# Amicus Curiae Brief — Reliance Standard Life Insurance v. Lasser

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2004
- **Citation:** 541 U.S. 1063

## Text

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No. 03-1203

¥ Senrere Sour : |
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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

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_ 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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_1128%3A4. Public record. Not legal advice.