ERISA-Seventh Circuit Discusses Role of Conflict of Interest In Review Of A Fiduciary’s Decision To Deny Benefits

In Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008) , the Supreme Court said that a fiduciary’s conflict of interest is a factor to be taken into account in determining whether the fiduciary has abused its discretion in determining that a plan participant is not eligible for benefits. This conflict of interest typically arises under a welfare benefits plan, when the insurer, or the employer in a self-insured plan, is the fiduciary, and both the person who pays the plan benefits and the person who decides whether a participant is eligible to receive plan benefits. A number of courts have expressed their view on exactly how the conflict of interest is to be considered in evaluating the fiduciary’s decision to deny benefits. Marrs v. Motorola, No. 08-2451 (7th Cir. 2009) is one of the latest of these cases.

In Marrs, the Court said that there are two ways to treat a conflict of interest, based on the majority opinion in Glenn. One way is to treat the conflict of interest as one factor out of many in determining reasonableness. The Court rejected this treatment, calling it a “rudderless balancing test”, and opted for the following treatment. If the circumstances indicate that the fiduciary’s decision denying benefits was probably decisively influenced by the fiduciary’s conflict of interest, that decision must be set aside. The likelihood that the conflict of interest influenced the fiduciary’s decision is therefore the decisive consideration. It not the existence of a conflict of interest–which is a given in almost all ERISA cases–but the gravity of the conflict, as inferred from the circumstances, that is critical.

After stating the above, the Court noted that, as to the instant case, there were no indications that the fiduciary labored under a conflict of interest serious enough to influence his decision consciously or unconsciously–a decision that was otherwise entirely reasonable–decisively. Thus, the Court upheld the fiduciary’s decision to deny benefits.

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