The case of Funk v. Cigna Group Insurance, No. 10-3936 (3rd Circuit 2011) had two interesting issues. The first stemmed from the decision of defendant Cigna Group Insurance (“CIGNA”) to terminate the plaintiff’s long-term disability (“LTD”) benefits. The benefits were being paid under a self-funded plan (the “Plan”), which was maintained by the plaintiff’s employer, and for which CIGNA was the plan administrator. The question was whether, in deciding to terminate the plaintiff’s benefits, CIGNA had complied with the terms of the Plan. Under those terms, the plaintiff would be “disabled”, and thus entitled to receive LTD benefits, if he was incapable of performing the requirements of any job for any employer for which the individual is qualified or may reasonably become qualified, other than a job that pays less than 60 percent of his former pay. CIGNA’s decision did not explicitly address salary or provide examples of suitable alternative 60% jobs. Does this cause CIGNA’s decision to terminate the plaintiff’s LTD benefits to fail to comply with the Plan’s terms? The Court concluded that it did not. The Plan required CIGNA to determine whether the plaintiff was capable of working in any job that would pay him at least 60% of his former pay. CIGNA literally complied with that requirement when it determined that the plaintiff could, without restrictions, perform his regular occupation. It goes without saying that his former job would pay 100% of his former wage. It was unnecessary for CIGNA to discuss, in connection with its decision, any alternative 60% jobs.
The second issue was whether CIGNA-the plan administrator but not the benefit payor (the benefits of the self-funded plan being paid by the employer)-has a conflict of interest that-under Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008)- must be taken into account in determining whether CIGNA’s decision to terminate the plaintiff’s LTD benefits was arbitrary and capricious. The Plan gave CIGNA discretionary authority to grant or deny LTD benefits, so that its decision to terminate the plaintiff’s LTD benefits is entitled to an arbitrary and capricious review. On this issue, the Court said that a party’s status as a third-party plan administrator does not automatically encumber it with a material conflict of interest. While the Supreme Court in Glenn did say that, “for ERISA purposes a conflict exists” when-as here- a third-party plan administrator operates in a competitive market for the delivery of its services, the Court also acknowledged that this conflict may be of little or no practical significance. In this case, nothing suggests that CIGNA was operating under a meaningful conflict of interest. Thus, the Court concluded that the potential conflict should not be given significant weight in determining whether CIGNA’s decision to terminate the plaintiff’s LTD benefits was arbitrary and capricious.