Tuesday, August 12, 2008

Supreme Court's MetLife Decision Changes The Landscape for Discovery

MetLife has been creating a lot of ERISA law lately, and not all of it helpful to insurers.  

Discovery in benefit denial cases has always been a trickier subject than it should be.  Traditionally, in those cases in which the court evaluates claims administrators' decisions for an abuse of discretion, insurers and other defendants have long maintained that no discovery is appropriate because the job of the courts is merely to evaluate the administrative record to determine whether the administrators' decisions were rational (i.e., not an abuse of discretion).

Plaintiffs (most often participants and beneficiaries of employer-sponsored heath insurance and disability insurance policies) maintained that at a minimum, they should be permitted to conduct discovery into whether the administrator had a conflict of interest that affected its decision making.  An example might be where the individual who makes the claim determination gets a bonus tied to how many claims he or she rejects.  Courts have long held that where there is such a conflict of interest, that the level of deference paid to the administrator's determination will be significantly attenuated.  As a result, plaintiff's generally want to get as much discovery as possible related to the conflict.

This battle played out in hundreds, if not thousands, of benefit cases in federal courts all over the country.  In some courts some plaintiffs sometimes prevailed, but at the same time the approach of other federal courts has been to limit severely the scope of discovery available to plaintiffs in such cases.

In its recent decision in Metropolitan Mutual Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008), the Court held that whenever the same entity is required to make the claims decision and also to pay the claim, there is always a conflict of interest.  The Court specifically suggested, inter alia, that trial courts might consider an insurer's "history of biased claims administration,"  whether the administrator "has taken active steps to reduce potential bias and promote accuracy," and whether the administrator has imposed "management checks that penalize inaccurate decisionmaking, irrespective of whom the inaccuracy benefits."  Id. at 2351.

Though one might have thought this would resolve the issue once and for all, just two weeks ago I had an insurer's attorney express to the court at a case management conference that, in light of the MetLife decision, no discovery is appropriate because her client (also MetLife), as both the payor and the decision-maker, was conflicted as a matter of law, and no further inquiry was required.

That's an interesting position, but the one post-MetLife court that has considered it has rejected it, and adopted the position that discovery that is reasonably calculated to lead to the discovery of admissible evidence of the scope and effect of an insurer's conflict is appropriate.  In Hogan-Cross v. Metropolitan Life Insurance Co., --- F. Supp. 2d ---, 2008 WL 2938056 (S.D.N.Y. 2008), the court could not have expressed my sentiments better: "[E]ach case must be considered on its own merits.  Blunderbuss attempts to cut of discovery on the ground that it never or rarely should be permitted in [ERISA benefit denial] cases, whatever their merits before Glenn, no longer have merit."  Id. at *4.

Blunderbuss is such a great word.

If you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.

Monday, June 16, 2008

Welcome to "an eye single"

Allow me to introduce you to my ERISA blog. ERISA was enacted by congress to reconcile a number of competing policy interests, but principally to mandate duties, procedures, and practices that would protect the assets of employee benefit plans from mismanagement and malfeasance. I've been working primarily in matters relating to the Employee Retirement Income Security Act of 1974, as amended, since 1995.

There are some particularly unfortunate aspects of the way ERISA was drafted and has come to be interpreted over the years. For example, the lack of a punitive remedy for bad faith denials of benefits by self-serving insurance companies has caused virtually every major health and disability insurer in the U.S. to adopt practices designed to repel contractually valid benefit claims, purely for profit. [Under state law, insurers frequently face punitive damages for bad faith denial of claims; under ERISA, those same insurers will never have to pay more than the insurance benefit they would have to pay if they honored their insurance contract. So they delay and obfuscate as long as possible in order to keep their money, and wear down their insureds] Another example is the Supreme Court's consistent interpretation of the phrase "other appropriate equitable relief" in ERISA section 502(a)(3) to mean "remedies that were available in British courts of equity." We continue to believe that a more appropriate interpretation of "equitable" in that connection is "fair," but we're not Supreme Court Justices, and we have to work with what they give us.

On the other hand, ERISA continues to create some incredibly powerful protections for employees: the ability to obtain the equivalent of class relief under 502(a)(2) without the necessity of a burdensome class action law suit; a claim regulation promulgated by the D.O.L. that mandates a set of practices and procedures for communicating with employees such that they can actually understand what their insurers are telling them; strict liability for self-dealing under ERISA section 406; and let's not forget ERISA's fiduciary duties generally: the highest duties known to the law. Indeed, the name of this blog derives from the Second Circuit's seminal 1982 decision in Donovan v. Bierwirth, holding that a fiduciary must act “with an eye single to the interests of the participants and beneficiaries.” 680 F.2d 263 (2nd Cir. 1982)(emphasis added).

This blog will explore current developments in ERISA jurisprudence, issues we face in our practice, and serve as a forum for discussion of same. I hope you come back for more.

And if you find yourself struggling with your ERISA plan's administrator or insurer over your benefits (pension, disability, health, or otherwise), let us see if we can help.