Last week, the U.S. Supreme Court heard oral arguments about what standard to use when reviewing an insurance company denial of ERISA welfare benefits (employer provided long term disability insurance). MetLife v. Glenn, 06-923. Under current law, an insurance company can make a terribly unfair decision to deny employee welfare benefits, and if the benefit plan contains some “magic words” a court can be prevented from reviewing such a decision on the merits, and instead, forced to let the unfair denial stand. Those magic words, notoriously known as “discretionary clauses” give the insurance company full discretion to interpret policy language and make claims decisions. Some federal districts have developed case law which requires a reviewing court to give consideration to the fact that an insurance company in the position to both pay the claim, and grant or deny benefits, stands in an inherently conflicted position. If it can be shown that such conflict tainted the claim decision making, then some lesser degree of discretion should be given, and the insurance company’s decision given more scrutiny. The problem lies in the reality that different courts look upon these circumstances differently, and there is no one general rule to be easily and consistently applied when an insurance company plays a dual and conflicted role.
In Wanda Glenn’s case, and as in so many other disability benefits cases that pass through our offices – the only entity determining the employee isn’t disabled is the insurance company acting as a plan administrator. For Ms. Glenn, her doctor diagnosed that if she returned to work she could die. The Social Security Administration determined that she was disabled and paid her government benefits. Incredibly, MetLife alone, decided there must be a job somewhere for her, so it denied her claim, and also thereby avoided having to pay her benefits. For additional detail on the facts in Glenn, click here.
For the actual Supreme Court transcript of the hearing, which can give you a sense of how unclear (even for the Supreme Court), and frustrating this system is click here.
The bottom line is that it just isn’t fair for insurance companies to be making claims decisions that are insulated from full scrutiny or “de novo” review by the courts. Hopefully, the Supreme Court will establish a rule that recognizes, and prevents this egregious conduct in the future.