Amicus Curiae Brief — Reliance Standard Life Insurance v. Lasser

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No. 03-1203

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IN THE 23 2004

Supreme Court of the nga Ghd CLERK

RELIANCE STANDARD LIFE INSURANCE COMPANY,

Petitioner,

v.

STEPHEN P. LASSER,

Respondent.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES CourT OF APPEALS FOR THE THIRD CIRCUIT

BRIEF OF Amicus CURIAE THE AMERICAN COUNCIL OF LIFE

INSURERS IN SUPPORT OF RELIANCE STANDARD

LIFE INSURANCE COMPANY’S PETITION FOR A

Writ OF CERTIORARI

VICTORIA E. FIMEA STANLEY C. FICKLE

Senior Counsel, Litigation Counsel of Record

AMERICAN COUNCIL OF LIFE INSURERS BarNES & THORNBURG LLP

101 Constitution Ave., N.W. 11 South Meridian Street

Suite 700 Indianapolis, IN 46204

Washington, D.C. 20001 (317) 236-1313

(202) 624-2183 CAROLYN DoppeELt GRAY

TERESA L. JAKUBOWSKI

BARNES & THORNBURG LLP

750 17" Street, N.W.

Washington, D.C. 20006

(202) 289-1313

Counsel for Amicus Curiae

187049 ce

COUNSEL PRESS

(800) 274-5321 * (800) 359-6859

i

TABLE OF CONTENTS

TABLE OF CITED AUTHORITIES ............

INTEREST OF AMICUS CURIAE .............. ;

SUMMARY OF ARGUMENT .................

REASONS FOR GRANTING THE PETITION ....

A. THE CIRCUIT COURTS OF APPEALS HAVE

NOT RESOLVED THEIR CONFLICTING

STANDARDS OF REVIEW IN THE

CONTEXT OF CONFLICTED ADMINIS-

TRATORS AND FIDUCIARIES. .........

B. THE CONFLICT AMONG THE CIRCUITS

UNDERMINES BASIC ERISA POLICIES

AND ADVERSELY AFFECTS EMPLOYEE

Ue sO. es ee

1. The Standard Of Review Issue Affects a

Large Proportion Of ERISA Litigation.

2. The Circuit Conflict Undermines the

National Uniform Regulation Intended

by ERISA, and Consequently Increases

the Cost to Employers of Providing

EE TOG i ck ov kane gedeeNaanes

11

ll

Contents

Page

3. The Circuit Conflict Undermines

ERISA’s Civil Enforcement Scheme,

Increasing Litigation and Further

Increasing the Cost to Employers of

Providing Benefit Plams. ............. ‘3

4. The Circuit Conflict Negatively Impacts

Benefit Plans and Employers In

Additional Ways. .................. 14

C. A HIGHLY DEFERENTIAL STANDARD

OF REVIEW SHOULD APPLY UNLESS

THE CLAIMANT PRESENTS EVIDENCE

THAT A CONFLICT OF INTEREST IN

FACT INFLUENCED THE BENEFIT

DE TERMEMASION. .0i6s0cvseeneuaesy 15

CAO LAIOM 65 000 ees 55050 000s eee 18

lil

TABLE OF CITED AUTHORITIES

Page

CASES

Alford v. DCH Foundation Group Long Term

Disability Plan,

eg oy ah OA. |) 10

Armstrong v. Aetna Life Ins. Co.,

he ee es Oe, EST) ow ewes. oer 8

Atwood yv. Newmont Gold Co.,

a gl SS rr 6

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

eS al a) 9

Black & Decker Disability Plan v. Nord,

ee: | 16

Brown vy. Blue Cross & Blue Shield of Alabama, Inc.,

Ope wae tooo (1i" Cir. 1990) ............... 7,8

Bruch v. Firestone Tire and Rubber Co.,

| 828 F.2d 134 (3d Cir. 1987), rev'd, 489 U.S. 101

EES eae 4

Chambers v. Family Health Plan Corp.,

0 gl AE) 8

Cochran v. Trans-General Life Ins. Co.,

12 Fed.Appx. 277, Nos. 99-2102, 99-2447,

2001 WL 392050 (6" Cir. Apr. 13, 2001) ...... 10

iv

Cited Authorities

Page

Davolt v. Executive Comm. of O’Reilly Auto.,

206 F.3d 806 (8" Cir. 2000) ........0.00.0.... 5, 10

Doe v. Group Hospitalization & Med. Servs.,

Cer oe LX | 7

Doe v. Travelers Ins. Co.,

167 F.3d 53 (1* Cir. 1999) ... 2... cea cece 9,10

Firestone Tire & Rubber Co. v. Bruch,

oe ee be passim

Fort Halifax Packing Co. v. Coyne,

ee TA 8 EI 6c kbs anes lees tenes 3, 12

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

357 F.3d 1173 (10" Cir. 2004) (per curiam) .... 8

Hung v. Guardian Life Ins. Co. of Am.,

28 Fed. Appx. 268, No. 01-1696, 2002 WL 104234

(4" Cir. Jan. 28, 2002) ............0....0005. 11

Ingersoll-Rand Co. v. McClendon,

oc BUS A ES (13

Johannsen v. District No. 1— Pacific Coast Dist.,

MEBA Pension Plan,

292 8.58 159 (4" Cir. 2002) 2... ccc cce cece: 11

Cited Authorities

Page

Lang v. Long Term Disability Plan of Sponsor

Applied Remote Tech. Inc.,

12S Te TORE Ge BPE) 02 8s See SG a anes 10

Leipzig v. AIG Life Ins. Co.,

CR we ea ee eer rs a, a9

Levinson v. Reliance Standard Life Ins. Co.,

24S B36 1525 (LEC CH, BPR) kv oan sieaw es 5, 7, 10

Mers v. Marriott Int’] Group Accidental Death &

Dismemberment Plan,

E44 F308 VOUT CAR, TERE) oc cee evans. 6, 11, 18

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co.,

SEA UD, COG GIB Oe ono 0.605 bene eee ee dekess 12

Nord v. Black & Decker Disability Plan,

296 F.3d 823 (9th Cir. 2002), rev'd on other

grounds, 536 U3. S22 (AUIS) oo kc cece wanes 7

Pegram vy. Herdrich,

De UI. BET GOOD vba v0 0 ea + BRR w eee es 17

Perlman v. Swiss Bank Corp.,

19S F.36 97S 47" CM. URRRD oko eeveisiesveees 5

Peruzzi v. Summa Med. Plan,

137 F.30 AOL EY Ce BP kev ances euaseeen 6, 10

Vi

Cited Authorities

Phillips-Foster v. UNUM Life Ins. Co. of Am.,

ee Fe Tee (BAAD, ZOGE) 6 occ eee casive

Pilot Life Ins. Co. v Dedeaux,

481 U.S. 41 (1987) 20.0... eee cece eee.

~ Pinto v. Reliance Standard Life Ins. Co.,

riot Kygek fe a. |)

Sullivan v. LTV Aerospace & Defense Co.,

ea F350 1251 (26 Cig, 1996) 2.0. ese

Taft v. Equitable Life Assur. Social,

Pee Se Oe Ge FOOD 6 cvs sccisxcadal

Vega v. National Life Ins. Servs. Inc.,

188 F.3d 287 (5" Cir. 1999) (en banc) .....

Woo v. Deluxe Corp.,

144 F.3d 1157 (8" Cir. 1998) ............

STATUTES

29 U.S.C. § 1001b(c)..... pb Kok oks bbeeseyur

29 U.S.C. § 1108(c) 2c eee cece cece eee ee.

29 U.S.C. § 1132(a)(1)(B) .........0.0000.

Page

13

7, 10

13

8, 11

16

Vil

Cited Authorities

Page

OTHER AUTHORITIES

H.R. Rep. No. 93-533, at 9 (1973), reprinted in 1974

CE Toe a ae eee errr ere ere 11

Restatement (Second) of Trusts § 187 ........... 4

l

INTEREST OF AMICUS CURIAE

The American Council of Life Insurers (“ACLI’)' is the

largest life insurance trade association in the United States,

representing the interests of 368 member legal reserve life

insurers operating in the United States. These 368 member

companies account for 69 percent of life insurance premiums

in the United States among legal reserve life insurance

companies, 53 percent of disability income insurance premiums

and 76 percent of annuity considerations. The life insurance

policies issued by ACLI members include employer-sponsored

group disability insurance policies and group life policies.

The annuities issued include group annuities issued to employer-

sponsored retirement plans. The vast majority of the products

sold by ACLI members in the group employee benefits market

are subject to the requirements of ERISA.

Of substantial concern to ACLI and its members is the

ongoing conflict and confusion among the circuit courts of

appeals regarding the standard of review applicable to actions

under ERISA alleging wrongful denial of benefits when an

insurer, or any other administrator or fiduciary, is operating under

a conflict of interest. This conflict is the subject of Question 1

of the petition of Reliance Standard Life Insurance Company

(‘petitioner’) for a writ of certiorari. ACLI is uniquely positioned

to explain the practical effects of this ongoing conflict upon

employer-sponsored benefit plans, and hence the need for the

Court to resolve this conflict.

1. Pursuant to Rule 37.6, ACLI’s counsel of record hereby certifies

that this brief was authored in whole by Barnes & Thornburg LLP, and

that no individual or entity other than amicus curiae ACLI has contributea

monetarily to the preparation or submission of this brief.

2

SUMMARY OF ARGUMENT

ACLI respectfully urges the Court to grant the petition with

respect to its Question 1.? In Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101 (1989), this Court held that a deferential

standard of review applies in ERISA actions challenging denial

of benefits where the benefit plan confers upon the administrator

or fiduciary discretionary authority to determine eligibility for

benefits or construe plan terms. In the 15 years since Firestone

was decided, the lower federal courts have failed to develop a

consistent approach to the standard of review where an

administrator or fiduciary of the benefit plan, whether it be an

insured or a self-funded plan, is operating under a conflict of

interest. The result has been a widespread and deepening conflict

among the circuit courts of appeals with respect to the degree

of deference to be afforded in such circumstances. The various

approaches adopted range from affording a high degree of

deference to affording, as in the instant case, essentially no

deference at all and applying a de facto de novo standard of

review.

The standard of review in cases of conflicted administrators

and fiduciaries concerns all insured plans and all self-funded

and self-administered plans, and hence a large proportion of

the large number of ERISA actions brought in federal court

alleging wrongful denial of employee benefits. The existing

disarray among the circuits is particularly problematic because

it severely undermines Congress’ key objective in enacting

ERISA -— to establish a “uniform administrative scheme” for

ERISA-covered benefit plans and a uniform body of federal

2. ACLI addresses only Question 1 (the standard of review

applicable to benefit determinations of conflicted administrators and

fiduciaries) and expresses no opinion as to whether the petition should

be granted with respect to Question 2.

3

common law for enforcement of such plans. Fort Halifax

Packing Co. v. Coyne, 482 U.S. 1, 9 (1987). Congress sought to

establish this uniformity as part of its effort to encourage

employers to establish benefit plans by eliminating the

difficulties presented by and increased costs resulting from a

patchwork of conflicting state and local laws. The disarray

among the circuits also undercuts another Congressional

objective in enacting ERISA — providing an efficient,

cost-effective enforcement scheme for the administration of

benefit claim decisions.

As a practical matter, the lack of uniformity among the

circuits on this issue also is problematic because the multitude

of approaches taken by the circuits leaves plans that wish to

retain a high degree of discretion in making claims decisions

without any clear guidance as to how the plan should be

structured so that discretion can be preserved. Indeed, the only

fail-safe position for doing so would appear to be self-funding

the plan and hiring an independent third party administrator to

make benefit determinations. Although this may be an option

for large employers, smailer employers are unlikely to have the

necessary financial resources or infrastructure to self-fund a

benefit plan.

4

REASONS FOR GRANTING THE PETITION

A. THE CIRCUIT COURTS OF APPEALS HAVE NOT

RESOLVED THEIR CONFLICTING STANDARDS

OF REVIEW IN THE CONTEXT OF CONFLICTED

ADMINISTRATORS AND FIDUCIARIES.

In Firestone, this Court used analogy to the law of trusts to

establish the standard of review applicable to actions challenging

the denial of benefits under ERISA § 502(a)(1)(B), 29 U.S.C.

§ 1132(a)(1)(B). Recognizing that ERISA “abounds with the

language and terminology of trust law,” 489 U.S. at 110, this

Court held that where the plan confers discretion upon a plan

administrator or fiduciary, federal courts should review the

claims decision only for an abuse of that discretion. Jd. at 115.3

In Firestone, the Third Circuit had held that a de novo standard

of review should apply when the employer itself is the plan

administrator because of “the lack of assurance of impartiality

on the part of the employer.” Bruch v. Firestone Tire & Rubber

Co., 828 F.2d 134, 137-145 (3d Cir. 1987). Because this Court

rested its decision in Firestone upon trust law, and not a “concern

for impartiality,” the Court only briefly addressed in dictum the

impact ofa conflict of interest on a deferential standard of review.

It noted that “if a benefit plan gives discretion to an administrator

or fiduciary who is operating under a conflict of interest, that

conflict must be weighed as a ‘facto[r] in determining whether

there is an abuse of discretion.’” 489 U.S. at 115 (emphasis

added) (quoting Restatement (Second) of Trusts § 187 cmt. d

(1959)). This Court thus indicated that deference is still owed.

3. This is consistent with the principle of trust law that where a

trust confers discretionary authority upon a trustee, courts will not

interfere with the trustee’s exercise of that discretion absent indication

that the trustee has abused that discretion. Restatement (Second) of Trusts

§ 187 cmt. d (1959).

ee en

5

In the 15 years since Firestone was decided, however, the Court

has not provided further guidance as to the manner in which

deference is applied when a conflict of interest exists.

With the dearth of guidance from this Court, the lower

courts have developed conflicting and confusing standards.

Federal courts and commentators alike have noted the conflicting

approaches of the various circuit courts of appeals. The

confusion is such that the circuits do not even agree on what

constitutes a conflict, let alone on what standard of review should

apply when a conflict is present. Some circuits have held that

the mere fact that an insurer both funds a plan and makes the

benefits decisions under it constitutes an inherent conflict of

interest. Levinson v. Reliance Standard Life Ins. Co., 245 F.3d

1321, 1326 (11" Cir. 2001). Others find that this is insufficient

to establish an inherent conflict of interest. Leipzig v. AIG Life

Ins. Co., 362 F.3d 406, at *2 (7" Cir. Mar. 2004) (most insurers

are so well diversified that the decision in any one case has no

perceptible effect on the bottom line; unless an insurer or

administrator pays its staff more for denying claims than granting

them, the people actually implementing benefit systems are

impartial); Perlman v. Swiss Bank Corp., 195 F.3d 975, 981

(7" Cir. 1999) (fact that plan insurer was also administrator did

not amount to a conflict of interest because “[w]hen the

administrator is a large corporation, the firm has a financial

interest, but the award in any one case will have only a trivial

effect on its operating results”). Still others find that this

circumstance either may or may not amount to a conflict of

interest. Davolt v. Executive Comm. of O’Reilly Auto., 206 F.3d

806, 809 (8" Cir. 2000) (fact that the plan administrator is also

the insurer may give rise to a conflict of interest, but assumption

that such conflict exists is inappropriate).

6

As petitioner notes, the decisions of the various circuit

courts of appeals defy easy classification. The Second, Sixth

and Seventh Circuits essentially hold that the existence of a

conflict of interest does not justify applying a less deferential

standard of review unless there is evidence that the conflict in

fact affected or tainted the benefit decision. Sullivan v. LTV

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

(claimant required to produce evidence that “the administrator

was in fact influenced by” the alleged conflict of interest)

(emphasis added)*; Peruzzi v. Summa Med. Plan, 137 F.3d 431,

433 (6" Cir. 1998) (rejecting argument that a “less deferential”

standard of review should apply where claimant failed to present

evidence sufficient to establish that administrator was motivated

by self-interest); Mers v. Marriott Int’l Group Accidental Death

& Dismemberment Plan, 144 F.3d 1014, 1020 (7 Cir. 1998)

(claimant must provide “specific evidence of actual bias”

showing that there is “a significant conflict” before court will

apply a less deferential standard of review).

The Ninth Circuit also holds that the mere existence of a

conflict of interest is insufficient to alter the standard of review.

In Atwood v. Newmont Gold Co., 45 F.3d 1317, 1323 (9" Cir.

1995), the Ninth Circuit held that the deferential “arbitrary and

capricious” or “abuse of discretion” standard of review applies

unless the claimant presents “material, probative evidence,

beyond the mere fact of the apparent conflict, tending to show

the fiduciary’s self-interest caused a breach of the administrator’s

fiduciary obligations to the beneficiary.” Jd. (emphasis added).

If the claimant presents such evidence, however, the benefit

determination is presumptively void, although the administrator

4. If the claimant presents sufficient evidence that the conflict of

interest affected the decision, the Second Circuit reviews the benefit

determination de novo. Sullivan, 82 F.3d at 1255-56.

j

may rebut this presumption by producing evidence sufficient to

establish that the same decision would have been made even

absent the taint. If the plan fails to carry this burden, the decision

is reviewed de novo. Nord v. Black & Decker Disability Plan,

296 F.3d 823, 829 (9" Cir. 2002), rev'd on other grounds,

538 U.S. 822 (2003).

The Eleventh Circuit essentially holds that claim

determinations of a conflicted administrator or fiduciary

automatically are subject to a less deferential standard of review,

irrespective of whether there is any evidence that the conflict

actually affected the benefit decision. Brown v. Blue Cross &

Blue Shield of Alabama, Inc., 898 F.2d 1556, 1565 (11" Cir.

1990) (where claimant demonstrates a substantial conflict of

interest on the part of the fiduciary responsible for benefits

determinations, the burden shifts to the fiduciaryto prove that

its decision was not tainted by self-interest). Under the Eleventh

Circuit’s approach, the court first assesses whether the benefit

determination is “wrong” from the perspective of a de novo

review. Levinson, 245 F.3d at 1326. If so, the determination is

considered arbitrary and capricious unless the conflicted

administrator or fiduciary justifies th. determination on the

grounds of its benefit to the class of «’ plan participants and

beneficiaries. /d.; Brown, 898 F.2d at 1-56-67.

The Third, Fourth, Fifth and Tenth Circuits employ a

“sliding scale” of deference, under which the reviewing court

always applies the abuse of discretion standard, but the degree

of deference varies inversely with the evidence establishing a

conflict of interest. Pinto v. Reliance Standard Life Ins. Co.,

214 F.3d 377, 391 (3d Cir. 2000) (adopting a sliding scale

approach); Doe v. Group Hospitalization & Med. Servs., 3 F.3d

80, 87 (4" Cir. 1993) (deference shown to the benefit decision

“will be lessened to the degree necessary to neutralize any

8

untoward influence resulting from the conflict”); Vega v.

National Life Ins. Servs. Inc., 188 F.3d 287, 297 (5 Cir. 1999)

(en banc) (“(t]he greater the evidence of a conflict on the part

of the administrator, the less deferential [the] abuse of discretion

standard will be”); Chambers v. Family Health Plan Corp.,

100 F.3d 818, 826 (10" Cir. 1996) (adopting a sliding scale

approach).

As the Tenth Circuit recently observed, the circuits that have

adopted the sliding scale approach provide no guidance as to

“how much less” deference the reviewing court should

afford the conflicted administrator. Fought v. UNUM Life Ins.

Co. of Am., 357 F.3d 1173, 1181 (10% Cir. 2004) (per curiam).

Under the Tenth Circuit’s version of the sliding scale approach,

the court shifts the burden of proof to the conflicted administrator

or fiduciary, who must establish that its decision was reasonable

under the traditional arbitrary and capricious standard. Where a

sufficiently severe conflict of interest exists, the court shows

less deference to the administrator. Jd. at 1183.

Although the Eighth Circuit previously indicated that it

subscribed to the Eleventh Circuit’s approach in Brown,

see Armstrong v. Aetna Life Ins. Co., 128 F.3d 1263, 1265

(8" Cir. 1997) (holding that the “perpetual conflict” which exists

when an insurer administers benefits from its own plan warrants

a de novo standard of review), it now appears to have settled

upon the sliding scale approach, albeit a modified version.

Phillips-Foster v. UNUM Life Ins. Co. of Am., 302 F.3d 785,

795 (8" Cir. 2002) (following the sliding scale approach);

Woo v. Deluxe Corp., 144 F.3d 1157, 1161-62 (8" Cir. 1998)

(explicitly adopting the sliding scale approach). Under the

Eighth Circuit’s variation, a sliding scale of deference is applied

only if the claimant presents “material, probative evidence

demonstrating that (1) a palpable conflict of interest or a serious

procedural irregularity existed, which (2) caused a serious breach

9

of the plan administrator’s fiduciary duty to [the claimant].”

Woo, 144 F.3d at 1160, quoted in Barnhart v. UNUM Life Ins.

Co. of Am., 179 F.3d 583, 5&7-88 (8" Cir. 1999).

The First Circuit applies another test, assessing the

“reasonableness” of the enefit determination in light of the

context in which the decision was made. Doe v. Travelers Ins.

Co., 167 F.3d 53, 57 (1 Cir. 1999).

The trial court and Third Circuit decisions below exemplify

further the confusion surrounding the applicable standard of

review. Although the trial court ostensibly applied the “sliding

scale” approach with a resulting “moderate level” of deference,

the degree of deference shown to the benefit decision was so

low as to be a de facto de novo review. See Pet. App. 25a-27a

(Garth, J., dissenting). Moreover, given that the trial court

concluded, after an evidentiary hearing, that the administrator

was not affected by the inherent conflict of interest, there is no

rationale for applying a less deferential standard of review.

B. THE CONFLICT AMONG THE CIRCUITS

UNDERMINES BASIC ERISA POLICIES AND

ADVERSELY AFFECTS EMPLOYEE BENEFIT

PLANS.

1. The Standard Of Review Issue Affects a Large

Proportion Of ERISA Litigation.

It is important for the efficient operation of employer-

sponsored benefit plans covered by ERISA that this Court

resolve the conflict among the circuits on the standard of review.

Given the large number of plans that are either insured or both

self-funded and self-administered, the question of the standard

of review applicable to benefit determinations rendered by

conflicted administrators and fiduciaries frequently arises.

As this Court noted in Firestone, the decision regarding the

10

standard of review can be determinative of the outcome of the

action. 489 U.S. at 115.

_ It also is important that the Court resolve this conflict

because of the broad scope of the ERISA actions it affects.

ERISA applies to a variety of employer-sponsored benefit plans,

the most common of which are health benefit plans, disability

income insurance plans, life insurance plans and pension plans.

Disputes over the standard of review can affect virtually every

aspect of a wide range of benefit decisions. A few examples

are:

1) in the context of a health benefits plan, whether a

particular medical treatment is medically necessary,°

whether a particular condition qualifies as a preexisting

condition,® and whether a particular medical treatment

is experimental or otherwise is not covered by the

plan;’

2) in the context of disability income insurance plans,

whether the claimant is disabled as defined by the plan,*

and whether any plan limitations on benefits are

applicable to the claims (e.g., limitations on mental or

psychiatric illnesses);?

5. Doe v. Travelers Ins. Co., 167 F.3d at 58-59.

6. Davolt, 206 F.3d at 809; Chambers, 100 F.3d at 818.

7. Peruzzi, 137 F.3d at 433-35.

8. Alford v. DCH Foundation Group Long Term Disability Plan,

311 F.3d 955, 960 (9th Cir. 2002); Levinson, 245 F.3d at 1325-27; Pinto,

214 F.3d at 379.

9. Cochran v. Trans-General Life Ins. Co., 12 Fed.Appx. 277,

Nos. 99-2102, 99-2447, 2001 WL 392050 (6th Cir. Apr. 13, 2001);

Lang v. Long Term Disability Plan of Sponsor Applied Remote Tech.

Inc., 125 F.3d 794, 799 (9th Cir. 1997).

11

3) in the context of life insurance plans, whether the

insured’s death was accidental;'? and

4) inthe context of pension plans, years of service credit

and the level of pension benefits."

The standard of review issue even arises in the context of

the plan’s determination whether a particular individual is

an employee or beneficiary covered by the plan. See Vega,

188 F.3d at 291-292, 295-297.

2. The Circuit Conflict Undermines the National

Uniform Regulation Intended by ERISA, and

Consequently Increases the Cost to Employers of

Providing Benefit Plans.

Conflicting interpretations of federal law are disfavored

generally and they are particularly problematic in the ERISA

context. The ongoing conflict and confusion with respect to the

standard of review applicable to benefit decisions of conflicted

administrators and fiduciaries undermines the core policies

underlying ERISA. In enacting ERISA, Congress was mindful

not only of the need to establish certain minimum standards to

protect the rights of employees, but also of the fact that benefit

plans are voluntary on the part of employers. H.R. Rep. No. 93-

533, at 9 (1973), reprinted in 1974 U.S.C.C.A.N. 4639, 4647.

One of ERISA’s bedrock purposes therefore is to encourage the

formation of employee benefit plans. 29 U.S.C. § 1001b(c)(2).

Congress accordingly sought to minimize disincentives to the

10. Mers, 144 F.3d at 1024; Hung v. Guardian Life Ins. Co. of

Am., 28 Fed.Appx. 268, No. 01-1696, 2002 WL 104234 (4th Cir.

Jan. 28, 2002).

11. Johannsen v. District No. 1— Pacific Coast Dist, MEBA

Pension Plan, 292 F.3d 159 (4th Cir. 2002).

~

ice. SS cae ces mean

12

establishment of such plans and to facilitate their establishment

at a reasonable cost.

The basic thrust of ERISA is to avoid multiplicity of

regulation in order to permit uniform national administration

of employee benefit plans. New York State Conference of Blue

Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,

657 (1995). For 30 years, ERISA’s uniform regulation of

employee benefit plans has fostered and protected the

development ofa system that extends crucial employee benefits

to a vast swath of the nation’s working population. ERISA has

encouraged employers to take on the challenge of sponsoring

benefit plans to provide employees and other beneficiaries with

substantial financial protection from the high cost of health care

and the financial risk of a disabling illness or injury, and with

financial security in retirement. A key component of ERISA’s

success in expanding and enhancing employee benefits is the

protection it affords plan sponsors, which frequently have

employees and operations in many states, from the burdens of

having to comply with multiple regulatory regimes. As this Court

has noted, conflicting requirements make benefit administration

more difficult and inefficient. When inefficiencies or difficulties

are introduced into the benefit administration system, employers

may decide to reduce the level of benefits offered, or to cease

offering the benefits entirely. Fort Halifax Packing Co.,

482 US. at 11.

The disruption to a uniform system of administration is no

less problematic when the lack of uniformity stems from

conflicting interpretations of federal law rather than from

conflicting state laws and regulatory requirements. In either

context, unless the most stringent of the conflicting requirements

is adhered to, claims procedures must be tailored to the particular

jurisdiction in which the claim arises. Both situations increase

the cost of providing benefits for all participants.

13

Moreover, due to the conflict on the standard of review

issue, there is no clear guidance as to how claims processing

should be structured so that plans can successfully retain a high

degree of discretion in making claims decisions. Is it sufficient

to have the funding and decision-making functions performed

by different departments? Can a so-called “Chinese wall” be

used to preserve discretion? Will discretion be preserved if a

subsidiary or affiliate handles the benefits decisions?

3. The Circuit Conflict Undermines ERISA’s Civil

Enforcement Scheme, Increasing Litigation and

Further Increasing the Cost to Employers of

Providing Benefit Plans.

Another essential part of ERISA’s statutory scheme is its

“carefully integrated” civil enforcement scheme, which this

Court has described as “one of the essential tools for

accomplishing the stated purposes of ERISA.” Jngersoll-Rand

Co. v. McClendon, 498 U.S. 133, 137 (1990), citing Pilot Life

Ins. Co. v Dedeaux, 481 U.S. 41, 52, 54 (1987). The primary

goal of this scheme is “to provide a method for workers and

beneficiaries to resolve disputes over benefits inexpensively and

expeditiously.” Taft v. Equitable Life Assur. Soc., 9 F.3d 1469,

1472 (9th Cir. 1993). Under an abuse of discretion standard of

review, the admissible evidence is limited to the administrative

record, which consists of the insurance policy or plan document

and claim file. Costly discovery of additional evidence (e.g.,

document requests, depositions, expert witness fees and reports)

is either prohibited, unnecessary or severely limited. Because

admissible evidence is typically limited to documents contained

in the administrative record, ERISA lawsuits can be resolved

promptly through dispositive motions by allowing the reviewing

court to focus on the issue of whether the claim determination

was reasonable and supported by substantial evidence. ERISA

14

_ litigation typically is resolved quickly and without the

opportunity for attorneys from both sides to generate large

amounts of discovery and to engage in costly and unnecessary

activity. This relatively inexpensive method of litigation inures

to the benefit of all plan participants by helping to maintain the

costs for providing employee benefits at a reasonable level.

The current conflict and confusion among the circuit courts

of appeals regarding the standard of review applicable to

decisions of conflicted administrators and fiduciaries

undermines this purpose by rendering ERISA’s enforcement

mechanism more costly in terms of both time and financial

resources. Because of the ongoing uncertainty on this issue, the

applicable standard of review for a conflicted decision maker is

frequently litigated in ERISA actions. Indeed, the trial court

below held a hearing just to determine the applicable standard

of review. This causes parties to spend additional time and

money in litigation. The uncertainty also generates additional

litigation because the parties are less able to assess how the

benefit determination will be viewed by reviewing courts.

4. The Circuit Conflict Negatively Impacts Benefit

Plans and Employers In Additional Ways.

The conflict and confusion surrounding the applicable

standard of review has additional negative consequences for

benefit plans, whether insured or self-funded. The conflict

creates an incentive for employers who desire a high degree of

deference in their benefit plans to leave the insurance market or

simply not offer the benefit plan. There essentially are three

basic options in structuring a benefit plan: 1) insure the plan,

2) self-fund and self-administer the plan, or 3) self-fund the

plan but hire an independent third party administrator to

administer benefit claims. Under the current patchwork of

federal decisions, the only fail-safe means of ensuring a high

15

degree of deference appears to be the third option — structuring

the plan so that separate entities fund and administer the plan.

Although self-funding and retaining a third party administrator

may be an option for large employers, smaller employers are

unlikely to have the necessary financial resources or

infrastructure to self-fund a benefit plan. These smaller

employers who have no alternative to funding a benefit plan

through the purchase of insurance may end up bearing not only

the increased cost resulting from an uncertain standard of review,

but also increased costs stemming from a flight of larger

employers from the insurance market. As a result, smaller

employers in particular may choose either to offer a reduced

level of benefits, or not to offer benefit plans at all.

C. A HIGHLY DEFERENTIAL STANDARD OF

REVIEW SHOULD APPLY UNLESS THE

CLAIMANT PRESENTS EVIDENCE THAT A

CONFLICT OF INTEREST IN FACT INFLUENCED

THE BENEFIT DETERMINATION.

ACLI respectfully submits that benefit determinations

rendered by administrators or fiduciaries who are afforded

discretion by the terms of the benefit plan but are operating

under an alleged conflict of interest should be reviewed under a

highly deferential standard of review unless the claimant

produces signficant evidence that the conflict in fact affected

the benefit determination. When the alleged conflict of interest

does not in fact affect the benefit determination, the conflict

essentially is a non-factor. Consequently, there is no persuasive

reason why the benefit determination should be reviewed under

a standard of review that is any less deferential than that applied

to a non-conflicted administrator or fiduciary.

16

The circuit courts of appeals that have adopted the

“presumptively void” and the “sliding scale” approaches

essentially determine the standard of review based on who the

administrator or fiduciary is, rather than whether a potential

conflict actually influenced the benefit decision. As this Court

determined in Firestone, the appropriate standard of review

under ERISA derives from trust law, and not a concern for

impartiality. 489 U.S. at 115. Indeed, ERISA permits entities

with a conflict of interest to nevertheless act as administrators

or fiduciaries. 29 U.S.C. § 1108(c)(3). When the benefit plan

grants such entities discretion to make benefit determinations,

federal courts should not negate the grant of discretion by altering

the standard of review based merely on the potential for a conflict

of interest. Moreover, the sliding scale approach creates the

danger that that the outcome will be strongly influenced by the

sympathetic facts of a particular case.

These approaches also undervalue the role that deference

plays in the formation of benefit plans. Upholding a plan’s grant

of discretionary authority through application of a deferential

standard of review provides plau sponsors with a degree of

control over the benefit plan and promotes its affordability.

As this Court has noted, ERISA does not mandate what, if any,

benefits an employer must provide and employers have large

leeway to design their plans. Black & Decker Disability Plan v.

Nord, 538 U.S. 822, 833 (2003). Plans therefore have a

legitimate interest in retaining discretion to interpret the terms

of the plan and to render benefit decisions. Given the enormously

wide range of issues that can arise in rendering benefit decisions

under any plan, it is not possible to predict every type of issue

and claim that may arise. Moreover, all plans have some terms

that are arguably ambiguous as applied to peculiar facts.

Discretion and a deferential standard of review enable the plan

to resolve such issues in a manner that best protects the interests

of all participants in the plan.

17

Absent evidence that a conflict in fact affected a benefit

determination, application of a deferential standard of review

provides adequate protection for the interests of the claimants

under benefit plans. As Judge Easterbrook recently wrote for

the Seventh Circuit, an employer

has no reason to deceive its employees about the

quality of fringe benefits on offer; that would just

besmirch its reputation and make it harder to hire

good people in competition with other [employers].

One might as well say that because a health

maintenance organization has an incentive to skimp

on care (for it does not collect extra fees for

additional medical services), the judiciary must

intervene to force HMOs to offer more or better care

than they have promised by contract. Yet the

Supreme Court held in Pegram v. Herdrich, 530 U.S.

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

HMOs’ well-known incentive to shave the costs of

care does not justify “correction” under the banner

of ERISA. The choice between fee-for-service and

HMO-style incentives, neither of them perfect, is

left to employers who must compete for good

workers using a combination of salary and fringe

benefits.

Leipzig, 362 F.3d 406, at *1. Similarly with respect to benefit

claims decisions by insurers under insured plans, the Seventh

Circuit previously explained that:

[I]t is a poor business decision [for an insurer] to

resist paying meritorious claims for benefits.

Companies ... that sponsor ERISA plans are

customers who choose which group insurance

policies they will use to fund their plans. . . . [These

employers] want their employees satisfied with their

18

fringe benefits. These corporate employers have the

sophistication and bargaining power necessary to

take their business elsewhere if an insurer .. .

consistently denies valid claims. In the long run, this

type of practice would harm an insurer by inducing

current customers to leave and by damaging its

chances of acquiring new customers.

Mers, 144 F.3d at 1021. In sum, the assumption implicitly

underlying the “presumptively void” and “sliding scale”

approaches —- that self-interested administrators and fiduciaries

are motivated to deny valid claims — is not correct.

CONCLUSION

ACLI respectfully requests that the Court grant Reliance

Standard Life Insurance Company’s petition for a writ of

certiorari with respect to Question 1 of the petition.

Respectfully submitted,

VICTORIA E. FIMEA STANLEY C. FICKLE

Senior Counsel, Litigation Counsel of Record

AMERICAN COUNCIL OF BARNES & THORNBURG LLP

LiFE INSURERS 11 South Meridian Street

101 Constitution Ave., N.W. Indianapolis, IN 46204

Suite 700 (317) 236-1313

Washington, D.C. 20001

(202) 624-2183 CAROLYN DopPELT GRAY

TERESA L. JAKUBOWSKI

BARNES & THORNBURG LLP

750 17" Street, N.W.

Washington, D.C. 20006

(202) 289-1313

Counsel for Amicus Curiae