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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0513%3A18

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2008
- **Citation:** 554 U.S. 105

## Text

e

OFFICE OF THE CLERK
none SUPREME COURT, U.S.

Supreme Court of the Anited States

be

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 ---
er

sid Se.

TABLE OF CONTENTS

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

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

alias tiancckiis sad bak eveciaddeondonaanastiqpuien 6

I.

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

il

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

‘
4
‘
a

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

s
:

il

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

iv

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

7
;
:
:
.
: ‘
:
7
9
A

;

3 a
P
q

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

a

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
ES

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

ix

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

x

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 ¢ be eed eS eae
‘ 2 ™"
oe

;

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

3

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).

4

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

5

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.

6

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

|

7

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.

8

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

4
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7

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9

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

10

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

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}

11

(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,

12

“[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

13

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”).

14

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

|
|
.

15

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):

16

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).

17

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

18

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

19

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

20

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

21

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

22

“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

23

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

24

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

25

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).

26
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

27

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

28

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,

29

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

30

“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).

31

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.

32

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...)

33

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.”).

34

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

35

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

36

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.

37

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

38

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.,

39

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

la
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.

2a
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

3a

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).

4a

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--

Ha

(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;
or

(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

(C) subchapter III of this chapter: or

6a

(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.

(c) Assets of plan not to inure to benefit of
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--

7a

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.

(C) If a contribution is conditioned upon the
deductibility of the contribution under section 404

8a

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.

9a
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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0513%3A18. Public record. Not legal advice.