Amicus Curiae Brief — Black & Decker Disability Plan v. Nord

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No. 02-469

In the

Supreme Court of the United States

THE BLACK & DECKER DISABILITY PLAN,

Petitioner,

KENNETH L. NORD,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

BRIEF OF THE NATIONAL EMPLOYMENT

LAWYERS ASSOCIATION, AS AMICUS CURIAE

IN SUPPORT OF THE RESPONDENT

JEFFREY LEWIS JENIFER BOSCO

Counsel of Record Senior Staff Attorney

LISA BELENKY NATIONAL EMPLOYMENT

CASSIE SPRINGER-SULLIVAN LAWYERS ASSOCIATION

LEWIS & FEINBERG, P.C. 44 Montgomery Street

436 14" Street, Suite 1505 Suite 2080

Oakland, CA 94612 San Francisco, CA 94104

(510) 839-6824 (415) 296-7629

Counsel for Amicus Curiae

NATIONAL EMPLOYMENT LAWYERS ASSOCIATION

{Additional counsel! listed on inside front cover}

Midwest Law Printing Company /Photex — Chicago — (312) 321-0220

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Additional counsel for Amicus Curiae

WILLIAM D. FRUMKIN

DANIEL T. DRIESEN

TEJASH V. SANCHALA

SAPIR & FRUMKIN, LLP

399 Knollwood Road, Suite 30

White Plains, New York 10603

(914) 328-0366

MARK DEBOFSKY

DALEY, DEBOFSKY AND BRYANT

One North LaSalle Street, Suite 3800

Chicago, Illinois 60602

(312) 372-5200

RONALD DEAN

RONALD DEAN, A LAW CORPORATION

15135 Sunset Boulevard, Suite 280

Pacific Palisades, CA -90272

(310) 459-1636

TABLE OF CONTENTS

PAGE

INTEREST OF THE AMICUS CURIAE ............. 1

| SUMMARY OF ARGUMENT ..................... 2

ARGUMENT |... ooo occ ccc ccc cece ccc ccccccccuc. 4

I. INTRODUCTION ..................2-2-. 4

Il. THE RESTATEMENT (SECOND) OF

TRUSTS ENUMERATES FACTORS THAT

COURTS SHOULD APPLY IN DETER-

MINING WHETHER THERE IS AN

ABUSE OF DISCRETION. ................ 5

III. THE TREATING PHYSICIAN RULE

PROVIDES AN EXTERNAL STANDARD

AGAINST WHICH THE ADMINISTRA-

TOR’S DECISION MAY BE JUDGED

UNDER RESTATEMENT § 187 CMT D,

FACTOR (4). VIOLATION OF THAT

STANDARD, WITHOUT A REASONABLE

EXPLANATION, SHOULD RESULT IN

A COURT’S UNWILLINGNESS TO EN-

FORCE A WRONG DECISION. ............ 6

A. Origin of the Treating Physician

FPP TTTTrTTTrrTrrrrrrree 7

B. Courts Find the Treating Physician

Rule to Be Useful and Reason-

able, and It Should Be Incorporated

into ERISA Jurisprudence. ............ 9

li ili

IV. COURTS NEED GUIDANCE AS TO A. The Eleventh Circuit Has Estab-

WHAT CONSTITUTES AN ABUSE OF lished a Workable Standard Which

DISCRETION UNDER THE FACTORS Will Result in Consistent Adjudica-

STATED IN FIRESTONE AND IN PE ciiscnnnesbacousaeumidecness 23

THE RESTATEMENT (SECOND) OF

TRUSTS. TRRELEELTEELECEELEUCELELELLETETT 13 B. The Ninth Circuit Also Employs a

| EE, ccuveconceceeuuuasens 24

V. THE COURTS ARE IN A STATE OF CON-

FUSION WHEN DETERMINING HOW A C. Adopting One of These Approaches

CONFLICT OF INTEREST AFFECTS THE Will Result in Conserved Judicial

STANDARD OF REVIEW. .............. 14 Resources and Will Help Fulfill

| TE <<cocucisededconsanns 25

A. The Sliding Scale Approach Is Sub-

jective and Has Resulted in Incon- IIE go vic dcnnscosdewckinunessdcouses 28

sistent Adjudication among the :

SDs cndinscuiskueseceunnciuent 15

B. The Sliding Scale Approach Gener-

ates Inconsistent Approaches Even

as to Whether a Financial Conflict

of Interest Initiates a Slide Down

PE scceecesensdeeneusnuaubeus 18

C. The First Circuit’s “More Bite”

Approach Is Another Version of the

Subjective Sliding Scale Approach,

and Is Equally Unworkable. .......... 20

D. The Second Circuit’s Approach Also

DPS cncccesccescoceceesss 21

VI. IT IS TIME FOR THIS COURT TO SET

FORTH A CLEAR AND WORKABLE

STANDARD FOR DETERMINING

WHETHER THERE HAS BEEN AN

ABUSE OF DISCRETION ............... 22

TABLE OF AUTHORITIES

CASES: PAGE(S)

Atwood v. Newmont Gold Co.,

45 F.3d 1317 (9 Cir. 1995) ................ passim

Barnhart v. UNUM Life Ins. Co.,

179 F.3d 583 (8 Cir. 1999) ................. 17, 18

Brown v. Blue Cross & Blue Shield, Inc.,

898 F.2d 1556 (11 Cir. 1990) .............. passim

Chambers v. Family Health Plan Corp.,

100 F.3d 818 (10 Cir. 1996) ...............545. 19

Charter Canyon Treatment Center v. Pool Co.,

153 F.3d 1132 (10 Cir. 1998) ............6..... 18

Chojnacki v. Georgia-Pacific Corp.,

Fee Ge HED vc cccccccesedccscees 17

Clapp v. Citibank N.A. Disability Plan,

ts f | Yk | errr re 17

Doe v. Travelers Ins. Co.,

Se DG Gt GED cccceccccccesesess 14, 20

Doyle v. Paul Revere Life Ins. Co.,

"2 ) Tig: 3 Fare 21

Egelhoff v. Egelhoff,

SE PCED cccccecédetessseseneonceses 1

Elliot v. Sara Lee Corp.,

190 F.3d 601 (4™ Cir. 1999) .............0000 ee 15

Ellis v. Metropolitan Life Ins. Co.,

126 F.3d 228 (4" Cir. 1997) ........... 00000 e ee 16

Firestone Tire & Rubber Co. v. Bruch,

ee SE adiwcedsdesecdscuseces passim

Friedrich v. Intel Corp.,

181 F.3d 1105 (9" Cir. 1999) .................5. 24

Fulton Nat'l Bank v. Tate,

363 F.2d 562, 571-72 (5" Cir. 1966) ............. 22

Killian v. Healthsource Provident Admin., Inc., __

BOB PBS GR6 GO” Glo. BOBED 6 oc cc cccccccccvcccss 19

Lang v. Long Term Disability Plan

of Sponsor Applied Remote Technology, Inc.,

je | YY og. ere passim

McGraw v. Prudential Ins. Co. of Am.,

fe fly gf. ee 18

Mers v. Marriott Int'l Group Acc. Death and

Dismemberment Plan, 144 F.3d 1014 (7th Cir. 1998),

cert. denied, 525 U.S. 947 (1998)................ 19

Murray v. Heckler,

oe ee 7

Nord v. The Black & Decker Disability Plan,

is) of og. 2 eee 2,9

Perlman v. Swiss Bank Corp. Comprehensive

Disability Protection Plan,

196 F.3d 975 (7° Cir. 1900) ........02ecceeee 17, 20

Peruzzi v. Summa Medical Plan,

197 P.36 481 (6 Cle. 1988) ... oo cc cccccccccccces 16

Pinto v. Reliance Standard Life Ins. Co.,

214 F.3d 377 (3° Cir. 2000) ................ passim

Pitman v. Blue Cross,

217 F.3d 1291 (10 Cir. 2000) .............-00- 18

Regula v. Delta Family-Care Disability

Survivorship Plan, 266 F.3d 1130 (9 Cir. 2001),

petition for cert. filed, 71 USLW 3001

(U.S. Jun 13, 2002) (No. 01-1840) ........... 7,9, 24

Richardson v. Perales,

Ge ee SP GEUED cccccvecctoseces —ciedecwek 8

Rush Prudential HMO, Inc. v. Moran,

536 U.S. 355, 122 S.Ct. 2151 (2002) ......... passim

Sullivan v. LTV Aerospace and Defense Co.,

82 F.3d 1251 (2* Cir. 1996) .............005. 14, 21

Tremain v. Bell Industries,

196 F.3d 970 (9 Cir. 1999)... 0.0... cece ee eee 24

UNUM Life Ins. Co. of Am. v. Ward,

| ie |, rr rrrrrrrr rrr 1

Vega v. National Life Ins. Servs.,

188 F.3d 287 (5" Cir. 1999) .......... 0.02 cease 16

STATUTES:

ERISA § 502(a)(1)B), 29 U.S.C. § 1132(aX 1B) ....5,14

eee ee

vii

REGULATIONS:

ee ED « beh 60-04 06000cedccceduset 8, 10

20 C.F.R. § 404, Regulations No. 4,

Re ee 8

20 C.F.R. § 404, Regulations No. 4,

SE ee 8

PPC T TT CST TTT T TTT TTT Te 8, 10

ee ED véhebcedvadbtencoeeséseeduen 8

EE 6s nesscskéveetendeuwenvadessnncs 8

56 Fed. Reg. 369382 (1991) .............ccceecececs 10

OTHER AUTHORITIES:

ABA SECTION OF LABOR AND EMPLOYMENT LAW,

EMPLOYEE BENEFITS LAW, 2™ ed. (2002) ......... 14

Brief for the United States as Amicus Curiae

ESE oe 27

Freeman, et al., Lying for Patients: Physician

Deception of Third-Party Payers,

159 ARCHIVES OF INT. MED. 2263 (1999).......... 12

Restatement (Second) of Trusts § 187,

ON EC ere TTT Terr rer passim

Schneider, A Role for the Courts:

Treating Physician Evidence in

Social Security Disability Determinations,

3 U. CHI. L. SCH. ROUNDTABLE 391 (1996) ...... 8,11

vill

Wynia, et al., Physician Manipulation of Reimbursement

Rules for Patients: Between a Rock and a Hard Place,

283 JAMA 1858 (2000)

2 82 @ 6.0 06 6:6 6 Ow 6 4.68 886 8 86 8. ee

INTEREST OF AMICUS CURIAE'

The National Employment Lawyers Association (NELA)

and its 67 state and local affiliates have a membership

of over 3,000 attorneys, and NELA is the country’s only

professional membership organization of lawyers who

regularly represent employees in labor, employment and

civil rights disputes. NELA supports precedent-setting

litigation affecting the rights of individuals in the work-

place. NELA has filed amicus curiae briefs before this

Court and numerous courts of appeals regarding the prop-

er interpretation and application of the Employee Retire-

ment Income Security Act (ERISA) to ensure that the

rights of workers are fully protected. For example, NELA

participated in filing amicus curiae briefs in this Court’s

decisions in Rush Prudential HMO, Inc. v. Moran, 536 U.S.

355 (2002); Egelhoff v. Egelhoff, 532 U.S. 141 (2001); and

UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358 (1999).

ERISA was enacted to protect the rights of employees

and beneficiaries who participate in private, employer-

sponsored employee benefit plans. In NELA’s view, the

treating physician rule, which is at issue in this case,

protects employees who become disabled and need access

to the disability benefits that they have earned through

their employment. Those who review disability claims

must exercise their discretion in a manner consistent

with both the protections of the statute and their fiduciary

duties under the benefit plan.

‘ Pursuant to Supreme Court Rule 37.6, amicus states that no

person or entity other than the amicus curiae, and their under-

signed counsel made a monetary contribution to the preparation

or submission of this brief. No attorney for any party authored

this brief in whole or in part. Written consent to the filing of

this brief has been obtained from the parties in accordance with

Supreme Court Rule 37.3(a). Copies of the consent letters have

been filed with the Clerk.

For these reasons, amicus respectfully requests that the

Court consider its views in support of the Respondent.

SUMMARY OF ARGUMENT

In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101

(1989), the Court explained, “if a benefit plan gives discre-

tion to an administrator or fiduciary who is operating

under a conflict of interest, that conflict must be weighed

as a ‘facto[r] in determining whether there is an abuse of

discretion.” 489 U.S. at 115 (quoting Restatement (Second)

of Trusts §187, cmt. d (1959)). Since that time, “courts

have struggled to give effect to this delphic statement,

and to determine both what constitutes a conflict of inter-

est and how a conflict should affect the scrutiny of an

administrator’s decision to deny benefits.” Pinto v. Reliance

Standard Life Ins. Co., 214 F.3d 377, 383 (3d Cir. 2000).

Recently the Court pondered the same question in Rush

Prudential HMO, Inc. v. Moran, 536 U.S. 355, 122 S.Ct.

2151, 2169 n.15 (2002) (“It is a fair question just how

deferential the review can be when the judicial eye is

peeled for conflict of interest.”).

After Firestone, the circuits have struggled mightily to

find a reasonable and workable methodology for deter-

mining whether an employee benefit plan fiduciary has

abused its discretion in its decision to deny benefits.

Although most of the case law has applied Factor Six

of Comment d to § 187 of the Restatement (Second) of

Trusts, Nord v. The Black & Decker Disability Plan, 296

F.3d 823 (9" Cir. 2002), allows this Court to examine both

Factor Four and Factor Six, and to give much needed

guidance in how courts should apply these factors. Factor

Four provides that the existence of an external standard

by which the reasonableness of the fiduciary’s conduct

can be judged is relevant to a determination of whether

there has been an abuse of discretion. Factor Six pro-

eS ee

vides that the existence of a conflict of interest is also

relevant to this determination. Nord concluded that the

plan administrator's decision to ignore treating physi-

cians’ opinions, as well as inconsistencies in the plan’s

positions and irregularities in the administrative proc-

ess, tended to show that the fiduciary allowed its conflict

of interest to infect its decision. In applying the “abuse of

discretion” standard, the courts first determine if the

denial of benefits is “wrong”—just as they would under

the de novo standard of review. If the plan grants discre-

tion to the fiduciary, the court then must decide how much

discretion to give a conflicted fiduciary, or to a fiduciary

who ignores an objective external standard. A “wrong”

decision by a conflicted fiduciary who ignores an objective

external standard without explanation, whose financial

interests are directly advanced by a benefits denial,

and who has demonstrated a lack of objectivity in the

handling of the claim, should not be enforced.

Amicus submits that the time has come for this Court to

put meat on the bones of Restatement § 187 cmt. d, to

instruct the lower courts as to how the Restatement “fac-

tors” are to be taken into account, and to inform the lower

courts of what to do when those factors are present.

The determination of what constitutes a conflict of

interest, and how the conflict weighs as a “factor,” has

plagued courts for the last fourteen years, resulting in

essentially five different standards among the circuits: a

conflicted decision is presumptively void (Eleventh Circuit);

a conflicted decision is presumptively void if there is

evidence tending to show that the conflict infected the

decision (Ninth Circuit); abuse of discretion will still be

applied, but with “more bite” (First Circuit); if a plaintiff

produces “smoking gun” evidence proving that a conflict

infected the decision, then the standard of review is de

novo (Second Circuit); and various sliding scale ap-

proaches (remaining circuits). Amicus urges the Court to

provide clear guidance to the lower courts on this issue so

as to curb the enormous amount of litigation and utiliza-

tion of judicial resources that this issue has generated.

Amicus recommends the Eleventh Circuit’s approach as a

clear and workable standard: a conflicted administrator’s

decision will stand only if the administrator can show

that there was no self-interest in making a decision that

would be “wrong” under de novo review. Brown v. Blue

Cross & Blue Shield, Inc., 898 F.2d 1556, 1556-68 (11" Cir.

1990), cert. denied, 498 U.S. 1040 (1991).

ARGUMENT

I. INTRODUCTION

In some circuits, plan administrators, particularly in-

surance companies, have been given carte blanche to act

as the sole arbiters of claims despite their self-interest

in denying those claims. This case presents the Court

with the opportunity to redress this untenable situation,

and to apply reasonable limitations on the administra-

tors’ powers by recognizing the inherent unfairness in

allowing one party to a dispute the unfettered discretion to

also decide it.

We suggest that the Court do so by clarifying how

the factors set forth in Comment d to § 187 of the Re-

statement (Second) of Trusts should be applied; specifically,

by adopting the analysis of either the Eleventh Circuit

or the Ninth Circuit. Such an approach strikes a balance

between recognition of the trust nature of the relation-

ship between the plan participant and the plan admin-

istrator and protection of the participant from the unfair-

ness that may result from giving the administrator vir-

tual carte blanche, regardless of its bias.

Il. THE RESTATEMENT (SECOND) OF TRUSTS ENU-

MERATES FACTORS THAT COURTS SHOULD

APPLY IN DETERMINING WHETHER THERE IS

AN ABUSE OF DISCRETION.

The Restatement (Second) of Trusts § 187, “Control of

Discretionary Powers,” states: “Where discretion is con-

ferred upon the trustee with respect to the exercise of a

power, its exercise is not subject to control by the court,

except to prevent an abuse by the trustee of his discretion.”

Comment d provides:

Factors in determining whether there is an abuse

of discretion. In determining the question whether

the trustee is guilty of an abuse of discretion in

exercising or failing to exercise a power, the follow-

ing circumstances may be relevant: (1) the extent

of the discretion conferred upon the trustee by the

terms of the trust; (2) the purposes of the trust; (3)

the nature of the power; (4) the existence or non-

existence, the definiteness or indefiniteness, of an

external standard by which the reasonableness of

the trustee’s conduct can be judged; (5) the motives

of the trustee in exercising or refraining from

exercising the power; (6) the existence or nonexis-

tence of an interest in the trustee conflicting with

that of the beneficiaries.

Id.

In actions brought challenging the denial of benefits

under ERISA § 502(a)(1\B), 29 U.S.C. § 1132(a)(1\B),

where the plan document gives the administrator discre-

tion to make eligibility determinations and to construe

the terms of the plan, several factors identified in Com-

ment d will remain constant because ERISA controls the

purpose of the trust, and plans and insurance policies have

now adopted boilerplate language granting discretion.

Therefore, the extent of the discretion, the purpose of the

a SEL... eee

trust, and the nature of the administrator's power will be

largely identical in the vast majority of such actions. See

Brown, 898 F.2d at 1564-65 (noting that the purpose of the

trust and the nature of the administrator's power “have a

constant quality dictated by ERISA.”). By contrast, the

remaining factors—the existence of an external standard

by which to judge the reasonableness of the administra-

tor’s action, the motives of the administrator, and the

existence of a conflicting interest—may differ significantly

in each action.

Following this Court’s decision in Firestone, courts for the

most part have focused on the question of whether the

administrator is guilty of an abuse of discretion due to the

existence of a conflict of interest and the corollary ques-

tion of what evidence is necessary to establish such a

conflict. An exploration of the motives of the administrator,

where such motives can be discerned, has generally been

subsumed into the analysis of the administrator’s actual

or potential conflict of interest. The existence of an exter-

nal standard by which the reasonableness of the admin-

istrator’s conduct can be judged has remained relatively

unexplored by the courts, but provides another useful meth-

od for determining whether an administrator is guilty of

an abuse of discretion.

Ill. THE TREATING PHYSICIAN RULE PROVIDES

AN EXTERNAL STANDARD AGAINST WHICH

THE ADMINISTRATOR'S DECISION MAY BE

JUDGED UNDER RESTATEMENT § 187 CMT D,

FACTOR (4). VIOLATION OF THAT STANDARD,

WITHOUT A REASONABLE EXPLANATION,

SHOULD RESULT IN A COURT'S UNWILLING-

NESS TO ENFORCE A WRONG DECISION.

The treating physician rule, when correctly stated,

provides just the sort of objective and external standard

contemplated by the Restatement. However, neither

Petitioner nor its amici have accurately presented the

issue set forth in Nord or in its predecessor, Regula v.

Delta Family-Care Disability Survivorship Plan, 266 F.3d

1130 (9 Cir. 2001), petition for cert. filed, 71 USLW 3001

(U.S. Jun 13, 2002) (No. 01-1840). Nor has there been an

accurate presentation to this Court as to the meaning

of and history behind the Social Security Administration’s

“treating physician rule.” Nord and Regula did not use

the treating physician rule as a rule of default; instead, the

plan’s violation of the rule was presented as a factor to

be considered in applying the discretionary standard of

review.

As the Restatement (Second) of Trusts notes, one relevant

factor for courts to evaluate in determining whether

the administrator is guilty of an abuse of discretion is to

examine the reasonableness of the administrator’s or

fiduciary’s decision in light of an external standard where

such a standard exists. The Restatement (Second) of

Trusts § 187, cmt. d. The treating physician’s opinion on

medical issues (including, e.g., the medical necessity of a

treatment and a claimant’s limitations) is just such an

external standard by which a court can judge the fidu-

ciarys conduct. The treating physician has the most

direct clinical information about the claimant, makes

determinations in accordance with professional medical

standards, and is bound to provide truthful information

about the claimant’s medical condition and limitations. See,

e.g., Murray v. Heckler, 722 F.2d 499, 502 (9" Cir. 1983).

Accordingly, the treating physician’s opinion provides

an external measure against which the administrator's

decision may be judged for reasonableness.

A. Origin of the Treating Physician Rule

The development of the treating physician rule in Social

Security cases resulted from a recognition that “disability”

ee EEEEEEEEOEOEOEOEOEOEOEOEOEOEOEOEEeEeoorreeeee

is a concept that may be statutorily or contractually

defined, but requires an individualized assessment to

determine whether a particular claimant meets that

definition. Neither the Listing of Impairments (20 C.F.R.

§ 404, Regulations No. 4, Subpart P, Appendix 1), nor the

Medical-Vocational Rules (20 C.F.R. § 404, Regulations No.

4, Subpart P, Appendix 2), can completely resolve the

question of whether an individual is incapable of engaging

in “any substantial gainful activity” for purposes of So-

cial Security Disability Insurance. 42 U.S.C. § 423(d 1A)

(Social Security definition of “disability”).

The treating physician rule was developed to protect

Social Security disability claimants against arbitrary

decision-making. Although Administrative Law Judge

(“ALJ”) decisions are subject to judicial review, 42 U.S.C.

§ 405(g), that review is deferential; and the ALJ’s decision

will be upheld so long as it is supported by substantial

evidence. In Richardson v. Perales, 402 U.S. 389, 401

(1971), this Court defined substantial evidence as “such

relevant evidence as a reasonable mind might accept as

adequate to support a conclusion.” (citations omitted). Thus,

the treating physician rule was adopted as a means “for

courts to introduce judicial discretion into their review

of the disability determinations made by the [ALJ].”

Schneider, A Role for the Courts: Treating Physician

Evidence in Social Security Disability Determinations, 3 U.

CHI. L. SCH. ROUNDTABLE 391, 391 (1996). However, neither

the case law that preceded the promulgation of a specific

regulation adopting the treating physician rule, nor the

regulation itself (20 C.F.R. §§ 404.1527, 416.927), requires

abject deference to the treating doctor’s opinion, as Peti-

tioner’s “Question Presented” implies. Nor, in either Nord

or Regula, is there an unquestioning acceptance of the

treating doctor’s opinion as Petitioner and its amici claim.

Courts are fully capable of recognizing that there are

circumstances that may preclude acceptance of the treat-

li a a a

ing doctor’s opinion, and they have applied the treating

physician rule in a sensible and practical manner.

B. Courts Find the Treating Physician Rule to Be

Useful and Reasonable, and It Should Be Incorpo-

rated into ERISA Jurisprudence.

Absent deference to the treating physician’s opinion,

claimants may unfairly suffer the denial or termination of

benefit payments under plans and insurance policies

containing discretionary language. In many cases, plan

participants lack a reasonable opportunity to protect

against the denial or loss of benefits so long as an insurer,

supposedly acting in a fiduciary capacity, can proffer the

opinion of a consulting physician who certifies non-disabil-

ity even in the absence of an examination. Without the

treating physician rule, the treating doctor’s opinion can

be simply disregarded in favor of a clearly less qualified

opinion. Under a deferential standard of review, that ben-

efits denial would stand.

Nord offers a clear example of such a situation. There,

the Ninth Circuit found “the administrator appears merely

to have preferred to rely upon the more favorable conclu-

sions of its own examiner.” Nord v. The Black & Decker

Disability Plan, 296 F.3d 823, 831 (9" Cir. 2002). The

treating physician rule guards against such actions. At

the same time, as the Ninth Circuit has made clear, the

treating physician rule in ERISA cases “is not absolute.”

Regula v. Delta Family-Care Disability Survivorship

Plan, 266 F.3d 1130, 1140 (9 Cir. 2001), petition for cert.

filed, 71 USLW 3001 (U.S. Jun 13, 2002) (No. 01-1840). The

plan administrator may reject the treating physician’s

opinions, so long as the administrator provides “specific,

legitimate reasons that are based on substantial evidence

in the record.” Jd. at 1147.

Now that the treating physician rule has been incorpo-

rated into regulations (20 C.F.R. §§ 404.1527; 416.927), the

Social Security Administration has clarified the basis of

the principle:

Generally, we give more weight to opinions from

your treating sources, since these sources are likely

to be the medical! professionals most able to pro-

vide a detailed, longitudinal picture of your med-

ical impairment(s) and may bring a unique per-

spective to the medical evidence that cannot be

obtained from the objective medical findings alone

or from reports of individual examinations, such as

consultative examinations or brief hospitalizations.

20 C.F.R. § 404.1527(d\(2).

Nonetheless, the treating physician’s opinion will not

control unless it meets carefully defined criteria. For

example, the longer the treatment relationship and the

more times the treating doctor has examined the patient,

the more informed is the “longitudinal picture” of the

claimant’s impairment. 20 C.F.R. § 404.1527(d\(2\1). The

nature and extent of the treatment relationship is also

important. Of the greatest significance, though, is that

for the treating physician’s opinion to be given controlling

weight, it must be supportable; i.e., it must be consistent

with “medical signs and laboratory findings” and with the

record as a whole. 20 C.F.R. §§ 404.1527(d\(3) and (4).

Moreover, more weight is given “to the opinion of a special-

ist about medical issues related to his or her area of

specialty than to the opinion of a source who is not a

specialist.” 20 C.F.R. § 404.1527(d\(5).

Hence, although these are regulations promulgated by

the Social Security Administration rather than the courts,

they were developed as a policy that “takes into account the

concerns raised by the . . . courts.” 56 Fed. Reg. 36932,

36950 (1991). Since those same policy concerns are equal-

ly applicable to issues arising in disability benefit claims

brought under ERISA, these straightforward, common-

sense principles are a useful externa] standard in adjudicat-

ing such claims because it cannot be disputed that “the

effects of medical conditions on individuals vary so

widely, and because no two cases are ever exactly alike.”

Id. at 36934. In other words, the treating physician rule

strives for a greater measure of accuracy in resolving

a “decision-making procedure [that] includes a certain

amount of subjectivity and individualization.” Schneider,

3 U. CHI. L. SCH. ROUNDTABLE 391, 402.”

Although the Petitioner and its amici have expressed

concern about the honesty of the treating physician, of

greater concern to the court in Regula was

the conflict of interest inherent when benefit plans

repeatedly hire particular physicians as experts.

Especially in cases such as this one, where the plan

administrator is also the funding source, these

experts have a clear incentive to make a finding of

“not disabled” in order to save their employers

money and to preserve their own consulting ar-

rangements.

Regula, 266 F.3d at 1143. Moreover, Regula explained

that courts that have rejected the application of the treat-

ing physician rule have done so in the context of health

benefit claims, where the physician may have a financial

? Although not every ERISA long-term disability plan uses the

Social Security definition of “disability,” the treating physician

Tule should be applied in ERISA jurisprudence because it recog-

nizes that treating physicians’ opinions are among the most

helpful tools for determining whether an individual meets the

plan’s definition of disability, since every definition of disability

necessitates an informed opinion of the individual's medical

motive to assure payment, unlike disability benefit cases

where the patient, not the physician, receives the pay-

ment. Jd. at 1143. The court’s differentiation between

health benefits claims and disability claims is borne out

by the medical articles cited by Petitioner and its amici.

For example, in Wynia, et al., Physician Manipulation of

Reimbursement Rules for Patients: Between a Rock and a

Hard Place, 183 JAMA 1858, 1863 (2000), the authors

limited their presentation to medical benefits and, even

there, found manipulation of reimbursement rules “rela-

tively uncommon.” Another article, Freeman, et al., Lying

for Patients: Physician Deception of Third-Party Payers, 159

ARCHIVES OF INT. MED. 2263 (1999), also was restricted to

health insurance reimbursement. Neither of these studies

provides any support for an argument that a treating physi-

cian in a disability case would furnish an opinion that

was not warranted by the evidence. Furthermore, the

recognized caveats to the application of the treating physi-

cian rule operate as a check against such a practice; i.e.,

if the physician’s opinion is inconsistent with the record

as a whole, or if that opinion can be disputed by reliance

on other clinically supported evidence, then the plan

fiduciary does not have to accept it as conclusive.

Thus, the treating physician rule constitutes an applica-

tion of the Firestone instruction to weigh the Restatement

factors in determining whether there has been an abuse

of discretion. Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101, 115 (1989). The treating physician rule both

provides an external standard for comparing the reason-

ableness of the administrator's decision, and illuminates

whether an administrator has acted in its own self-interest.

Both of these are factors in determining whether the

administrator has abused its discretion under § 187 of the

Restatement (Second) of Trusts.

IV. COURTS NEED GUIDANCE AS TO WHAT CONSTI-

TUTES AN ABUSE OF DISCRETION UNDER THE

FACTORS STATED IN FIRESTONE AND IN THE

RESTATEMENT (SECOND) OF TRUSTS.

Since this Court’s decision in Firestone, the lower courts

have been reviewing decisions of administrators granted

with discretionary authority under the abuse of discretion

standard. Where the administrator had an actual or po-

tential conflict of interest, the courts have sought to ap-

ply a less deferential or more searching standard of review.

However, as discussed in detail below, in the fourteen

years since Firestone, the circuits have been unable to

agree upon a workable paradigm for their analysis of

what constitutes a potential or actual conflict of inter-

est, and for their analysis of how potential or actual

conflicts of interest should be “weighed as a ‘facto{r) in

determining whether there is an abuse of discretion.”

Firestone, 489 U.S. at 115 (quoting Restatement (Second)

of Trusts § 187). Indeed, courts have even parted com-

pany in analyzing whether the distance between abuse

of discretion review and de novo review can be traversed

along a sliding scale or whether a significant violation

of one cf the Comment d factors means that a court will

reverse a wrongful denial. Compare, e.g., Lang v. Long

Term Disability Plan of Sponsor Applied Remote Technol-

ogy, Inc., 125 F.3d 794, 798 (9th Cir. 1997) (if the admin-

istrator’s decision was tainted by a conflict of interest,

then it is entitled to no deference), with Pinto v. Reliance

Standard Life Ins. Co., 214 F.3d 377, 393 (3d Cir. 2000)

(adopting a sliding scale analysis which heightens the

degree of scrutiny in proportion to the administrator’s

conflict of interest). See also Rush Prudential HMO, Inc.

v. Moran, 536 U.S. 355, 122 S.Ct. 2151, 2169 n.15 (2002)

(“It is a fair question just how deferential the review can

be when the judicial eye is peeled for conflict of interest.”).

a ee eee nee a Teme mS rene NR ane NS

The Court should take this opportunity to clarify how

lower courts should determine whether an actual or

potential conflict of interest exists, and once such a conflict

is found, how it is to be weighed on abuse of discretion

review. Such guidance will lead to a more uniform treat-

ment of claims challenging benefit denials under ERISA

§ 502(aX 1B), 29 U.S.C. § 1132(aX1XB).

V. THE COURTS ARE IN A STATE OF CONFUSION

WHEN DETERMINING HOW A CONFLICT AF-

FECTS THE STANDARD OF REVIEW.

In the aftermath of Firestone, the lower courts have

adopted essentially five different approaches to determin-

ing how the existence of a conflict “weighs” in the review

of a discretionary decision. See ABA SECTION OF LABOR

AND EMPLOYMENT LAW, EMPLOYEE BENEFITS Law, 2” ed.,

442-48 (2002). The Eleventh Circuit mandates that a

conflicted decision is presumptively void. Brown v. Blue

Cross & Blue Shield, Inc., 898 F.2d 1556, 1566-68 (11" Cir.

1990). The Ninth Circuit has established that a conflicted

decision is presumptively void if there is evidence tending

to show that the conflict infected the decision. Atwood v.

Newmont Gold Co., 45 F.3d 1317, 1323 (9 Cir. 1995); Lang,

125 F.3d at 798. The First Circuit finds that abuse of

discretion will still be applied, but with “more bite.” Doe v.

Travelers Ins. Co., 167 F.3d 53, 57 (1" Cir. 1999). The

Second Circuit employs a standard whereby the plaintiff

bears the burden of finding a “smoking gun” necessary to

show that a conflict of interest caused the benefit to be

denied. Sullivan v. LTV Aerospace and Defense Co., 82 F.3d

1251, 1259 (2d Cir. 1996). The remaining circuits subscribe

to some version of a “sliding scale” approach, as described

below. The only conclusion that can be drawn from the

courts’ disarray in the aftermath of Firestone is that they

need further guidance.

ee ee

- ee

Of these standards, only those of the Eleventh and

Ninth Circuits ensure consistent adjudication, with the

Eleventh Circuit’s standard being the more practical of

the two. Amicus urges the Court to adopt the standard of

either the Ninth or Eleventh Circuit for the reasons set

forth in detail below. The approaches of the remaining

circuits have resulted in inconsistent results in determin-

ing both what triggers the slide down the scale and how

far down a court should slide.

A. The Sliding Scale Approach Is Subjective and

Has Resulted in Inconsistent Adjudication among

the Circuits.

The sliding scale approach is unworkable. Although most

circuits claim to use this approach, none are able to use

it consistently, as it is an inherently subjective standard.

The sliding scale itself, with all of its various gradations

and calibrations, is simply impractical, as illustrated by

the circuits’ differing articulations of it. Indeed, at least

two of the circuits that have adopted the sliding scale

have explicitly expressed reservations as to its use.

Third Circuit: The Third Circuit explained that in its

application of the sliding scale approach, the court “approxi-

mately calibrat[es] the intensity of our review to the

intensity of the conflict.” Pinto v. Reliance Standard Life

Ins. Co., 214 F.3d 377, 393 (3d Cir. 2000). However, at

the same time the court also acknowledged that the stan-

dard is “intellectually unsatisfying, or at least discom-

forting . . . [for] it is not clear how the process required

by the typical arbitrary and capricious review changes.”

Id. at 392. Indeed, as the case law reveals, the sliding

scale approach is as subjective and impractical as it is

vague and imprecise.

Fourth Circuit: The Fourth Circuit in Elliot v. Sara

Lee Corp., 190 F.3d 601, 605 (4" Cir. 1999), modified the

abuse of discretion standard to the extent necessary to

counteract any “influence unduly resulting from the con-

flict.” In Ellis v. Metropolitan Life Ins. Co., 126 F.3d 228,

233-34 (4 Cir. 1997), the court explained that “(t]he

more incentive for the administrator or fiduciary to bene-

fit itself by a certain interpretation of benefit eligibility

or other plan terms, the more objectively reasonable the

administrator or fiduciary’s decision must be and the

more substantial the evidence must be to support it.” This

explanation, however, only underscores the inevitable

subjectivity that results in inconsistent adjudication

under the sliding scale approach: the word “more” does

not quantify how far down the scale a court should slide.

This is an unmanageable test in the guise of guidance to

the lower courts.

Fifth Circuit: The Fifth Circuit in Vega v. National Life

Ins. Servs., 188 F.3d 287, 297 (5" Cir. 1999) reaffirmed that

“(t]he greater the evidence of conflict on the part of the

administrator, the less deferential our abuse of discretion

standard will be.” Again, the words “greater” and “less” defy

the possibility of consistent adjudication because they

are so vague.

Sixth Circuit: The Sixth Circuit acknowledges that

a conflict of interest should be taken into account as a fac-

tor in determining whether the decision was arbitrary

and capricious, and examines whether the administrator

was motivated by self-interest in rendering its decision.

Peruzzi v. Summa Medical Plan, 137 F.3d 431, 433 (6"

Cir. 1998). However, as typical of circuits employing the

sliding scale approach, the Sixth Circuit does not articu-

late a standard for how or to what degree this factor must

be taken into account. This kind of vagueness is disturb-

ing and unworkable, as acknowledged by the Seventh

Circuit.

Seventh Circuit: In an attempt to apply Firestone’s

instruction to weigh self-interest as a factor in the stan-

dard of review, the Seventh Circuit noted the need for

additional judicial guidance on this issue: “How much

does it weigh? [One court] recently concluded that it

can’t weigh very much without exceeding the judicial

capacity to tailor standards of review. Judges understand

deferential and non-deferential review, but intermediate

variations blur into one another without promoting under-

standing or consistent adjudication.” Perlman v. Swiss

Bank Corp. Comprehensive Disability Protection Plan, 195

F.3d 975, 986 (7" Cir. 1999). The Seventh Circuit got

the issue exactly right: terms such as “more” or “greater”

or “less” that litter sliding scale adjudication do not an-

swer the question of “how much.” However, perhaps for

lack of additional guidance, the Seventh Circuit also

employs the sliding scale approach, despite questioning

its ability to promote “understanding or consistent adjudica-

tion.” Id.; see also Chojnacki v. Georgia-Pacific Corp., 108

F.3d 810, 815 (7 Cir. 1997) (“The more serious the con-

flict, the less deferential our review becomes.”)

Eighth Circuit: The Eighth Circuit determined in

Clapp v. Citibank N.A. Disability Plan, 262 F.3d 820, 827

(8" Cir. 2001) that a court should give less deferential

sliding scale review if the claimant produces material

probative evidence that a palpable conflict was connected to

the administrator's decision so as to cause a serious

breach of fiduciary obligation. However, like other cir-

cuits, the Eighth Circuit acknowledges that there is an

inherent problem with this approach: if the plan partici-

pant has produced the required evidence to trigger a slid-

ing scale review, the plan participant also likely would

be able to receive a favorable result under the traditional

abuse of discretion review. Barnhart v. UNUM Life Ins. Co.,

179 F.3d 583, 589 n.9 (8th Cir. 1999) (The standard “pres-

ents a considerable hurdle for plaintiffs. Logically,

a plaintiff who can show that a conflict of interest or se-

rious procedural irregularity caused a serious breach of

the administrator’s fiduciary duty will more than likely

have substantial evidence showing that the fiduciary’s

decision was arbitrary and capricious.”). Thus, the Eighth

Circuit has acknowledged that its own sliding scale ap-

proach is essentially meaningless.

These complex and imprecise standards have created

confusion in the circuits, and their misapplication at the

district court level generate further appellate review and

therefore waste judicial resources. See, e.g., id. at 588

(holding the lower court failed to analyze conflict issue

under standard of the circuit).

Tenth Circuit: In Pitman v. Blue Cross, 217 F.3d 1291,

1295 (10 Cir. 2000), the Tenth Circuit held that the

court’s deference should decrease in proportion to the

severity of the conflict. Accord McGraw v. Prudential

Ins. Co. of Am., 137 F.3d 1253, 1258-59 (10 Cir. 1998).

In Charter Canyon Treatment Center v. Pool Co., 153

F.3d 1132, 1136 (10" Cir. 1998), the Circuit used the

vaguest language of all: that the review should be “tem-

pered by” the defendant’s possible conflict of interest.

Again, however, the Seventh Circuit’s apt question of “how

much” it should decrease or be “tempered by” remains

unanswered under this unworkable standard.

B. The Sliding Scale Approach Generates Inconsis-

tent Approaches Even as to Whether a Financial

Conflict of Interest Initiates a Slide Down the

Scale.

A particular area of inconsistency that exists among

the circuits using the sliding scale standard is the ap-

plication of the conflict of interest analysis to insurance

companies that both fund and administer ERISA plans.

Despite the undeniable trust background of ERISA recog-

nized by this Court in Firestone, the reality of long-

term disability plans today is that they consist overwhelm-

——— ————anr—- - — =

0 Eee ——

ingly of insurance policies. Even a cursory glance at the

plethora of reported cases demonstrates that in the vast

majority of cases insurers, who have obvious financial

interests at stake, decide the claims.* The circuits have

attempted to address this reality.

Some circuits hold that when a plan administrator

serves in this dual capacity, there is an actual, readily

apparent conflict of interest. See, e.g., Killian v. Health-

source Provident Admin., Inc., 152 F.3d 514, 521 (6th Cir.

1998); Pinto, 214 F.3d at 384; Chambers v. Family Health

Plan Corp., 100 F.3d 818, 825 (10 Cir. 1996). These courts

note that “insurance companies have an active incentive

to deny close claims in order to keep costs down and

keep themselves competitive .. . .” Pinto, 214 F.3d at 388.

The Seventh Circuit, however, holds that where a fidu-

ciary acts in such a capacity, only a potential conflict

exists and the insurer is presumed to be neutral. Mers

v. Marriott Int'l Group Acc. Death and Dismemberment

Plan, 144 F.3d 1014 (7th Cir. 1998), cert. denied, 525 U.S.

947 (1998). In Mers, the Seventh Circuit found that no

conflict existed essentially because the insurer was a

“Fortune 500” company and the impact of granting the

particular benefit sought in the instant case was minuscule.

Id. at 1020-21. Following the Seventh Circuit’s analysis

to its logical conclusion means an insurer, which likely

has billions of dollars in assets, would never be deemed

to have a financial incentive to deny a claim, because no

* Under the abuse of discretion standard, absent proper applica-

tion of the Restatement factors, these insurers essentially “serve

as judge and jury” for claims against themselves. Conferring such

power on a potentially self-interested private party is unprece-

dented in American jurisprudence. It is also in direct contradic-

tion to the considered determinations of the courts and legisla-

tures of virtually every state that insurance company claim

practices must be regulated carefully so as to protect insureds.

single disability claim could possibly be more than minus-

cule. Of course, this ignores the reality that the cumulation

of claims (and potential claim denials) obviously affects

any insurer's “bottom line.” The Seventh Circuit’s superfi-

cial analysis in Mers demonstrates that the often present

“judicial hesitation” to question a fiduciary’s motives, even

when the fiduciary is an insurance company, can leave

beneficiaries unprotected. Brown v. Blue Cross & Blue

Shield, Inc., 898 F.2d 1556, 1566-68 (11 Cir. 1990), cert.

denied, 498 U.S. 1040 (1991) (espousing a burden-shift-

ing analysis to place the onus on the fiduciary to show

lack of improper influence over-decision when such con-

flict exists).

C. The First Circuit’s “More Bite” Approach Is

Another Version of the Subjective Sliding Scale

Approach, and Is Equally Unworkable.

The First Circuit has avoided using “sliding scale”

terminology; instead, it characterizes the lesser deference

afforded to plan decisions influenced by a conflict of inter-

est as being arbitrary and capricious review with “more

bite.” Doe v. Travelers Ins. Co., 167 F.3d 53, 57 (1" Cir.

1999) (holding that “fine gradations in phrasing are

as likely to complicate as to refine the standard,” and that

the “essential requirement of reasonableness has substan-

tial bite itself”). However, the “more bite” approach is

just as vague as the sliding scale approach, and cannot

ensure consistent adjudication. “Bite” is, at best, just

another subjective term, like “sliding scale,” and at worst,

an approach rendered meaningless by its lack of defini-

tion. Thus, in criticizing the “more bite” approach, the

Seventh Circuit aptly noted that courts using this stan-

dard of review “have never come up with an operational

definition of ‘more bite’ or a specification of the appropri-

ate circumstances for mastication.” Perlman, 195 F.3d

at 981.

aS ee:

The vagueness of the “more bite” standard is illustrated

in Doyle v. Paul Revere Life Ins. Co., 144 F.3d 181 (1st

Cir. 1998). There, a divided appellate panel seemingly

applied the “more bite” analysis to the same record re-

viewed by the district court and reversed the district

court’s decision, with little explanation or guidance. If,

as the circuit courts recognize, the sliding scale ap-

proach lacks clarity and workability, the district courts

will certainly have difficulty applying the “more bite”

standard, as evidenced by Doyle. Thus, litigants and the

lower courts lack guidance as to how cases should be

presented and decided in the presence of a conflict of

interest.

D. The Second Circuit’s Approach Also Is Unwork-

able.

In the Second Circuit, the plan participant must pro-

duce “smoking gun” evidence that proves that the admin-

istrator’s decision was infected by the conflict of interest

in order to receive anything but traditional, non-sliding

abuse of discretion review. Sullivan v. LTV Aerospace and

Defense Co., 82 F.3d 1251, 1259 (2d Cir. 1996) (holding

that plaintiffs have the burden of proving that the con-

flict of interest affected the administrator’s decision). This

standard is in direct conflict to Firestone’s instruction

that a conflict of interest must be weighed as a “‘facto[r]

in determining whether there is an abuse of discretion.’”

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115

(1989) (quoting Restatement (Second) of Trusts § 187). In

addition, because this standard requires the plaintiffs to

prove that an administrator acted on a conflict, it requires

them to conduct extensive discovery in order to locate a

“smoking gun” showing the conflict, and then go even

further to show that the conflict in fact influenced the

decision at hand.

Ee a

Beneficiaries have little chance of finding a “smoking

gun” to prove that the administrator acted on a conflict.

See, e.g., Pinto, 214 F.3d at 379. (“Our rule is also informed

by the understanding that ‘smoking gun’ direct evidence

of purposeful bias is rare in these cases so that, without

more searching review, benefits decisions will be virtually

immunized.”). Consequently, it should not be the burden

of the beneficiary “‘to show that the fiduciary succumbed

to this temptation, that he acted in bad faith, that he

gained an advantage, fair or unfair, that the beneficiary

is harmed.’” Brown, 898 F.2d at 1565, quoting Fulton Nat'l

Bank v. Tate, 363 F.2d 562, 571-72 (5" Cir. 1966).

VI. IT IS TIME FOR THIS COURT TO SET FORTH A

CLEAR AND WORKABLE STANDARD FOR DETER-

MINING WHETHER THERE HAS BEEN AN ABUSE

OF DISCRETION

As explained above, the circuits are in disarray about

what constitutes a conflict of interest, how it is to be

demonstrated, and how to weigh evidence of it. Clearly, the

lower courts are in need of a uniform, rational, and practi-

cal approach. Both the Eleventh and the Ninth Circuits

have established approaches that provide clear standards

for assessing whether a conflict of interest is present, and

for determining the standard of review in light of that

conflict. Both circuits employ a burden-shifting approach

when there is evidence of a conflict of interest. Brown,

898 F.2d at 1566-68; Atwood v. Newmont Gold Co., Inc., 45

F.3d 1317, 1323 (9 Cir. 1995). As discussed below, the

Eleventh Circuit approach provides the clearer standard.

A. The Eleventh Circuit Has Established a Workable

Standard Which Will Result in Consistent Adjudi-

cation.

In Brown, the Eleventh Circuit established a burden-

shifting analysis. When the plan participant shows that

the administrator was acting under a potential conflict

of interest, the burden shifts to the administrator to

prove that its decision was not tainted by that conflict. 898

F.2d at 1566-68. Under the Eleventh Circuit’s approach, a

court first determines whether, looked at from a de novo

perspective, the administrator's decision is “wrong.” Jd.

at 1567 n.12 If the decision would not be wrong under

a de novo review, then the administrator's decision

stands. If the decision would be wrong under a de novo

review, then the court examines the conflict of interest.

Upon this examination, if the administrator was acting

under a substantial conflict of interest, then the burden

shifts to the administrator to prove its decision was

not tainted by self-interest. Jd. at 1566-67. A financial

conflict, such as that which exists when the same party

both funds the plan and decides claims, constitutes a

substantial conflict of interest. Jd. at 1561-62, 1568. Indeed,

the Eleventh Circuit has stated that an insurance com-

pany’s

fiduciary role lies in perpetual conflict with its

profit-making rule as a business. . . . Decisions

made by the issuing company on behalf of a plan

based on a contract of insurance .. . inherently

implicate the hobglobin of self-interest. Adverse

benefits determinations save considerable sums

that are returned to the fiduciary’s corporate

coffers.

Id. A plan administrator may meet its burden of proving

that it did not act in a self-interested manner by, for

example, showing that its decision is intended to maxi-

mize benefits to all plan participants in a fiscally respon-

sible way. Jd. at 1568.‘

B. The Ninth Circuit Also Employs a Clear Standard

Like the Eleventh Circuit, the Ninth Circuit considers

the fact that the administrator both funds and admin-

isters the plan to be an “inherent” conflict of interest. Lang

v. Long-Term Disability Plan of Sponsor Applied Remote

Tech., Inc., 125 F.3d 794, 797 (9" Cir. 1997). However, for

this conflict to affect the standard of review, the benefici-

ary must come forward with “material, probative evidence,

beyond the mere fact of the apparent conflict, tending

to show” that the administrator acted on the conflict.

Atwood, 45 F.3d at 1323.

The Ninth Circuit has found the following evidence to

be “material” and “tending to show” that the administra-

tor acted on the conflict: inconsistencies in the plan admin-

istrator’s reasons for denying the claim, Lang, 125 F.3d

at 799; insufficiency of a plan administrator's reasons

for denying the claim, Tremain v. Bell Industries, Inc., 196

F.3d 970, 977 (9 Cir. 1999); procedural irregularities in

the processing of claims, Freidrich v. Intel Corp., 181 F.3d

1105, 1110 (9 Cir. 1999); and, the current subject of the

Court’s review, rejection of the treating physicians’ opin-

ions, Regula v. Delta Family-Care Disability Survivorship

Plan, 266 F.3d 1130, 1147 (9 Cir. 2001), petition for cert.

filed, 71 USLW 3001 (U.S. Jun 13, 2002) (No. 01-1840).

If the beneficiary produces the required evidence, then

the burden shifts to the administrator to show that its

determination was not affected by a conflict of interest.

Atwood, 45 F.3d at 1316. Like the Eleventh Circuit, the

* This is particularly relevant in the case of plans with a fixed

corpus, as opposed to insurance companies, for example.

Ninth Circuit proposes that a plan might meet this bur-

den by, for example, “showing how its decision in fact

benefitted the plan as a whole . . . [or] that its decision was

intended to prevent an unanticipated expenditure that

would have depleted the resources available to other

beneficiaries of the plan.” Lang, 125 F.3d at 798. If the

administrator cannot meet its burden of showing that its

decision was not tainted by self-interest, then the court

reviews the determination de novo, “without deference to

the administrator’s tainted exercise of discretion.” Atwood,

45 F.3d at 1323.

C. Adopting One of These Approaches Will Result in

Conserved Judicial Resources and Will Help

Fulfill ERISA’s Intent.

Adopting either the Eleventh or the Ninth Circuit

approach would eliminate substantial conflict within the

circuits, and would ensure that a cohesive approach would

be uniformly applied throughout the circuits. Moreover, the

burden shifting approach of these Circuits makes sense

both as a practical matter and as a matter of fulfilling

ERISA’s intent to protect participants’ benefits. As the

Eleventh Circuit aptly stated, “[t]he judicial hesitation to

inquire into the fiduciary’s motives will leave the beneficia-

ries unprotected unless the existence of a substantial

conflicting interest shifts the burden to the fiduciary to

demonstrate that its decision is not infected with self-

interest.” Brown, 898 F.2d at 1565-66.

In addition to protecting beneficiaries, the burden-shifting

approach is both reasonable and practical because it

does not require plaintiffs to somehow locate a “smoking

gun” to prove that the conflict infected the administrator’s

decision, which, as discussed above, is “rare in these cases.”

Pinto v. Reliance Standard Life Ins. Co., 214 F.3d 377, 379

(3d Cir. 2000).

Although both the Ninth and the Eleventh Circuits

employ a burden-shifting approach, the difference be-

tween their approaches is when the burden shifts. In the

Ninth Circuit, although the plan participant does not

have to discover a “smoking gun” that definitively shows

that the administrator acted on a conflict, the participant

must put forth evidence “tending to show” that the adminis-

trator acted in its own interest (in addition to showing

the “inherent” financial conflict of interest). Atwood, 45

F.3d at 1323; Lang, 125 F.3d at 797. Once the beneficiary

has proffered this evidence, the burden shifts to the admin-

istrator to rebut it. Atwood, 45 F.3d at 1323. In the Elev-

enth Circuit, however, the burden shifts when there is a

financial or other conflict of interest present. Brown, 898

F.2d at 1561-62, 1568. It is then the responsibility of the

administrator to show that it did not act on this conflict.

Id. at 1566-67. The Eleventh Circuit’s approach is a clearer

standard because it eliminates inevitable inconsistencies

in what constitutes evidence “tending to show” a conflict

and avoids the need for plaintiffs to conduct discovery

to obtain substantial evidence of the conflict outside of

the administrative record.° Thus, although both ap-

proaches are better than the current state of the other

circuits, where there are virtually no concrete standards

to ensure consistent adjudication, the Eleventh Circuit

provides the better approach.

Moreover, both approaches avoid the amorphous and

inherently subjective determinations inherent in the slid-

ing scale and “more bite” approaches. Under either the

Eleventh Circuit or the Ninth Circuit approach, there is

no need to determine the degree of the fiduciary’s conflict,

5 Moreover, it is not logical to assume that in every case in which

a financial motive affects an administrator's substantive decision,

there also will be some procedural irregularity or other manifest

misconduct that is known to the participant and therefore

available to demonstrate that the conflict affected the decision.

nor is there any need to determine how far the court

should slide away from deference to the administrator's

decision or how much more “bite” it should put into its

deferential review. In short, where a decision would

be wrong under a de novo standard and the insurer or

other plan fiduciary is unable to demonstrate that the

conflict did not affect its decision, then the decision consti-

tutes an abuse of discretion.

Furthermore, these approaches ensure the enforce-

ment of ERISA’s duty of loyalty, since administrators

will be aware that if they act disloyally, courts will review

their decisions de novo. As the Solicitor General noted in

his Amicus Curiae brief in the present matter, “[t]o be

sure, once an employer establishes a plan covered by

ERISA, plan administrators are fiduciaries, 29 U.S.C.

1002(21A), and must administer the plan consistent

with their duties of prudence and loyalty.” Brief for the

United States as Amicus Curiae Supporting Petitioner

at 12. The approaches of the Eleventh and Ninth Cir-

cuits help ensure that administrators adhere to their

obligations of loyalty, since if there is evidence that they

did not act with loyalty to the beneficiaries, and the ad-

ministrator cannot rebut this evidence, then a court will

review the administrators’ decisions de novo. Administra-

tors therefore will not be able to hide behind the shield

of “discretion” when they have failed to act with the

loyalty required of them.

It is true that most employers try (and succeed) in be-

ing fair to their employees. However, insurance com-

panies, who handle the bulk of non-pension benefit claims,

have more palpable conflicts that may give rise to a greater

temptation to disregard ERISA’s duty of loyalty. See, e.g.,

Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 122

S.Ct. 2151, 2169 n.15 (2002) (noting in dictum that there

is a “potential for conflict when an HMO makes decisions

about appropriate treatment,” and that under Firestone,

“review for abuse of discretion would home in on any

conflict of interest on the plan fiduciary’s part, if a con-

flict was plausibly raised,”) (citations omitted). As the

Eleventh Circuit noted in Brown, a fundamental differ-

ence between plans administered by insurance companies

and plans “that are truly trusts” is that trustees act for

the future well-being of the trust, but this cannot be

presumed for insurance companies, since “[aJdverse bene-

fits determinations save considerable sums that are

returned to the fiduciary’s corporate coffers.” 898 F.2d at

1567-68. It is for this reason that courts must have an

effective tool for admonishing administrators who have

disregarded their duty of loyalty: namely, a de novo stan-

dard of review when a financial conflict of interest is

present.

CONCLUSION

For the reasons stated above, this Court should uphold

the ruling below, and use this case as an opportunity to

give the lower courts the tools to render consistent ad-

judication for which they have been searching for four-

teen years.

Respectfully submitted,