissenting opinion that a decision may be reasonable even if another
reasonable person might reach the opposite conclusion, quoting from
his dissent that “an administrator’s conflict is relevant only if it actually
and improperly motivates the decision.”
Getting to pay dirt, the Seventh Circuit concluded that there are two
ways to read the Glenn majority. While it could be argued that the
Supreme Court wanted to establish an amorphous balancing test of unweighted factors, it “is not clear that the rudderless balancing test . . .
was intended to be [the standard].” Instead, courts can recognize that
the deferential standard in Glenn requires only that the administrator’s
decision be reasonable, not “clearly correct.” If the facts indicate the
plan administrator was “decisively influenced” by the conflict, the
decision must be set aside—just as the ruling of a conflicted judge
who should have recused himself or herself is thrown out. However,
since just about every plan administrator labors under some form of
conflict, it is the “gravity of the conflict . . . that is critical.”
Like Jeeves delicately rephrasing how the blue-blooded Bertie
intended to resolve a perplexing problem, Judge Posner posited that
if the Supreme Court truly wanted to establish a balancing test without a scale, we would of course all follow. However, he suggested
that “implicit” in the Glenn decision is that the reviewing court
should simply examine whether the conflict was so severe as to
actually have been the key consideration in the ruling on the plan.
Judge Posner ended the Seventh Circuit’s opinion by noting that
because a conflict may unconsciously influence an administrator’s
decision, the Glenn majority observed that plans can institute safeguards to avoid such influence. Thus, the Seventh Circuit held that
nothing in the record indicates that Motorola was conflicted seriously
enough to decisively influence its denial of benefits. Therefore its
interpretation of the plan was reasonable, and poor Mr. Marrs was
out of luck.
From Firestone to Glenn to Marrs leads to five observations:
•
Optimistic. Because Glenn was muddled and Judge Posner
is Judge Posner, Marrs will become the de facto judicial
standard: namely that a conflicted administrator’s denial of
a benefits claim must be upheld if it is reasonable (even
if imperfect), unless it can be shown that the conflict was
sufficiently serious.
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From the Editor
•
Pessimistic. In an effort to stay attuned to their compassionate side, some courts (at least those outside of the Seventh
Circuit) will wield the Glenn paper bag approach to sometime overturn plan administrators.
•
Realistic. Plaintiffs will continue to use Glenn to engage in
shotgun discovery for evidence of a serious conflict. Just by
increasing the cost and inconvenience of litigation, they’ll
hope to obtain a more favorable settlement.
•
Cryptic. District courts generally can smell a rat and, even
under a deferential standard of review, specious denials by a
conflicted administrator that on their face appear reasonable
will generally be examined, and somehow, overturned.
•
Prophylactic. All plan documents should include broad discretionary authority for administrators to decide eligibility
and claims, and interpret the documents. Wherever possible,
Chinese walls should be erected to insulate administrators
from the economic impact of their decisions.
David E. Morse
Editor-in-Chief
K&L Gates LLP
New York, NY
Reprinted from Benefits Law Journal Winter 2009, Volume 22,
Number 4, pages 1-5, with permission from Aspen Publishers, Inc.,
Wolters Kluwer Law & Business, New York, NY, 1-800-638-8437,
www.aspenpublishers.com
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