Court clarifies standards for denial of disability benefits

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Court clarifies standards for denial of disability benefits

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Judges must approach medical disability and health insurance disputes

with a skeptical eye when they involve insurance companies that both

evaluate and pay employee claims.

In a 6 to 3 decision announced Thursday, the US Supreme Court ruled

that benefit denials by such companies must be examined with caution

when circumstances suggest a high likelihood that financial

considerations affected a benefits decision.

The court added that an apparent conflict of interest is only one of

many factors that a reviewing judge must consider.

The ruling is important because it offers guidance to federal judges

presiding over lawsuits challenging medical disability and health

insurance determinations in group policies.

" When judges review the lawfulness of benefit denials, they will

often take account of several different considerations of which a

conflict of interest is one, " writes Justice Breyer in the

majority opinion.

The decision, in Metlife v. Glenn, comes in the case of an Ohio woman

diagnosed with a severe heart condition, who had her disability

benefits withdrawn by the Metropolitan Life Insurance Co.

A federal judge upheld the denial of benefits, but the Sixth US

Circuit Court of Appeals reversed that finding, ruling that the judge

had not fully considered the impact of MetLife's potential conflict

of interest in both administering the plan and deciding which claims

to pay and which to deny.

Justice Breyer said the appeals court followed the

correct " combination-of-factors method of review. " He said judges

should examine the record for potentially inconsistent positions

taken by a company, and whether the company gave due weight to the

entire record or favored certain reports while downplaying others.

Three justices dissented. Justice Antonin Scalia wrote that the court

was giving too much weight to an appearance of conflict. He said that

under the law of trusts " [A] fiduciary with a conflict does not abuse

its discretion unless the conflict actually and improperly motivates

the decision. " He adds, " There is no evidence of that here. "

Dissents were also filed by Justices Kennedy and Clarence

.

In passing the Employee Retirement Income Security Act of 1974

(ERISA), Congress authorized insurance companies to both evaluate and

pay claims. ERISA also authorizes employees to file a lawsuit in

federal court challenging an unfair denial of benefits.

But ERISA doesn't set a clear standard for judges who are called upon

to decide disputes over benefits.

In 1989, the Supreme Court ruled that judges hearing such lawsuits

must apply a more rigorous standard of review in cases in which the

plan administrator served as both the evaluator and payer of claims.

But the court did not explain what constitutes a conflict of interest

or how federal judges should weigh such a conflict while considering

a particular case.

Thursday's decision stems from the case of Wanda Glenn, a sales

manager at a Sears store from 1986 to 2000. In 2000, her physician

diagnosed a severe heart condition. He advised that she no longer

work. She applied for disability benefits under Sears' plan,

administered by MetLife.

On the basis of the diagnosis and the physician's recommendation,

MetLife found that Ms. Glenn was totally disabled and began paying

benefits. With the help of MetLife, she also applied for and obtained

disability payments from the Social Security Administration.

After two years, the MetLife policy required a new assessment of

whether Glenn could perform any job or was still totally disabled.

Her physician had repeatedly verified the severity of her condition,

but at one point he checked a box on an evaluation form indicating

that Glenn was able to work in a " sedentary physical exertion level

occupation. "

Three months later, contrary to the checked box, Glenn's physician

again stated that he did not believe she could handle any kind of

stress at work.

In evaluating Glenn's disability claim, MetLife focused on the

checked box and decided to stop making disability payments to her.

Glenn challenged the decision and eventually took MetLife to court.

In siding with Glenn, the Sixth Circuit said MetLife cherry-picked

certain aspects of Glenn's medical records, while ignoring others.

This selective review, combined with MetLife's conflict of interest

in both evaluating and paying claims, rendered the decision arbitrary

and capricious, the appeals court found.

In affirming the Sixth Circuit, Justice Breyer said: " All of these

serious concerns, taken together with some degree of conflicting

interests on MetLife's part, led the court to set aside MetLife's

discretionary decision. We can find nothing improper in the way in

which the court conducted its review. "