Amicus Curiae Brief — Metropolitan Life Ins. Co. v. Glenn

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OFFICE OF THE CLERK

none SUPREME COURT, U.S.

Supreme Court of the Anited States

METLIFE (METROPOLITAN LIFE INSURANCE COMPANY)

AND LONG TERM DISABILITY PLAN FOR ASSOCIATES OF

SEARS, ROEBUCK AND COMPANY,

Petitioners,

—-Vv—

WANDA GLENN,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

BRIEF AMICUS CURIAE OF

LEGAL AID SOCIETY—

EMPLOYMENT LAW CENTER

Patricia A. Shiu Daniel M. Feinberg

LEGAL AID SOCIETY— Cassie Springer-Sullivan

EMPLOYMENT LAW CENTER Counsel of Record

600 Harrison Street, LEWIS, FEINBERG, LEE,

Suite 120 RENAKER & JACKSON, P.C.

San Francisco, California 94107 1330 Broadway, Suite 1800

415-864-8848 Oakland, California 94612

510-839-6824

Counsel for Amicus Curiae Legal Aid Society—

Employment Law Center

March 31, 2008

ee ---

sid Se.

TABLE OF CONTENTS

STATEMENT OF INTEREST .........0. -....:2ee0020 1

SUMMARY OF ARGUMENT ...............:.cecceceeeees 2

alias tiancckiis sad bak eveciaddeondonaanastiqpuien 6

Il.

ITI.

IV.

IIIT ss chidiis ialsiabiieincavecvcbastesenensdnns 6

FIRESTONE MANDATES THAT

COURTS “MUST” WEIGH A

CONFLICT OF INTEREST AS A

FACTOR IN EXAMINING THE

CLAIM FIDUCIARY’S DECISION .............. 7

UNDER FIRESTONE AND TRUST

LAW, COURTS MUST WEIGH A

FINANCIAL CONFLICT OF

INTEREST IN REVIEWING A

EEE 10

THE MAJORITY OF CIRCUITS

EMPLOY “SLIDING SCALE”

TESTS TO WEIGH CONFLICTS OF

INTEREST. THE LOWER COURTS

NEED FURTHER GUIDANCE ON

HOW TO ACCOUNT FOR

CONFLICTS OF INTEREST ..................... 15

A. The Sliding Scale Test.......................- 16

B. The Smoking Gun Test....................... 24

C. The Burden Shifting Test................... 26

D. The Credibility Determination

with Clarifying Factors Test .............. 27

V. THIS COURT SHOULD IMPROVE

UPON ABATIE BY ADOPTING

THE RESTATEMENT OF TRUST'S

“ESPECIALLY CAREFUL

SCRUTINY” TEST AND .

PROVIDING THE LOWER COURTS

WITH ADDITIONAL GUIDANCE

SPECIFIC TO ERISA CLAIMS ................. 32

‘

A. The Courts Should Review the

Claim Denial de Novo Where a

Dual Role Administrator

Violates the Secretary of

Labor’s Claim Procedure

EES 34

B. The Courts Should Give Little

or No Deference to Claims

Administrators Who Seek to

Thwart Claimants by Changing

Their Reasons for Denying a

ASNT ee CE RS ae ener 36

ht ne

C. The Courts Should Give Little

or No Deference to Claim

Denials Based on Reports by

Biased Medical Evaluators.................

D. The Courts Should Give Little

or No Deference to Claim

Denials Where the Insurer Has

a Parsimonious Claims

i ac casccdowesecsenoees

a Richie isceiensnsenistednarscucessinintngeed

Ie eS PIRES odcccecenesecsssccoesssoseosessas

Rs te SI BD csnseseviccesccosesocenansconsscnseees

ERISA § 102, 29 U.S.C. § 1022.................ssccsccceeees 2a

ERISA § 403, 29 U.S.C. § 1103..................cccseeeesees 4a

ERISA § 503, 29 U.S.C. § 1133........................ce000 9a

65 Fed. Reg. 70246, 70263 (Nov. 21, 2000)......... 10a

. otk ie ee sen” Bee ee OL et. fie el ie ek fee

TABLE OF AUTHORITIES

Cases

Abatie v. Alta Health & Life Ins. Co., 458

F.3d 955 (9th Cir. 2006) (en banc) ............ passim

Aguilar v. New United Motor Mfg., Inc.

Disability Ins. Income Plan, 2005 WL

2137784 (N.D. Cal. Aug. 30, 2005)................... 27

Allen v. Adage, Inc., 967 F.2d 695

a sneisitabetins 8

Barnhart v. Unum Life Ins. Co. of Am., 179

F.3d 583 (8th Cir. 1999) .............................. 11,17

Bennett v. Unum Life Ins. Co. of Am., 321

F. Supp. 2d 925 (E.D. Tenn. 2004)................... 38

Black & Decker Disability Plan v. Nord,

etd eblciiatianninpnccassnmsene 37

Borda v. Hardy, Lewis, Pollard & Page, P.C.,

138 F.3d 1062 (6th Cir. 1998)... eee 22

Brigham v. Sun Life of Can., 317 F.3d 72

EN EIRENE car RS Oe OPEC ENEN 19

Brodish v. Federal Express Corp.,

384 F. Supp.2d 827“) Wed: 2005)................... 18

SS hee | bts * see

;

: ‘

;

3 a

Brown v. Blue Cross & Blue Shield of Alaz.,

Inc., 898 F.2d 1556 (11th Cir. 1990),

cert. denied, 498 U.S. 1040 (1991)...11, 14, 25, 26

California Fed. Savings & Loan Assn v.

Guerra, 479 U.S. 272 (1987)............c.c0c000ee

Chambers v. Family Health Plan Corp.,

100 F.3d 818 (10th Cir. 1996).............00.0..

Chojnacki v. Georgia-Pacific Corp.,

108 F.3d 810 (7th Cir. 1997) ...................-

Clapp v. Citibank N.A. Disability Plan,

262 F.3d 820 (8th Cir. 2001) ............

DeFelice v. Am. Int Life Assur. Co.,

112 F.3d 61 (2d Cir. 1997)................sses00

Des mark v. Liberty Life Assur. Co. of

Boston, 481 F.3d 16 (ist Cir. 2007)...........

Doe v. Travelers Ins. Co., 167 F.3d 53

Donato v. Metro. Life Ins. Co., 19 F.3d 375

GRR Rael ea eater ares ee

Elliot v. Sara Lee Corp., 190 F.3d 601

SSRI AL OSA Sees WA See

Ellis v. Metro. Life Ins. Co., 126 F.3d 228

TEE We chiciciondcnsiniacicinnasasociabainahitnadia

POP PER Pars CeO Aw EP ey OF Ree ee ee ey ee ee ee ee eee Seey ew

Firestone Tire & Rubber Co. v. Bruch,

RG ns sarsrsncnsenssnscooserens passim

Fort Halifax Packing Co., Inc. v. Coyne, 482

Fought v. Unum Life Ins. Co. of Am.,

379 F.3d 997 (10th Cir. 2004),

cert. denied, 544 U.S. 1026 (2005) ............ passim

Fulton Nat? Bank v. Tate, 363 F.2d 562

ESET Ey

Gilbertson v. Allied Signal, Inc., 328 F.3d 625

LETTS TE RD a a

Glenn v. MetLife, 461 F.3d 660 (6th Cir. 2006),

cert. granted, 128 S. Ct. 1117 (2008) ...............

Gritzer v. CBS, Inc., 275 F.3d 291 (3d Cir. 2002). 36

Hangarter v. Provident Life & Acc. Ins. Co., |

373 F.3d 998 (9th Cir. 2004) .......c.ccccseeseeeseeeees 38

Harris v. Forklift Systems, Inc., )

ssn encsnsmnsnsantin 2 |

International Union, UAW v. Johnson

Controls, Inc., 499 U.S. 187 (1991) .............00000. 2

Janeiro v. Urological Surgery Prof] Ass'n,

467 F.3d 190 (ist Cir BO0G) ...........0....0000000000...- 20

vil

Jebian v. Hewlett-Packard Co. Employee

Benefits Org. Income Prot. Plan,

349 F.3d 1098 (9th Cir. 2003).....................0004.

Killian v. Healthsource Provident Adm rs,

Inc., 152 F.3d 514 (6th Cir. 1998) .............0008.

Lang v. Long-Term Disability Plan of

Sponsor Applied Remote Tech., Inc.,

125 F.3d 794 (9th Cir. 1997) ..............cccceceeeeeees

LaRue v. De Wolff, Boberg & Associates,

Inc., --- U.S. ---, 128 S. Ct. 1020 (2008)............ 30

Marolt v. Alliant Techsystems, Inc.,

146 F.3d 617 (8th Cir. 1998) 0.0.0.0... 37

Matos v. Lorillard Tobacco Co.

Group Disability Ins. Plan, 391 F. Supp.

EE 18

McCoy v. Fed. Ins. Co., 7 F. Supp. 2d 1134

SI i seaieiuned 27

Meritor Savings Bank v. Vinson,

RE eae re een 2

Mers v. Marriott Jnt] Group Acc. Death and

Dismemberment Plan, 144 F.3d 1014

(7th Cir. 1998), cert. denied, 525 U.S. 947

National R_R. Passenger Corp. v. Morgan,

I ll 1

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

406 F.3d 98 (2d Cir. 2005) ...................ccsesceeseees 35

Nolan v. Heald College, 2007 WL

878946 (N.D. Cal. Mar. 12, 2007) .................... 18

Paese v. Hartford Life & Accident Ins. Co.,

449 F.3d 435 (2d. Cir. 2006) ..................ccecseeees 25

Pegram v. Herdrich, 530 U.S. 211 (2000) ............ 13,

Perlman v. Swiss Bank Corp.

Comprehensive Disability Prot. Plan,

195 F.3d 975 (7th Cir. 1999) .............. 5, 17, 20 22

Perry v. Simplicity Engg, 900 F.2d 963

a eclle 8

Pinto v. Reliance Standard Life Ins. Co.,

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

Pokratz v. Jones Dairy Farm, 771 F.2d 206

A ce a 8

Post v. Hartford Ins. Co., 501 F.3d 154

| EE ER Ee eee passim

Price Waterhouse v. Hopkins, 490 U.S. 228

Radford Trust v. First Unum Life Ins. Co.,

321 F. Supp. 2d 226 (D. Mass. 2004) .......... 38-39

» ee eR ee ee ee Pe en PE ee SPA eS eee ee eee Mey Ie Se ee CERIO We et CPs e a Cena

is : a

ee z a

* : vy

. G

Robinson v. Aetna Life Ins. Co., 443 F.3d 389

lies 10,

Rud v. Liberty Life Assur. Co. of Boston,

438 F.3d 772 (7th Cir. 2006) ...............c0:0000 8,13

Rush Prudential HMO, Inc. v. Moran,

nil 3,9

Saffon v. Wells Fargo & Co. Long

Term Disability Plan, 511 F.3d 1206

SE 34, 37

Schofield v. Metro. Life Ins. Co., 2006

WL 3359197 (E.D. Cal. Nov. 20, 2006) ............ 18

Sullivan v. LTV Aerospace and Defense Co.,

82 F.3d 1251 (2d Cir. 1996)..................... 3, 10, 24

Taft v. Equitable Life Assur. Soc.,

9 F.3d 1468 (Oth Cir. 1003) ...................ccccccesceeee 7

U_S. Airways, Inc. v. Barnett,

a 1

U.S. v. Virginia, 518 U.S. 515 (1996) ..................eee 2

In re Valma M. Hanson Revocable Trust,

779 N.E.2d 1218 (Ind. App. 2002).................... 35

Van Boxel v. Journal Co. Employees’

Pension Trust, 836 F.2d 1048

REF RE cr ne a 28

ae a

Vega v. National Life Ins. Servs.,

188 F.3d 287 (5th Cir. 1999) (en bane) ............

Wagener v. SBC Pension Benefit Plan-Non

Bargained Program, 407 F.3d 395

a cosaceunen

Wright v. R.R. Donnelley & Sons Co.

Group Benefits Plan, 402 F.3d 67

Ne penae

Statutes

29 C.F.R. § 2560.503-1(a).......ccccccscsecesseseceseeseeseeees

ERISA § 102, 29 U.S.C. § 1022...............s0ss0-csseseees

ERISA § 403, 29 U.S.C. § 1103....................ecsseeoees 30

ERISA § 503, 29 U.S.C. § 1133... eee eeeeeeeees 35

65 Fed. Reg. 70246, 70263 (Nov. 21, 2000)........... 12

Other

John H. Langbein, Trust Law As Regulatory

Law: The Unum/Provident Scandal and

Judicial Review of Benefit Denials Under

ERISA, 101 Nw. U. L. REv.

Cen comstononmuie 33, 39

Restatement (Third) of Trusts § 37,

I Tl cichiininintesibinsicingintblndiibienaseiasnditiannniind 5, 6, 13, 32

Restatement (Second) of Trusts § 187,

i ee

STATEMENT OF INTEREST!

The Legal Aid Society - Employment Law

Center (“LAS-ELC”) is a non-profit public interest

law firm whose mission is to protect, preserve, and

advance the workplace rights of individuals from

traditionally under-represented communities.

Since 1970, the LAS-ELC has represented plaintiffs

in cases involving the rights of employees in the

workplace, particularly those cases of special

import to communities of color, women, recent

immigrants, individuals with disabilities, and the

working poor. Employee benefits are crucial to low-

wage workers because they do not have financial

resources of their own to obtain medical benefits or

pay living expenses in the event of disability.

The LAS-ELC has appeared before this Court on

numerous occasions both as counsel for plaintiffs,

see National Railroad Passenger Corp. v. Morgan,

536 U.S. 101 (2002); U.S. Airways, Inc. v. Barnett,

535 U.S. 391 (2002); and California Federal

Savings & Loan Ass’n v. Guerra, 479 U.S. 272

(1987) (counsel for real party in interest), as well as

1\Pursuant to Supreme Court Rule 37.6, amicus states

that no person or entity other than the amicus curiae, and

their undersigned counsel made a monetary contribution

to the preparation or submission of this brief. >

attorney for any party authored this brief in whole ¢ <n

part. Written consent to the filing of this bricf hes » ven

obtained from the parties in accordance with Suyreme

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

been filed with the Clerk.

4 eee es ee ee ae er. ee PEP DT IF. ee We Wa ic Peon eS we eee Ae" ee Ue ~ ea i =A > be eed eS eae

‘ 2 ™"

;

in an amicus curiae capacity, see, e.g., U.S. v.

Virginia, 518 U.S. 515 (1996); Harris v. Forklift

Systems, Inc., 510 U.S. 17 (1993); International

Union, UAW v. Johnson Controls, Inc., 499 U.S.

187 (1991); Price Waterhouse v. Hopkins, 490 U.S.

228 (1989); Fort Halifax Packing Co., Inc. v. Coyne, .

482 U.S. 1 (1987); Meritor Savings Bank v. Vinson,

477 U.S. 57 (1986). The LAS-ELC has a strong

interest in protecting the employee benefit rights of

its clients.

SUMMARY OF ARGUMENT

In Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101, 115 (1989), this Court determined that

where the plan document gives the administrator

discretionary authority to determine eligibility for

benefits and interpret the plan, but the

administrator has 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) (alteration in original).

The first question presented by this case,

“Whether an administrator that both evaluates and

pays claims under a plan governed by the

Employee Retirement Income Security Act

(ERISA), 29 U.S.C.1001 et seg., is operating under

a conflict of interest that must be weighed on

judicial review of a benefit determination,” has

been answered in the affirmative by a substantial

majority of circuits. See, e.g., Post v. Hartford Ins.

Co., 501 F.3d 154, 162 (3d Cir. 2007) (“We have

long held that a structural conflict arises when the

adininistrator has a non-trivial financial incentive

to act against the interests of the beneficiaries.”)

Only two circuits, the First and the Seventh,

have determined that a financial conflict of interest

is no conflict at all. See Mers v. Marriott Int7

Group Acc. Death and Dismemberment Plan, 144

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

947 (1998); Wright v. R.R. Donnelley & Sons Co.

Group Benefits Plan, 402 F.3d 67, 74-75 (1st Cir.

2005). 2 The approach of these two circuits stands

in opposition to the Supreme Court’s previous

statements on this subject and should be rejected.

See Rush Prudential HMO, Inc. v. Moran, 536 U.S.

355, 384 n. 15 (2002) (‘In Firestone Tire itself, we

noted that review for abuse of discretion would

home in on any conflict of interest on the plan

fiduciary’s part, if a conflict was plausibly raised.”);

see also Abatie v. Alta Health & Life Ins. Co., 458

F.3d 955, 965 n.5 (9th Cir. 2006) (en banc) (noting

that although the /zrestone Court “did not

catalogue the full range of types of conflicts of

interest, . . . it suggested that a conflict exists when

a plan administrator (which acts as a fiduciary

toward the plan participants, who are beneficiaries)

is also the sole source of funding for an unfunded

2Cf Sullivan v. LTV Aerospace and Defense Co., 82

F.3d 1251, 1255-56 (2d Cir. 1996) (acknowledging the

presence of the financial conflict of interest, although not

weighing the conflict unless the participant proves it

tainted the decision).

plan; this was Firestone’s situation”). Further, the

Solicitor General agrees that a financial conflict of

interest is an inherent conflict of interest and that

this “type of conflict generally warrants careful

scrutiny in the trust context, even in the absence of

evidence that the plan administrator actually acted

because of its financial self-interest.” Solicitor’s

Cert. Br. at 13-14.

The second question presented — “If an

administrator that both determines and pays

claims under an ERISA plan is deemed to be

operating under a conflict of interest, how should

that conflict be taken into account on judicial

review of a discretionary benefit determination?” —

is one that has befuddled the lower courts. As

noted by the Third Circuit, “Since Firestone, courts

have struggled to give effect to this delphic

statement, and to determine both what constitutes

a conflict of interest 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). While many

circuits have employed some variation on the

“sliding scale” approach, which reduces the

deference afforded to the conflicted administrator’s

decision as the “weight” of the conflict of interest

increases, this approach is much-criticized — even

by the circuits employing it — as not providing

sufficient guidance to the lower courts to enable

judicial consistency. As the Seventh Circuit has

noted, the fundamental unanswered question in the

sliding scale approach is: “How much does [a

conflict of interest] 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 understanding

or consistent adjudication.” Perlman v. Swiss Bank

Corp. Comprehensive Disability Prot. Plan, 195

F.3d 975, 981 (7th Cir. 1999).

Lower courts, plan participants, and plan

administrators will all benefit from clear direction

from this Court on how to weigh a dual-role

administrator’s conflict of interest. Just as in

Firestor, the Court should again look to trust law

to adopt the standard suggested by Respondent:

when a “beneficiary serves as a trustee or when

other conflict-of-interest situations exist, the

conduct of the trustee in the administration of the

trust will be subject to especially careful scrutiny.”

Restatement (Third) of Trusts § 37, cmt. f(1).

Additionally, where other factors besides the

inherent financial conflict of interest are present

that demonstrate biased decision-making by the

administrator, such as a history of denying

meritorious claims, reliance on the reports of biased

medical reviewers, violations of the Department of

Labor's regulations in the claims review process, or

inconsistent reasons for denying a claim, the Court

should hold that the decision is entitled to very

little deference, if any.

ARGUMENT

I. INTRODUCTION

Most circuits have held that a financial conflict

of interest is a conflict that must be weighed in

determining whether there has been an abuse of

discretion, in accordance with Firestone Tire &

Rubber Co. v. Bruch, 489 U.S. 101, 115 (19839).

Because two circuits have clearly rejected this

analysis, the Court should clarify that a financial

conflict of interest, where the administrator both

makes the claims decision and pays for the

benefits, is indeed a conflict of interest and must be

taken into account.

Once the Court confirms that threshold conflict

of interest, the Court should provide concrete

guidance to the lower courts to enable them to

weigh that conflict pursuant to Firestone.

Specifically, the Court should hold that when a

“beneficiary serves as a trustee or when other

conflict-of-interest situations exist, the conduct of

the trustee in the administration of the trust will

be subject to especially careful scrutiny.”

Restatement (Third) of Trusts § 37, cmt. f(1). The

Court should provide further guidance by outlining

several additional factors that automatically alter

the standard of review, such that if any of those

factors are present, the conflicted administrator's

decision receives little, if any, deference

Il. FIRESTONE MANDATES THAT COURTS

“MUST” WEIGH A CONFLICT OF

INTEREST AS A FACTOR IN EXAMINING

THE CLAIM FIDUCIARY’S DECISION.

Citing trust law principles, this Court in

Firestone held that the default standard of review

of benefits decisions under ERISA plans is de novo

except where a plan gives the administrator or

fiduciary discretionary authority to determine

eligibility for benefits or interpret the terms of the

plan. Firestone Tire & Rubber Co. v. Bruch, 489

U.S. 101, 115 (1989). If the plan grants such

discretionary authority to the plan administrator or

fiduciary, then the district court will review a claim

denial under the “abuse of discretion” standard.

Id.

In the ERISA context, the courts have adopted

different formulations of the abuse of discretion

standard of review, which is sometimes referred to

as the “arbitrary and capricious” standard.? The

Seventh Circuit has gone so far as to describe this

standard as similar to a “loud guffaw” test:

* Many courts have mistakenly treated “arbitrary and

capricious” and “abuse of discretion” review as the same.

See. e.g.. Taft v. Equitable Life Assur. Soc., 9 F.3d 1469,

1471 (9th Cir. 1993) (“abuse of discretion” standard and

“arbitrary and capricious” standard the same). Sec

generally Petitioner's Br. § IIT A.

Although it is an overstatement to say that a

decision is not arbitrary or capricious

whenever a court can review the reasons

stated for the decision without a loud guffaw,

it is not much of an overstatement. The

arbitrary or capricious standard is the least

demanding form of judicial review of

administrative action. Any questions of

judgment are left to the agency, or here to the

administrator of the Plan.

Pokratz v. Jones Dairy Farm, 771 F.2d 206, 209

(7th Cir. 1985), overruled on other grounds by

Firestone, 489 U.S. at 115. See also Rud v. Liberty

Life Assi’ Co. of Boston, 438 F.3d 772, 773 (7th

Cir. 2006) (insurer’s decision “was not so off the

wall that it could be adjudged ‘arbitrary and

capricious.”) But see Donato v. Metro. Life Ins.

Co., 19 F.3d 375, 380 (7th Cir. 1994) (cautioning

that courts must not act as “a rubber stamp” under

abuse of discretion standard).

In conducting a de novo review, “the district

court considers a denial-of-benefits challenge

afresh, without deferring to the [administrator’s]

interpretation of the plan.” A//en v. Adage, Inc.,

967 F.2d 695, 697 (1st Cir. 1992). See also Perry v.

Simplicity Engg, 900 F.2d 963, 966 (6th Cir. 1990)

(de novo review means a review “without deference

to the decision or any presumption of correctness”).

Most importantly for the present case, the

Firestone Court also stated that “if a benefit plan

gives discretion to an administrator or fiduciary

;

ele

—_ >

who is operating under a conflict of interest, that

conflict must be weighed as a ‘factolr] in

determining whether there is an abuse of

discretion.” 489 U.S. at 115, quoting Restatement

(Second) of Trusts § 187, cmt. d (1959) (alteration

in original). More recently, this Court has

acknowledged the need for courts to scrutinize

decisions made by conflicted plan administrators:

An issue implicated by this case but

requiring no resolution is the degree to

which a plan provision for unfettered

discretion in benefit determinations

guarantees truly deferential review. In

Firestone Tire itself, we noted that review for

abuse of discretion would home in on any

conflict of interest on the plan fiduciary’s

part, if a conflict was plausibly raised. That

last observation was underscored only two

Terms ago in Pegram v. Herdrich, 530 U.S.

211, 120 S. Ct. 2143, 147 L.Ed.2d 164 (2000),

when we again noted the potential for

conflict when an HMO makes decisions

about appropriate treatment, see 7d., at 219-

220, 120 S. Ct. 2143. It is a fair question just

how deferential the review can be when the

judicial eye is peeled for conflict of interest.

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

384 n. 15 (2002).

Thus, this Court’s precedents require that

where a conflict of interest exists, courts must take

that conflict into account when deciding whether

there has been an abuse of discretion. The lower

courts, however, have struggled with the issues of

what is a conflict of interest and, once identified,

how that conflict is weighed.

Il. UNDER FIRESTONE AND TRUST LAW,

COURTS MUST WEIGH A FINANCIAL

CONFLICT OF INTEREST IN REVIEWING

A CLAIM DENIAL.

Petitioner presents the question of “[w]hether

an administrator that both evaluates and pays

claims under a plan governed by the Employee

Retirement Income Security Act (ERISA), 29

U.S.C.1001 et seg., is operating under a conflict of

interest that must be weighed on judicial review of

a benefit determination.” The answer is yes.

Where, as in this case, an ERISA plan fiduciary

both determines eligibility for benefits and pays

those benefits, most circuits acknowledge that

there is an inherent financial conflict of interest.

See, e.g., Sullivan v. LTV Aerospace and Defense

Co., 82 F.3d 1251, 1255-56 (2d Cir. 1996)

(acknowledging the presence of the financial

conflict of interest, although not weighing the

conflict unless the participant proves it tainted the

decision); Post v. Hartford Ins. Co., 501 F.3d 154,

162 (3d Cir. 2007) (“We have long held that a

structural conflict arises when the administrator

has a non-trivial financial incentive to act against

the interests of the beneficiaries.”); E/iis v. Metro.

Life Ins. Co., 126 F.3d 228, 233 (4th Cir. 1997):

Robinson v. Aetna Life Ins. Co., 443 F.3d 389, 395

}

(5th Cir. 2006); Killian v. Healthsource Provident

Adm rs, Inc., 152 F.3d 514, 521 (6th Cir. 1998)

(holding that where the administrator also funds

the plan, there exists “an actual, readily apparent

conflict,” rather than a merely potential conflict

because “it incurs a direct expense as a result of the

allowance of benefits, and it benefits directly from

the denial or discontinuation of benefits”):

Barnhart v. Unum Life Ins. Co. of Am., 179 F.3d

583, 588 (8th Cir. 1999); Abatie v. Alta Health &

Life Ins. Co., 458 F.3d 955, 965-66 (9th Cir. 2006)

(en banc) (“On the one hand, such an administrator

is responsible for administering the plan so that

those who deserve benefits receive them. On the

other hand, such an administrator has an incentive

to pay as little in benefits as possible to plan

participants because the less money the insurer

pays out, the more money it retains in its own

coffers.”); Fought v. Unum Life Ins. Co. of Am., 379

F.3d 997, 1003 (10th Cir. 2004), cert. denied, 544

U.S. 1026 (2005); Brown v. Blue Cross & Blue

Shield of Ala., Inc., 898 F.2d 1556, 1566-68 (11th

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

(“Because an insurance company pays out to

beneficiaries from its own assets rather than the

assets of a trust, its fiduciary role lies in perpetual

conflict with its profit-making role as a business.”).

In his brief in support of granting the Petition

for Certiorari, the Solicitor General also agrees that

a financial conflict of interest is an inherent conflict

of interest. Solicitor’s Cert. Br. at 13. The Solicitor

noted that because every claims decision made by a

dual-role administrator affects its bottom line,

“[t]hat type of conflict generally warrants careful

scrutiny in the trust context, even in the absence of

evidence that the plan administrator actually acted

because of its financial self-interest.” Jd. at 13-14.

The Department of Labor predicted that ERISA

plan fiduciaries and administrators would deny

more than 42 million claims in 2002. See 65 Fed.

Reg. 70246, 70263 (Nov. 21, 2000). For-profit

insurance companies cannot avoid taking into

consideration the potential liability represented by

the aggregate of these denied claims.

The Seventh and First Circuits, however, hold

that an insurer acting as a dual-role administrator

has only a potential conflict and the insurer is

presumed to be neutral. Mers v. Marriott Int7

Group Acc. Death and Dismemberment Plan, 144

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

947 (1998): Wright v. R.R. Donnelley & Sons Co.

Group Benefits Plan, 402 F.3d 67, 74-75 (1st Cir.

2005). In Mers, the Seventh Circuit found that no

conflict existed because the insurer was a “Fortune

500” company and the financial impact of granting

the particular benefit sought in the instant case

was minuscule. 144 F.3d at 1020-21. Following

the Seventh Circuit’s analysis to its logical

conclusion means an insurer, which has billions of

dollars in assets, would never be deemed to have a

financial incentive to deny a claim, because no

single disability claim could possibly be large in

comparison. This view ignores the reality that the

accumulation of claim payments determines any

insurer's bottom line. Indeed, the First Circuit has

recently expressed reservations about its rejection

of a financial conflict of interest as being a conflict

that alters the standard of review, calling its

position “increasingly difficult to defend” in light of

other circuits’ analyses of the issue. Denmark v.

Liberty Life Assur. Co. of Boston, 481 F.3d 16, 31

(1st Cir. 2007).

Moreover, the Seventh Circuit’s approach is also

based on the presumption that courts should not

rewrite the terms of a contract. See Rud v. Liberty

Life Life Assur. Co. of Boston, 438 F.3d 772, 775-77

(7th Cir. 2006). The Seventh Circuit’s fundamental

error is to view ERISA merely as a part of contract

law, rather than as a statute based on trust law.

Id. at 776 (assuming that an insurer would make

adverse benefit decision out of financial self-

interest “would destabilize large reaches of contract

law, of which ERISA is, after all, a part... .”).

However, this Court has already determined that

trust law, not contract law, applies in these cases.

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

101, 110-11 (1989). Rud ignores this precedent,

and even suggests that “Firestone goes too far” by

interfering with ccntract rights. 438 F.3d at 776.

Viewed from the perspective of trust law, this

Court has stated that where the fiduciary has a

financial interest in the claims decision, the

“fiduciary capacity [is] necessarily compromised.”

Pegram v. Herdrich, 530 U.S. 211, 227 (2000). See

also Restatement (Third) of Trusts § 37 cmt. f(1)

(when trustee has a conflict of interest, “the

conduct of the trustee in the administration of the

trust will be subject to especially careful scrutiny”).

The financial conflict of interest is significant

because “insurance companies have an active

incentive to deny close claims in order to keep costs

down and keep themselves competitive.” into v.

Reliance Standard Life Ins. Co., 214 F.3d 377, 388

(3d Cir. 2000); see also Fought, 379 F.3d at 1006.

: The common law of trusts assumes that “[a]

conflicted fiduciary may favor, consciously or

unconsciously, its interests over the interests of the

plan beneficiaries.” Brown, 898 F.2d at 1565. As |

the Third Circuit recently noted,

The Second Restatement, on whick the

Supreme Court relied in Firestone, defines a

“conflict” as merely “an interest in the

trustee conflicting with that of the

beneficiaries.” Restatement (Second) of

Trusts § 187 cmt. d (1959). This statement is

worded broadly—almost to the point of being

tautological—but it applies by its own terms

to a situation in which the administrator has

an interest ( e.g., in profit or a better bottom

line) that is adverse to the interests of

beneficiaries seeking payment.

Post, 501 F.3d at 162-63. Therefore, an insurance

company that decides benefit claims and pays

benefits from its own assets has an inherent

conflict of interest that warrants especially careful

scrutiny by a court reviewing a claim denial.

we ere a ee ee a eee. ee

IV. THE MAJORITY OF CIRCUITS EMPLOY

“SLIDING SCALE” TESTS TO WEIGH

CONFLICTS OF INTEREST. THE LOWER

COURTS NEFD FURTHER GUIDANCE ON

HOW TO ACCOUNT FOR CONFLICTS OF

INTEREST.

The Court also granted certiorari on we

following question suggested by the Solicitor

General: “If an administrator that both determines

and pays claims under an ERISA plan is deemed to

be operating under a conflict of interest, how

should that conflict be taken into account on

judicial review of a discretionary benefit

determination?” A structural financial conflict of

interest should automatically reduce the deference

afforded to the conflicted administrator, and the

Court should outline several other specific factors,

see Section V, below, to give concrete guidance on

what other types of evidence show that a conflict of

interest may have tainted the administrator's

decision and how to reduce the deference afforded

to the conflicted administrator.

The lower courts are in need of clear guidance

on this issue because, while most circuits apply

some form of the “sliding scale” test, they have been

unable to articulate what that means, and still

others apply a standard other than the “sliding

scale.” After Firestone, the lower courts have

adopted essentially four different approaches to

“weighing” a claim fiduciary’s conflict of interest in

the review of a benefit claim denial: “sliding scale”

(ist, 3rd, 4th, 5th, 6th, 7th, 8th, and 10th Circuits):

the credibility determination with guiding factors

(9th Circuit); “smoking gun” (2nd Circuit); and

burden shifting (11th Circuit).4 The standards of

the Ninth and Eleventh Circuits best account for a

dual-role administrator’s conflicts of interest, but,

as explained below, still need further clarification

to result in consistent adjudication.

A. The Sliding Scale Test.

The sliding scale test

grants the administrator deference in

accordance with the level of conflict. Thus, if

the level of conflict is slight, most of the

administrator’s deference remains intact,

and the court applies something similar to

traditional arbitrary and capricious review;

conversely, if the level of conflict is high,

then most of its discretion is stripped away.

Post v. Hartford Ins. Co., 501 F.3d 154, 161 (3d Cir.

2007).

Most circuits that have adopted the sliding scale

test have not given the district courts enough

‘The D.C. Circuit has not yet adopted an approach

after Firestone. See, e.g., Wagener v. SBU Pension

Benefit Plan-Non Bargained Program, 407 F.3d 395, 402

(D.C. Cir. 2005) (acknowledging a circuit split on the issue

and declining to adopt a position where the plaintiff would

prevail under any standard of review).

guidance as to how to apply the sliding scale

metaphor. Indeed, half of the circuits that have

adopted the sliding scale have explicitly expressed

reservations for this reason. See Perlman v. Swiss

Bank Corp. Comprehensive Disability Prot. Plan,

195 F.3d 975, 981 (7th Cir. 1999) (“How much does

[a conflict of interest] 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, bui intermediate variations blur

into one another without promoting understanding

or consistent adjudication.”); Pinto v. Reliance

Standard Life Ins. Co., 214 F.3d 377, 392 (3d Cir.

2000) (sliding scale is “intellectually unsatisfying,

or at least discomforting . . . [for] it is not clear how

the process required by the typical arbitrary and

capricious review changes.”); Barnhart v. Unum

Life Ins. Co., 179 F.3d 583, 589 n.9 (8th Cir. 1999)

(sliding scale standard “presents a considerable

hurdle for plaintiffs. Logically, a plaintiff who can

show that a conflict of interest or serious

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.”);

Fought v. Unum Life Ins. Co. of Am., 379 F.3d 997,

1004 (10th Cir. 2004), cert. denied, 544 U.S. 1026

(2005) (“To say that there is a sliding scale of

deference, however, merely begs the question: how

much less deference ought a reviewing court afford?

Our past opinions do not clearly address this

. question.... Our failure to articulate clearly the

requirements of a less deferential arbitrary and

capricious standard has left district courts in this

circuit without direction and has encouraged

litigation.”).

In practice, the sliding scale too often results in

untempered deferential review of decisions made

by conflicted fiduciaries because courts have no

guidance as to what standard of review to apply

that is less deferential than abuse of discretion

review but not as rigorous as de novo review. See, .

e.g., Nolan v. Heald College, 2007 WL 878946, *12-

13 (N.D. Cal. Mar. 12, 2007) (court stated that it

properly weighed MetLife’s structural conflict of

interest without elaborating on how it weighed that

conflict, then upheld the administrator's decision);

Schofield v. Metro. Life Ins. Co., 2006 WL 3359197,

*3 (E.D. Cal. Nov. 20, 2006) (concluding that the

court would review the administrator’s decision

with a “high degree of deference” despite presence

of structural conflict of interest, and therefore

upholding the administrator’s decision); Matos v.

Lorillard Tobacco Co. Group Disability Ins.

Plan, 391 F. Supp. 2d 392, 398 (M.D.N.C. 2005)

(stating that “Continental Casualty’s dual role of

plan administrator and plan insurer indeed creates

such a conflict of interest necessitating the

application of the sliding scale standard of review,”

then concluding that there had been no abuse of

discretion without analysis of how the sliding scale

affected the decision); Brodish v. Federal Express

Corp., 384 F. Supp.2d 827, 833 (D. Md. 2005)

(explaining that defendant had a “mild” conflict of

interest, but holding that there was no abuse of

discretion without explanation about the impact of

the conflict).

Moreover, the courts have expressed discomfort

at the unfair results when judicial hands are tied

by the abuse of discretion standard. In Brigham v.

Sun Life of Canada, 317 F.3d 72, 82, 86 (1st Cir.

2003), the First Circuit upheld an insurer’s denial

of disability benefits to a paraplegic under the

abuse of discretion standard, but stated:

[Wle confess considerable ambivalence about

whether Brigham shou/d be expected to

return to the workforce . . . it seems

counterintuitive that a paraplegic suffering

serious muscle strain and pain, severely

limited in his bodily functions, would not be

deemed totally disabled. . . . [but] the

undisputed facts of records do not permit us

to find that Sun Life acted in an arbitrary or

capricious manner in terminating appellant

Brigham’s benefits.

(emphasis in original).

First Circuit: While the First Circuit avoids

using “sliding scale” terminology, it still employs a

sliding scale test. It characterizes the lesser

deference afforded to plan decisions influenced by a

conflict of interest as being arbitrary and capricious

review with “more bite.” Doe v. Travelers Ins. Co.,

167 F.3d 53, 57 (1st 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 substantial bite

itself’). In the First Circuit, if there is sufficient

“bite,” the scale can slide all the way to de nove

review. See Janeiro v. Urological Surgery Prof]

Ass'n, 457 F.3d 130, 142 (1st Cir 2006) (applying

the level of “bite” necessary to account for the

severity of the conflict may require “no deference to

the conflicted decisionmaker”). In criticizing the

“more bite” approach, the Seventh Circuit aptly

noted that courts using this standard of review

“have never come up with an operational definition

of ‘more bite’ or a specification of the appropriate

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

at 981.

Third Circuit: The Third Circuit explained that

in its application of the sliding scale approach, the

court “approximately calibratles] the intensity of

our review to the intensity of the conflict.” Pinto,

214 F.3d at 393. However, at the same time the

court also acknowledged that the standard is

“intellectually unsatisfying, or at least

discomforting. . . . [for] it is not clear how the

process required by the typical arbitrary and

capricious review changes.” /d. at 392. Recently,

the court acknowledged that “liJn the face of non-

trivial evidence of procedural bias, the standard of

review should be raised: the more difficult question

is how much.” Post, 501 F.3d at 165.

Fourth Circuit: The Fourth Circuit in Fi/rot v.

Sara Lee Corp., 190 F.3d 601, 605 (4th Cir. 1999),

modified the abuse of discretion standard to the

extent necessary to counteract any “influence

unduly resulting from the conflict.” In Zildis v.

Metropolitan Life Ins. Co., 126 F.3d 228, 233-34

(4th Cir. 1997), the court explained that “[t]he more

incentive for the administrator or fiduciary to

benefit 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.

Fifth Circuit: In Vega v. National Life

Insurance Services, 188 F.3d 287, 297 (5th Cir.

1999) (en banc), the Fifth Circuit 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 terms

“greater” and “less” deference provide little

guidance to the district courts for consistent

adjudication.

Sixth Circuit: As articulated by the Sixth

Circuit in the opinion below, district courts must

discuss the role of the administrator's conflict of

interest and give that conflict “weight,” to

determine whether the decision is the “result of a

principled reasoning process.” Glenn v. MetLife,

461 F.3d 660, 666, 674 (6th Cir. 2006), cert.

granted, 128 S. Ct. 1117 (2008). Nonetheless, the

court characterizes this weighted review as a

“highly deferential standard.” Jd; see also Borda v.

Hardy, Lewis, Pollard & Page, P.C., 138 F.3d 1062,

1069 (6th Cir. 1998) (concluding that the fiduciary

will be entitled to some deference, but that

“application of the standard should be shaped by

the circumstances of the inherent conflict of

interest”). The instruction to “weigh” a conflict to

“shape” judicial review while simultaneously

applying a highly deferential standard is a

contradiction in itself, and is an example of why

further guidance is necessary.

Seventh Circuit: As quoted above, in an

attempt to apply Firestone’s instruction to weigh

conflicts of interest as a factor in the standard of

review, the Seventh Circuit noted the need for

clarification on “how much” a conflict of interest

should weigh. Perlman, 195 F.3d at 986. However,

the Seventh Circuit also employs the sliding scale

approach, despite questioning its ability to promote

“understanding or consistent adjudication.” J/d.; see

also Chojnacki v. Georgia-Pacific Corp., 108 F.3d

810, 815 (7th Cir. 1997) (“The more serious the

conflict, 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 (8th 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. Like other circuits,

the Eighth Circuit acknowledges that there is an

inherent problem with this approach: if the plan

participant has produced the required evidence to

trigger a sliding scale review, the plan participant

also likely would be able to receive a favorable

result under the traditional abuse of discretion

review. Barnhart, 179 F.3d at 589 n.9.

Tenth Circuit: In Fought, 379 F.3d at 1005, the

en banc court revised its conflict of interest

approach because it recognized that the lack of

concrete guidance afforded to district courts on the

issue resulted in judicial confusion. “To say that

there is a sliding scale of deference, however,

merely begs the question: Aow much less deference

ought a reviewing court afford? Our past opinions

in this area do not clearly address this question... .

Our failure to articulate clearly the requirements of

a less deferential arbitrary and capricious standard

has left district courts in this circuit without

direction and has encouraged litigation.” Jd. at

1005. The court ultimately adopted another

variation of the sliding scale test. First, the court

stated that courts should consider a “standard”

conflict of interest, i.e., a financial conflict, in

determining whether there has been an abuse of

discretion. /d. Next, the court considers whether

there is (1) an inherent financial conflict of interest:

(2) a proven conflict of interest “or (3) when a

serious procedural irregularity exists, and the plan

administrator has denied coverage.” /d. at 1006. If

so, “an additional reduction in deference is

appropriate” and the administrator bears the

burden of proving that its decision is reasonable

and based on substantial evidence. /d. Although

the Fought court adopted a test that provides more

guidance than the Tenth Circuit’s prior approach,

the court’s new test still does not provide clear

guidance as to how much a district court should

reduce deference to a conflicted administrator.

B. The Smoking Gun Test.

In the Second Circuit, the plan participant must

produce “smoking gun” evidence that proves that

the administrator’s decision was infected by the

conflict of interest in order to receive anything but

untempered 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 conflict 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 “factolr] in determining whether

there is an abuse of discretion.” Firestone, 489 U.S.

at 115 (quoting Restatement (Second) of ‘Trusts §

187); see DeFelice v. Am. Int] Life Assur. Co., 112

F.3d 61, 66 n. 3 (2d Cir. 1997) (criticizing Sullivan

for ignoring Firestone by minimizing the effect of

administrator’s conflict of interest). In addition,

because this standard requires the plaintiffs to

prove that an administrator acted on a conflict, it

places plaintiffs in an untenable position: on the

one hand, plaintiffs bear the burden of proof of

producing concrete evidence of conflicted decision-

making, but on the other hand, plaintiffs are only

permitted to seek evidence outside of the claims

record where the plaintiff can demonstrate the

presence of “good cause” zn the claims record to

warrant discovery. Sce Paese v. Hartford Life &

Accident Ins. Co., 449 F.3d 435, 441 (2d. Cir. 2006).

Beneficiaries have little chance of finding a

“smoking gun” to prove that the administrator

acted on aconflict. 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.”). The Ninth Circuit rejected

its previous standard requiring participants to

produce such evidence, stating “[t]hat approach

wrongly aligns incentives. Instead of being

encouraged affirmatively to demonstrate their

impartiality and the reasonableness of their

decisions, plan administrators are rewarded for

suppressing dissent and denying claims with as

little explanation as possible.” Abatie v. Alta

Health & Life Ins. Co., 458 F.3d 955, 967 (9th Cir.

2006) (en banc). 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 v. Blue Cross & Blue Shield of Ala., Inc., 898

F.2d 1556, 1565 (11th Cir. 1990), cert. denied, 498

U.S. 1040 (1991), quoting Fu/ton Nat’? Bank v.

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

C. The Burden Shifting Test.

In the Eleventh Circuit, where there is a

financial conflict of interest the court weighs the

conflict by applying a de novo standard of review to

the benefits decision, and then determines whether

the fiduciary or administrator can demonstrate

that its decision was not tainted by its financial

self-interest. Brown, 898 F.2d at 1566-68. Under

this approach, a court weighs the conflict of interest

by determining whether, on de novo review, the

administrator's decision is “wrong.” Jd. at 1567

n.12. If the decision is correct on de novo review,

then the administrator’s decision stands. If the

decision would be wrong under a de novo review,

the court further examines the conflict of interest.

The direction to conduct a de novo review of the

merits where there is a financial conflict of interest

provides clear guidance to the lower courts for how

to weigh the conflict, which is the very question

posed time and time again by the sliding scale

circuits.

Moreover, the Eleventh Circuit's standard

conserves judicial resources, because it is only in

those cases where the fiduciary’s decision is wrong

on de novo review that the court also must examine

the seriousness of the conflict of interest and

determine whether the fiduciary’s decision is

entitled to deference. If this Court adopts the

Eleventh Circuit's approach of reviewing a benefits

claim de novo where a financial conflict of interest

is present unless the fiduciary can prove that the

conflict did not affect the decision, most discovery

and motion practice regarding the standard of

review would also be eliminated, and ERISA

benefit litigation would be substantially

streamlined. See, e.g., Aguilar v. New United

Motor Mfg., Inc. Disability Ins. Income Plan, 2005

WL 2137784, *1 (N.D. Cal. Aug. 30, 2005) (where

plan contained no grant of discretion, parties and

court agreed at pre-trial conference that standard

of review would be de novo; court did not consider

evidence outside of the claim record and, following

bench trial, ruled in favor of defendant); McCoy v.

Fed. Ins. Co., 7 F. Supp. 24 i134, 1137 (E.D. Wash.

1998) (plan did not contain grant of discretion; case

decided on motion for summary judgment without

considering evidence outside of claim record).

D. The Credibility Determination with

Clarifying Factors Test.

In Abatie, Ninth Circuit articulated its

approach as “abuse of discretion review, tempered

by skepticism commensurate with the plan

administrator's conflict of interest.” 458 F.3d at

959. Consistent with Firestone, 489 U.S. at 115,

the Ninth Circuit instructed district courts to weigh

any conflict of interest as a factor in abuse of

discretion review:

[Wleighing a conflict of interest as a factor in

abuse of discretion review requires a case-by-

case balance. ... A district court, when

faced with all the facts and circumstances,

must decide in each case how much or how

little to credit the plan administrator's

reason for denying insurance coverage. An

egregious conflict may weigh more heavily

(that is, may cause the court to find an abuse

of discretion more readily) than a minor,

technical conflict might.

Abatie, 458 F.3d at 967, 968.

Although the Ninth Circuit acknowledged that

its test was “substantially similar” to the “sliding

scale” test used by the majority of Circuits, zd. at

967, the court rejected the “sliding scale” metaphor

and instead chose credibility determinations as a

more apt analogy:

[T]rial courts are familiar with the process of

weighing a conflict of interest. For example,

in a bench trial the court must decide how

much weight to give to a witness’ testimony

in the face of some evidence of bias. What

the district court is doing in an ERISA

benefits denial case is making something

akin to a credibility determination about the

insurance company’s or plan administrator’s

reason for denying coverage under a

particular plan and a particular set of

medical and other records.

Id. at 969. Just as evidence of bias can undercut

the credibility of a witness’ testimony, evidence of a

conflict of interest may belie an insurance

company’s stated reasons for denying a claim. See

Van Boxel v. Journal Co. Employees’ Pension

Trust, 836 F.2d 1048, 1052 (7th Cir. 1987) (Posner,

J.) (when trustees “have a serious conflict ot

interest, the proper deference to give their decisions

may be slight, even zero; the decision if wrong may

be unreasonable”).

The Abatre decision responds to criticism of the

sliding scale test as too vague by supplying much-

needed guidance and examples to the district

courts. The Ninth Circuit’s approach is an

improvement upon the sliding scale test because it

provides categories of evidence that the courts

should consider in deciding whether a claims

fiduciary was influenced by a conflict of interest

and how different types of conflicts should affect

the judicial standard of review.

In Abatie, the Ninth Circuit listed numerous

examples of evidence that might cause a court to

weigh a conflict more heavily: “evidence of malice,

of self-dealing, or of a parsimonious claims-

granting history.” 458 F.3d at 968. Further

examples include where “the adiministrator

provides inconsistent reasons for denial; fails

adequately to investigate a claim or ask the

plaintiff for necessary evidence: fails to credit a

claimant’s reliable evidence: or has repeatedly

denied benefits to deserving participants by

interpreting plan terms incorrectly or by making

decisions against the weight of evidence in the

record.” Jd. at 968-69.

The Ninth Circuit also suggested factors that

may ameliorate a fiduciary’s conflict of interest:

the administrator could demonstrate that it used

“truly independent medical examiners or a neutral,

independent review process; that its employees do

not have incentives to deny claims; that its

interpretations of the plan have been consistent

among patients: or that it has minimized any

potential financial gain through structure of its

business (for example, through a retroactive

payment system).” Jd. at 969 n. 7. Conversely, if a

participant can show that a claims fiduciary failed

to take these precautions, then a court may weigh

the conflict more heavily.

The Abatie court’s approach also gives district

courts the flexibility necessary to account for the

variety of administrative schemes found in ERISA

plans. Although an insurance company acts as

claims administrator and pays disability benefits

out of its own assets under most disability plans

(including the plan in the present case), different

arrangements which present less risk of financial

conflicts of interest are common in other types of

ERISA plans.

For example, ERISA requires that pension plan

assets be held in trust® and pension plans are

“ERISA requires a plan’s combined assets to be held

in trust and legally owned by the plan trustees.” LaRue v.

DeWollf, Boberg & Associates, Inc., —U.S.—, 128 8. Ct.

1020, 1029 (2008) (Thomas, J. concurring), citing ERISA §

403(a), 29 U.S.C. § 1103(a). ERISA’s trust requirement

does not apply to plans providing benefits through

insurance policies. ERISA § 403(b)(1): 29 U.S.C. §

1103(b)(1).

typically administered by a plan committee

composed of company employees. Since the pension

trust assets can “never inure to the benefit of any

employer,” ERISA § 403(c)(1), 29 U.S.C. §

1103(c)(1), the typical pension plan’s

administrative scheme poses less risk of financial

conflicts of interest than an insurance company’s

incentive to minimize claims payments from its

own assets. If the entity making the claims

decision is not responsible for paying benefits, it is

less likely to have a financial conflict of interest.

See Pinto, 214 F.3d at 383: see also Fought, 379

F.3d at 1005.6

The credibility determination required by

Abatie permits the courts to make a common-sense

decision as to whether the claims fiduciary acted

properly. The courts have heard insurance

disputes similar to the presen* case for centuries

and are experienced in deciding whether an

insurance coverage denial is justified or in bad

faith. The fact that the present case arose in the

®However, as noted by the concurring opinion in

Abatie, “A so-ce'ted independent administrator may have

much more of an incentive to decide against claimants

than an insurance company spending ‘its own money.’

Independent administrators may want to show how tough

they are on claims to bettcr market their services to self-

insured employers.” 458 F.3d at 977 (Kleinfeld. J.

concurring). Therefore, courts need to consider a third-

party administrator's compensation arrangements and

incentives before assuming that a_ third-party

administrator has no financial self-interest.

context of an ERISA plan does not change the fact

that the underlying dispute is an insurance

coverage claim. See generally NAIC Amicus Br.

V. THIS COURT SHOULD IMPROVE UPON

ABATIE BY ADOPTING THE

RESTATEMENT OF TRUST'S “ESPECIALLY

CAREFUL SCRUTINY” TEST AND

PROVIDING THE LOWER COURTS WITH

ADDITIONAL GUIDANCE SPECIFIC TO

ERISA CLAIMS.

The Abatie court’s credibility determination test

is an improvement upon the “sliding scale”

standard because the Ninth Circuit gave specific

examples of evidence showing a serious conflict of

interest to guide the lower courts. Abatie v. Alta

Health & Life Ins. Co., 458 F.3d 955, 968-69 (9th

Cir. 2006) (en banc). Nevertheless, the Abatie

court’s holding falls short of the trust law standard

for a conflicted fiduciary. Instead, this Court

should adopt the standard suggested by

Restatement (Third) of Trusts for a dual-role

administrator: when a “beneficiary serves as a

trustee or when other conflict-of-interest situations

exist, the conduct of the trustee in the

administration of the trust will be subject to

especially careful scrutiny.” § 37, cmt. f(1).?

7The Eleventh Circuit's burden shifting test is the

simplest and most efficient method for the courts to

evaluate decisions made by dual-role administrators:

however, some courts have criticized the test as being

(footnote continued...)

Amicus agrees with Respondent that the trust

law requirement of “especially careful scrutiny”

mandates closer scrutiny of a conflicted trustee’s

actions than the baseline requirement of

reasonableness for an unconflicted trustee’s

actions. The reviewing court must satisfy itself

that the conflict did not impermissibly affect the

dual-role insurer’s decision, whether consciously or

unconsciously.

Although the “especialiy careful scrutiny”

standard is appropriate as the default standard of

review for a dual-role administrator, the courts

should apply a stricter standard of review if there

is additional evidence that the claim decision was

tainted by a conflict of interest. As the Ninth

Circuit did in Abatie, the Court should take this

opportunity to provide the lower courts with

(continued from previous page)

inconsistent with Firestone. See Chambers v. Family

Health Plan Corp., 100 F.3d 818, 826 (10th Cir. 1996).

However, if this Court decides otherwise, then the

Eleventh Circuit's approach is best-suited for protecting

the benefit rights of plan participants. See John H.

Langbein, Trust Law As Regulatory Law: The

Unum/Provident Scandal and Judicial Review of Benefit

Denials Under ERISA, 101 Nw. U. L. Rev. 1315, 1334

(2007) (‘The Supreme Court could, without confessing

error in Bruch, materially reduce the scope of Bruch’'s

mischief by resolving this conflict among the circuits in

favor of the position of the Eleventh Circuit, insisting on

de novo review despite contrary plan terms in cases

involving conflicted decisionmaking.”).

guidance as to factors that result in a stricter

standard of review than “especially careful

scrutiny.”

In weighing evidence of a claims administrator's

conflict of interest, the courts should consider “both

structural and procedural factors.” Post v. Hartford

Ins. Co., 501 F.3d 154, 162 (3d Cir. 2007), citing

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

377, 192-93 (3d Cir. 2000). Certain structural

conflicts and procedural violations are so at odds

with ERISA’s requirement that administrators

provide participants with a “full and fair review,”

ERISA § 503, 29 U.S.C. § 1133, that these factors

should result in the courts giving little or no

deference to the administrator’s claim denial. See,

e.g., Saffon v. Wells Fargo & Co. Long Term

Disability Plan, 511 F.3d 1206, 1216-17 (9th Cir.

2008) (noting that, under Abatie, the lower court

should determine “the degree of deference (if any) it

should accord MetLife’s decision”) (emphasis added).

Although the following list is not exhaustive,

amicus believes that little or no judicial deference

should be given to a dual-role administrator where

any of these four factors is present.

A. The Courts Should Review the Claim

Denial de Novo Where a Dual Role

Administrator Violates the Secretary of

Labor’s Claim Procedure Regulations.

The courts should review de novo claim denials

in cases where the administrator violates the

requirements contained in the Secretary of Labor's

Claims Procedure Regulations, 29 C.F.R. §

2560.503-1, promulgated pursuant to ERISA § 503,

29 U.S.C. § 1133. The Regulations “set[] forth the

minimum requirements for employee benefit plan

procedures pertaining to claims for benefits, ” 29

C.F.R. § 2560.503-1(a), in order to provide

claimants with a “full and fair review” as required

by 29 U.S.C. § 1133(2). Many of the rules set forth

in the Regulations are also required to be included

in the Summary Plan Description (SPD), the plan

document which plan administrators are required

to provide to plan participants. ERISA § 102, 29

U.S.C. § 1022 (“[t]he summary plan description

shall contain . .. the procedures to be followed in

presenting claims for benefits under the plan .. .”).

A violation of the Regulations or the SPD is akin

to a trustee violating the terms of the trust

document. In such instances, the courts do not give

any deference to the decisions of the trustee. For

example, in Valma M. Hanson Revocable Trust,

779 N.E.2d 1218, 1220-23 (Ind. App. 2002), the

court held that the beneficiaries had stated a cause

of action in alleging that the trustee had violated

the terms of the trust, rejecting the trustee’s

arguments that his actions were within his

discretionary authority as trustee. Similarly, the

Second Circuit and other circuits have held that a

“deemed denial” of a benefit claim resulting from a

claim fiduciary’s failure to decide a claim within

the time frame required by the Regulations and/or

plan documents is not entitled to discretionary

review. Nichols v. Prudential Ins. Co. of Am., 406

F.3d 98, 109 (2d Cir. 2005). See also Abatie, 458

F.3d at 971 (“[Fllagrant” violations of the

Department of Labor Regulations will result in de

novo review.”); Jebian v. Hewlett-Packard Co.

Employee Benefits Org. Income Prot. Plan, 349

F.3d 1098, 1106-07 (9th Cir. 2003); Gilbertson v.

Allied Signal, Inc., 328 F.3d 625, 632-33 (10th Cir.

2003); Gritzer v. CBS, Inc., 275 F.3d 291, 295 (3d

Cir. 2002).

B. The Courts Should Give Little or No

Deference to Claims Administrators Who

Seek to Thwart Claimants by Changing

Their Reasons for Denying a Claim.

In addition, the courts should give little or no

deference to a claim denial where the claim

fiduciary changes its reason for denying the claim.

Many courts have criticized insurance companies

that seek to frustrate claimants by changing the

basis for a claim denial when the claimant presents

evidence that the initial basis for denying the claim

was wrong:

[T]he fact that the claims administrator

presented a new reason at the last minute

bears on whether denial of the claim was the

result of an impartial evaluation or was

colored by MetLife’s conflict of interest. After

all, coming up with a new reason for rejecting

the claim at the last minute suggests that the

claim administrator may be casting about for

an excuse to reject the claim rather than

conducting an objective evaluation.

Saffon, 511 F.3d at 1215. See also, Marolt v.

Alliant Techsystems, Inc., 146 F.3d 617, 620 (8th

Cir. 1998) (“We will not permit ERISA claimants

denied the timely and specific explanation to which

the law entitles them to be sandbagged by after-

the-fact plan interpretations devised for purposes of

litigation”); Lang v. Long-Term Disability Plan of

Sponsor Applied Remote Tech., Inc., 125 F.3d 794,

799 (9th Cir. 1997) (de novo review where claim

fiduciary provides inconsistent reasons for denial

under former Ninth Circuit standard). The failure

to provide a claim review process that permits the

participant to respond to all of the administrator's

reasons for rejecting his claim is adversarial

conduct that warrants de novo review.

C. The Courts Should Give Little or No

Deference to Claim Denials Based on

Repor’s by Biased Medical Evaluators.

The court should give little if any deference to

claim denials based on reports by biased

physicians. As shown by Black & Decker Disability

Plan v. Nord, 538 U.S. 822 (2003), a key issue in

disability benefit claims is the reliability of medical

evidence. In Nord, this Court rejected adoption of

the treating physician rule for ERISA disability

benefit claims. /d. at 830-31. However, the Court

expressed “concern that physicians repeatedly

retained by benefits plans may have an incentive to

make a finding of ‘not disabled’ in order to save

their employers money and to preserve their own

consulting arrangements.” /d. at 1143 (quotation

omitted). For example, in Hangarter v. Provident

Life & Accident Insurance Co., 373 F.3d 998, 1011

(9th Cir. 2004), the court discounted the testimony

of a physician hired by the insurer in a non-ERISA

case where evidence obtained in discovery showed

that the physician rejected insureds’ disability

claims in thirteen out of thirteen cases. In Bennett

v. Unum Life Insurance Co. of America, 321 F.

Supp. 2d 925, 933-36 (E.D. Tenn. 2004), the court

recited evidence detailing how the insurer

pressured claims adjusters and medical reviewers

to deny claims to increase profits. See also Abatie,

458 F.3d at 969 n.7 (“a conflicted administrator,

facing closer scrutiny, may find it advisable to

bring forth affirmative evidence that any conflict

did not influence its decision making process .. .

[flor example, the administrator might demonstrate

that it used truly independent medical examiners .

_..”). If an administrator cannot show that its

medical review process was neutral, the court

should not be obligated to defer to its decision.

D. The Courts Should Give Little or No

Deference to Claim Denials Where the

Insurer Has a Parsimonious Claims

Granting History.

Finally, where an insurer has a history of

denying meritorious claims, courts should be

permitted to review subsequent denied claims

neutrally, on de novo review, rather than forced to

defer to an administrator with a demonstrated

bias. See Abatie, 458 F.3d at 968. For example, in

Radford Trust v. First Unum Life Insurance Co.,

the court found that the case “is not the first time

that First Unum has sought to avoid its contractual

responsibilities, and an examination of cases

involving First Unum ... reveals a disturbing

pattern of erroneous and arbitrary benefits denials,

bad faith contract misinterpretations, and other

unscrupulous tactics.” 321 F. Supp. 2d 226, 247 (D.

Mass. 2004), rev'd on other grounds, 491 F.3d 21

(1st Cir. 2007); see a/so John H. Langbein, Trust

Law As Regulatory Law: The Unum/Provident

Scandal and Judicial Review of Benefit Denials

Under ERISA, 101 N.w. U. L. REv. 1315, 1317-21

(2007).

CONCLUSION

For the reasons stated above, this Court should

uphold the decision below.

Respectfully submitted,

Daniel M. Feinberg Patricia A. Shiu

Cassie Springer-Sullivan Legal Aid Society — Employment

Counsel of Record Law Center

Lewis, Feinberg, Lee, Renaker 600 Harrison Street

& Jackson, P.C. Suite 120

1330 Broadway, Suite 1800 San Francisco, CA 94107

Oakland, CA 94612 (415) 864-8848

(510) 839-6824

STATUTORY APPENDIX

29 C.F.R. § 2560.503-1(a):

Scope and purpose. In accordance with the

authority of sections 503 and 505 of the Employee

Retirement Income Security Act of 1974 (ERISA or

the Act), 29 U.S.C. 1133, 1135, this section sets

forth minimum requirements for employee benefit

plan procedures pertaining to claims for benefits by

participants and beneficiaries (hereinafter referred

to as claimants). Except as otherwise specifically

provided in this section, these requirements apply

to every employee benefit plan described in section

4(a) and not exempted under section 4(b) of the Act.

ERISA § 102, 29 U.S.C. § 1022:

(a) A summary plan description of any employee

benefit plan shall be furnished to participants and

beneficiaries as provided in section 1024(b) of this

title. The summary plan description shall include

the information described in subsection (b) of this

section, shall be written in a manner calculated to

be understood by the average plan participant, and

shall be sufficiently accurate and comprehensive to .

reasonably apprise such participants and

beneficiaries of their rights and obligations under

the plan. A summary of any material modification

in the terms of the plan and any change in the

information required under subsection (b) of this

section shall be written in a manner calculated to

be understood by the average plan participant and

shall be furnished in accordance with section

1024(b)(1) of this title.

(b) The summary plan description shall contain the

following information: The name and type of

administration of the plan: in the case of a group

health plan (as defined in section 1191b(a)(1) of

this title), whether a health insurance issucr (as

defined in section 1191b(b)(2) of this title) is

responsible for the financing or administration

(including payment of claims) of the plan and (if so)

the name and address of such issuer: the name and

address of the person designated as agent for the

service of legal process, if such person is not the

administrator: the name and address of the

administrator: names, titles, and addresses of any

trustee or trustees (if they are persons different

from the administrator); a description of the

relevant provisions of any applicable collective

bargaining agreement; the plan's requirements

respecting eligibility for participation and benefits:

a description of the provisions providing for

nonforfeitable pension benefits; circumstances

which may result in disqualification, ineligibility,

or denial or loss of benefits: the source of financing

of the plan and the identity of any organization

through which benefits are provided; the date of the

end of the plan year and whether the records of the

plan are kept on a calendar, policy, or fiscal year

basis; the procedures to be followed in presenting

claims for benefits under the plan including the

office at the Department of Labor through which

participants and beneficiaries may seek assistance

or information regarding their rights under this

chapter and the Health Insurance Portability and

Accountability Act of 1996 with respect to health

benefits that are offered through a group health

plan (as defined in section 1191b(a)(1) of this title)

and the remedies available under the plan for the

redress of claims which are denied in whole or in

part (including procedures required under section

1133 of this title).

ERISA § 403, 29 U.S.C. § 1103:

(a) Benefit plan assets to be held in trust; authority

of trustees

Except as provided in subsection (b) of this section,

all assets of an employee benefit plan shall be held

in trust by one or more trustees. Such trustee or

trustees shall be either named in the trusv

instrument or in the plan instrument described in

section 1102(a) of this title or appointed by a person

who is a named fiduciary, and upon acceptance of

being named or appointed, the trustee or trustees

shall have exclusive authority and discretion to

manage and control the assets of the plan, except to

the extent that--

(1) the plan expressly provides that the trustee or

trustees are subject to the direction of a named

fiduciary who is not a trustee, in which case the

trustees shall be subject to proper directions of such

fiduciary whick are made in accordance with the

terms of the plan and which arc not contrary to this

chapter, or

(2) authority to manage, acquire, or dispose of

assets of the plan is delegated to one or more

investment managers pursuant to section

1102(c)(3) of this title.

(b) Exceptions

The requirements of subsection (a) of this section

shall not apply--

(1) to any assets of a plan which consist of

insurance contracts or policies issued by an

insurance company qualified to do business in a

State;

(2) to any assets of such an insurance company or

any assets of a plan which are held by such an

insurance company;

(3) to a plan--

(A) some or all of the participants of which are

employees described in section 401(c)(1) of Title 26;

(B) which consists of one or more individual

retirement accounts described in section 408 of

Title 26:

to the extent that such plan's assets are held in one

or more custodial accounts which qualify under

section 401(f) or 408(h) of Title 26, whichever is

applicable.

(4) to a plan which the Secretary exempts from the

requirement of subsection (a) of this section and

which is not subject to any of the following

provisions of this chapter--

(A) part 2 of this subtitle,

(B) part 3 of this subtitle, or

(5) to a contract established and maintained under

section 403(b) of Title 26 to the extent that the

assets of the contract are held in one or more

custodial accounts pursuant to section 403(b)(7) of

Title 26.

(6) Any plan, fund or program under which an

employer, all of whose stock is directly or indirectly

owned by employees, former employees or their

beneficiaries, proposes through an unfunded

arrangement to compensate retired employees for

benefits which were forfeited by such employees

under a pension plan maintained by a former

employer prior to the date such pension plan

became subject to this chapter.

employer: allowable purposes of holding plan assets

(1) Except as provided in paragraph (2), (3), or (4)

or subsection (d) of this section, or under sections

1342 and 1344 of this title (relating to termination

of insured plans), or under section 420 of Title 26

(as in effect on August 17, 2006), the assets of a

plan shall never inure to the benefit of any

employer and shall be held for the exclusive

purposes of providing benefits to participants in the

plan and their beneficiaries and defraying

reasonable expenses of administering the plan.

(2)(A) In the case of a contribution, or a payment of

withdrawal liability under part 1 of subtitle E of

subchapter III of this chapter--

G) if such contribution or payment is made by an

employer to a plan (other than a multiemployer

plan) by a mistake of fact, paragraph (1) shall not

prohibit the return of such contribution to the

employer within one year after the payment of the

contribution, and

(ii) if such contribution or payment is made by an

employer to a multiemployer plan by a mistake of

fact or law (other than a mistake relating to

whether the plan is described in section 401(a) of

Title 26 or the trust which is part of such plan is

exempt from taxation under section 501(a) of Title

26), paragraph (1) shall not prohibit the return of

such contribution or payment to the employer

within 6 months after the plan administrator

determines that the contribution was made by such

a mistake.

(B) If a contribution is conditioned on initial

qualification of the plan under section 401 or 403(a)

of Title 26, and if the plan receives an adverse

determination with respect to its initial

qualification, then paragraph (1) shall not prohibit

the return of such contribution to the employer

within one year after such determination, but only

if the application for the determination is made by

the time prescribed by law for filing the employer's

return for the taxable year in which such plan was

adopted, or such later date as the Secretary of the

Treasury may prescribe.

deductibility of the contribution under section 404

of Title 26, then, to the extent the deduction is

disallowed, paragraph (1) shall not prohibit the

return to the employer of such contribution (to the

extent disallowed) within one year after the

disallowance of the deduction.

(3) In the case of a withdrawal liability payment

which has been determined to be an overpayment,

paragraph (1) shall not prohibit the return of such

payment to the employer within 6 months after the

date of such determination.

(d) Termination of plan

(1) Upon termination of a pension plan to which

section 1321 of this title does not apply at the time

of termination and to which this part applies (other

than a plan to which no employer contributions

have been made) the assets of the plan shall be

allocated in accordance with the provisions of

section 1344 of this title, except as otherwise

provided in regulations of the Secretary.

(2) The assets of a welfare plan which terminates

shall be distributed in accordance with the terms of

the plan, except as otherwise provided in

regulations of the Secretary.

ERISA § 503, 29 U.S.C. § 1133:

In accordance with regulations of the Secretary,

every employee benefit plan shall--

(1) provide adequate notice in writing to any

participant or beneficiary whose claim for benefits

under the plan has been denied, setting forth the

specific reasons for such denial, written in a

manner calculated to be understood by the

participant, and

(2) afford a reasonable opportunity to any

participant whose claim for benefits has been

denied for a full and fair review by the appropriate

named fiduciary of the decision denying the claim.

104

65 Fed. Reg. 70246, 70263 (Nov. 21, 2000):

The Department considered the following major

actions that plans (or their service providers) would

undertake to come into compliance with the

regulation: revising processes, revising forms,

modifying systems, and hiring or contracting where

necessary. The Department assumed that all

healvh and disability plans would have to revise

processes and forms and modify systems to at least

some degree and that some would hire personnel or

contract for additional or different services in order

to achieve compliance. [FN55]

F'N55 This estimate is not intended to include the

cost of developing new explanations of claims

processes for inclusion in plan descriptions. The

Department separately accounts for that cost as

part of the estimated cost of its regulation

governing the content of summary plan

descriptions.

4. Ongoing Costs

In estimating the ongoing cost of various

provisions, the Department considered the number

of claims transactions to which they apply, the

degree to which plans already comply in the course

of normal business or in response to a state law or

other mandate other than ERISA, and, to the

degree that they do not, the likely cost of coming

into compliance.

Claims volume was estimated by applying

lla

estimated claiming rates for various types of claims

to projected estimates of plan enrollment in 2002.

To estimate the application of the regulation's

various requirements to different types of benefit

claims, it was necessary to separately estimate

health, disability, pension, and other benefit claims

volumes. With respect to health benefit claims, it

was necessary to separately estimate urgent, pre-

service, and post-service claims volume, and the

number of denials that are based on clinical or

medical judgments. With respect to disability

claims, it was necessary to estimate short-term and

long-term disability claims separately. The

Department also accounted separately for costs

associated with approved and denied claims and

appeals. Table 4 summarizes estimated 2002

claims volume.

Table 4.--

Summary of Claims Volume, 2002

Health Disability Pension Other

(MMs) (000s) (000s) (000s)

Claims ..... | se 1,389.7 .... 2,122.1 ..... 244.5

Approved ... 1,328.6 .... 1,304.9 .... 2,104.0 ..... 236.4

Denied ...... a _* 18.0 ....... 8.1

Appeals ......... | Se SE ccnecses ee 0.8

Approved ...... er | St 0.4

Denied ......... . a | a | 0.4

Health claims (MMs).. 1,369.7 0.0.00... cccceccceee ceeeeees

PIE POUIWEIID co BID cccccccscccecs cescccccccs coccceces

Routine pre-service ... 40.0 ........c..00. cccccscsses cccceeess

Post-service ......... iti ss pices incemesaitd

12a

Denied health claims

(MMs) ...... i ee al

Other basis ........... ie sce

Disability claims (000s) .. 1,389.7 20... cccccccccce ccceees

Short-term .......... ES eee

Long-term ........... EEE sciebetacdhinduns \eciietbiieitey, sadiliineinn

The Department applied estimates of health and

disability benefit claiming rates and claims mix to

its estimates of enrollment in health and disability

plans to produce its estimates of total claims

volume. The Department estimated claims volume

and mix in light of comments received in response

to its proposed regulation and other data that

provide reasonable proxies for private-sector

employment-based health and disability benefit

plans' claim patterns. For example, comments on

the proposed regulation indicated health benefit

claiming rates ranging from about 5 to 18 claims

per individual per year. The average rate across all

comments reporting rates was 9 claims per year,

and surveys available to the Department reported

rates of 6 [FN56] and 11 [FN57] claims per year.

Many of these reported figures may omit some

health benefit claims, such as dental claims, made

by the same individuals under separate plans. The

Department assumed that the health benefit

claiming rates average 10 per covered individual.

believing that this is consistent with comments

received and other available information.

l3a

FN56 A published 1995 survey of 53 health

insurers’ claims systems by the Health Insurance

Association of America.

FN57 A survey of 7 managed care organizations

conducted and provided to the Department in

response to its proposed regulation.

The Department similarly relied on comments

received and other available data to assess health

benefit claims denial and appeal rates and the mix

of urgent, pre- and post-service claims. The

Department assessed disability claiming rates and

claims mix based on comments received (including

information from the life insurance industry) and

available data on the incidence of temporary and

permanent disability in the working age

population. [FN58]

FN58 Primarily, data from the National Center for

Health Statistics and the Social Security

Administration.

The Department separately considered the effect of

each of the regulation's major provisions on each

type of claim to which it applies. Based on its

analysis, the Department attributed cost to the

application of the regulation's notice, timeliness,

disclosure, standard of review, and expert

consultation requirements to health and disability

claims and appeals.

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