Metlife V. Glenn: Supreme Court Cautions On Conflicted Fiduciaries Deciding Claims

On June 19, 2008, the U.S. Supreme Court issued its decision

in Metropolitan Life Insurance Co. v. Glenn

("Glenn").1 Sponsors and

administrators of employee benefit plans subject to the

Employee Retirement Income Security Act of 1974

("ERISA") need to be aware of this decision and its

implications for plan administration and the governance

structure of plans.

Glenn involved denial of both a claim and appeal

for benefits and a suit under ERISA challenging the decision

maker's determination. The issue is whether, and to what

extent, a court in an ERISA suit should take into account the

fact that the decision maker is the same party who must pay

benefits. The decision maker in Glenn was the

insurance company through which benefits were insured, but the

Court made it very clear that the issue is also present where

it is an employer who funds the plan and makes claims

determinations. The Court's conclusions make it imperative

for plan sponsors and administrators to examine and address

such conflicts of interest in their plans' claims

administration process.

Background

Plans subject to ERISA must have "reasonable

procedures" for the filing of claims for benefits, notice

of determinations on those claims, and appeal of adverse

determinations.2 In addition, ERISA provides that a

plan participant (or beneficiary) may bring a suit in court

"to recover benefits due to him under the terms of his

plan, to enforce his rights under the terms of the plan, or to

clarify his rights to future benefits under the terms of the

plan."3

With very limited exceptions, courts have consistently held

that a participant must "exhaust" his or her

administrative remedies under the plan before filing a suit for

benefits under ERISA. The participant must have made a claim,

received a denial, appealed and been denied on appeal, all as

provided in the plan's claims procedures, before filing

suit.

In 1989, the Court decided Firestone Tire & Rubber

Co. v. Bruch ("Firestone").4

In Firestone, the Court held that, where a plan

provides that the decision maker has "discretionary

authority to determine eligibility for benefits," a court

is to review the decision maker's determination with a

"deferential standard of review."5 Absent

a sufficient grant of discretionary authority to the decision

maker, a court will instead review a benefits determination

de novo, reconsidering all the evidence in the record

and perhaps coming to a conclusion that differs from that of

the original decision maker. Courts have applied the

deferential review standard so that the plan decision

maker's decision will not be overturned unless it was

"arbitrary and capricious" or an "abuse of

discretion." These are high hurdles for a participant to

overcome, making it important to have

"Firestone" or "discretionary

review" language in plan documents.

The Firestone opinion also states that, where the

decision maker has been granted appropriate discretion but is

"operating under a conflict of interest, that conflict

must be weighed as a factor in determining whether there was an

abuse of discretion."6 The opinion did not,

however, explain how a court was to do this. This was the

question in Glenn.

The Facts and the Lower Court Decisions

Ms. Glenn was covered by...