Since the Supreme Court issued its decision in Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), the courts realize that when they review a plan administrator’s denial of a claim for benefits under the arbitrary and capricious standard (which applies when the plan gives the plan administrator discretionary authority to interpret the plan or determine benefit eligibility), the courts must give weight to any conflict of interest that the plan administrator may have in deciding a benefits claim-the more severe the conflict, the more the scrutiny the court applies to the plan administrator’s decision. But when is there a conflict of interest? Clearly, as indicated in Glenn, there is an conflict of interest when the plan administrator, such as an insurer, both decides and pays benefits claims. Is there a conflict of interest in any other situation? The Court faced this question in Morris v. American Electric Power Long- Term Disability Plan, No. 08-4412 (Sixth Circuit 2010).
In this case, plaintiff Paul Morris (“Morris”), was an employee of American Electric Power. He was injured in a work-related automobile accident in 1992 and, as a result, began receiving long-term disability (“LTD”) benefits from the American Electric Power Long-Term Disability Plan (“the Plan”) in 1993. In 2004, the Plan’s new third-party administrator, Broadspire, requested documentation of Morris’s ongoing disability. Following a series of independent examinations and Plan-sponsored file reviews, Broadspire decided to terminate Morris’s LTD benefits. Morris, after exhausting his internal appeals, filed suit under ERISA with the district court. The district court affirmed Broadspire’s decision to terminate the benefits as being neither arbitrary nor capricious. Morris appealed.
In analyzing the case, the Court found that the arbitrary and capricious standard of review applied to Broadspire’s decision to terminate the LTD benefits . It then said that courts must evaluate potential conflicts of interest and consider them as factors in determining whether the decision to deny benefits was arbitrary and capricious. Apparently, Broadspire did not both decide benefit claims and pay the claims granted out of its own assets. However, Morris had contended that a conflict of interest exists as to Broadspire, the plan administrator, in that Broadspire’s advertising materials contain language indicating that its mission is to help its clients contain costs and have a positive impact on their employees and their bottom line. This promise aligns Broadspire’s interests with those of the Plan, so that there is a conflict between the promises to keep costs down and any decision to honor benefit claims against the Plan. The Court responded to this contention by holding that there is no conflict of interest in this situation. Broadspire has implemented a long-term strategy to carry out its duties as plan administrator for the benefit of the employer, rather than for the benefit of the plan participants and beneficiaries–presumably on the belief that, in so doing, they will be able to attract new and continued business. This differs from the conflict of interest present when a decision maker-such as an insurer who decides benefits claims and pays approved claims out of its own funds – will immediately or definitely benefit or suffer as a direct consequence of its decisions. Thus, the Court did not give any weight to a conflict in interest when evaluating Broadspire’s decision to terminate Morris’s LTD benefits.