ERISA'S CONFLICT OF INTEREST DILEMMA
How Trust Law and Contract Law Mix Like Oil and Water
By: Michael A. McKuin
Under ERISA, insurance companies, which must by their very nature protect their own interests, are called "fiduciaries", charged by law with the responsibility for protecting your interests (at their expense). Of course, that's silly and if they don't, there are often no consequences. However, there are rays of hope breaking the horizon. federal courts (particularly here in the 9th Circuit) are beginning to understand and appreciate the depth and breadth of this conflict of interest. The 9th Circuit has addressed the problem in a line of cases, starting with Abatie v. Alta Health & Life Insurance Company, 458 F.3d 955 (9th Cir.; 2006); and now more recently, Saffon v. Wells Fargo & Co. Long Term Disability Plan, 522 F.3d 863, 866-67 (9th Cir.2008), Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623 (9th Cir. 2009); and Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666 (9th Cir., 2011).
In Abatie, the 9th Circuit held that even where the standard of review is the deferential standard, if a fiduciary has a dual role as both the funding source and the claims administrator of the Plan, that poses a conflict of interest that must be taken into account. Therefore, in Abatie the 9th Circuit established "a more comprehensive approach to ERISA cases in which a conflict of interest exists. As we will explain below, abuse of discretion review, tempered by skepticism commensurate with the plan administrator’s conflict of interest, applies here." Abatie, supra at 959.
The pre-Abatie approach was set forth in Atwood v. Newmont Gold Co. Inc., 45 F.3d 1317, 1323 (9th Cir. 1995). Under Atwood, a plan participant was required to present "material, probative evidence, beyond the mere fact of the apparent conflict, tending to show that the fiduciary’s self-interest caused a breach of the administrator’s fiduciary obligations to the beneficiary." Id. at 1323. If the participant did so, then the burden shifted to the plan to prove that the conflict of interest did not affect its decision to deny benefits. If the Plan could not carry that burden, the standard of review would be elevated to de novo. The 9th Circuit, in Abatie, found that this burden-shifting analysis of Atwood failed to follow the Supreme Court precedent of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989), in that it placed "an unreasonable burden on ERISA plaintiffs", which "requires that we overrule it". Abatie, supra at 966.
Therefore, Abatie overruled Atwood, replacing its burden-shifting approach with an abuse of discretion standard, but very different from the traditional abuse of discretion standard of review. "Going forward, plaintiffs will have the benefit of an abuse of discretion review that always considers the inherent conflict when a plan administrator is also the fiduciary, even in the absence of 'smoking gun' evidence of conflict." Id. at 969. Under Abatie, review is now colored by consideration of all the relevant facts and circumstances. Id. at 968-69. Essentially, this review consists of a weighing of both procedural and substantive "factors", which can vary depending on the facts of each individual case. Under this scheme, the District Courts (i.e. the trial courts) are given considerable leeway to decide whether and to what extent the conflict of interest affected the final decision to pay or deny a claim. Judicial review now involves "something akin to a credibility determination about the insurance company’s or plan administrator’s reason for denying coverage under a particular plan and a particular set of medical and other records." Id. at 967. A trial court’s review is now to be "informed by the nature, extent, and effect on the decision-making process of any conflict of interest that may appear in the record." Id. The 9th Circuit concluded, "We recognize that abuse of discretion review, with any ‘conflict . . . weighed as a factor . . . is indefinite. We believe, however, that trial courts are familiar with the process of weighing a conflict of interest."
Even the U.S. Supreme Court has weighed in on the issue in Metropolitan Life Ins. Co. v. Glenn 554 US 105, 128 S. Ct. 2343, 2008 171 L. Ed. 2d 299 (2008). Although the Glenn decision did not cite Abatie, it in essence adopted the same approach as Abatie, regarding the weighing of factors, including procedural irregularities. In fact, the 9th Circuit has cited Abatie and Glenn in tandem in published opinions on several occasions: See, e.g. Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, (9th Cir., 2011); Muniz v. AMEC Constr. Mgmt., 623 F.3d 1290, (9th Cir., 2010); Montour v. Hartford Life & Accident Ins. Co., 588 F.3d 623, 628 (9th Cir. 2009); Nolan v. Heald College, 551 F.3d 1148; (9th Cir. 2009); Vaught v. Scottsdale Healthcare Corporation Health Plan, 546 F.3d 620 (9th Cir., 2008); and Burke v. Pitney Bowes Inc. Long-Term Disability Plan, 544 F.3d 1016 (9th Cir. 2008). In Burke the Ninth Circuit even referred to the approach for determining abuses of discretion as "the newly-established MetLife/Abatie standard". Id. at 1029.
This writer was initially skeptical about the Abatie / Glenn approach. The old Atwood test was not really that bad because it gave a claimant a shot at de novo review. However, subsequent 9th Circuit cases applying Abatie / Glenn have so refined this analytical framework, that it is now perhaps more "claimant-friendly" than ever when it comes to evaluation of an insurer's long term disability claim denial. Montour and Salomaa, in particular, clarified that such factors to be weighed by the district courts (in determining if an insurance company’s conflict of interest affected its decision to deny a claim) include such things as: (1) Did the insurance company rely on mere paper reviews (in the face of better evidence); (2) Did the insurer cherry-pick the evidence; (3) Did the insurer condition an award of benefits on requiring evidence from a claimant that cannot exist (e.g. “objective evidence”); (4) Did the insurer ignore an award of Social Security Disability benefits; (5) Did the insurer shift rationales in its review of a claim; (6) Did the insurer fail to engage in a meaningful dialogue with the claimant. Many of these factors were not new. But the emphasis given to them by the 9th Circuit, in Salomaa, for example, more firmly established their importance.
Revised: December 2014
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