Supreme Court Rules on Long Term Disability Conflict of Interest

The U.S. Supreme Court has affirmed earlier holdings that a conflict of interest exists in long term disability (LTD) cases when the same entity (such as an employer or an insurance company) determines whether an employee is eligible for benefits and also pays these benefits to the employee.  In metropolitan-life-insurance-company-v-glenn, 128 S.Ct. 2343 (2008), the Court expanded that holding to require that a reviewing court consider this conflict when determining whether the plan administrator has abused its discretion in denying benefits.  The significance of the conflict will depend on the circumstances of the particular case.

In Glenn, Metropolitan Life Insurance Company (MetLife) was both the administrator and the insurer of Sears, Roebuck & Company’s long term disability insurance plan, which is governed by the Employee Retirement Income Security Act (ERISA).  The administrator had authority to determine whether the employee’s claim for benefits is valid, and also to determine whether MetLife, as insurer, would pay the benefits.  MetLife paid benefits to Ms. Glenn for 24 months starting in 2000, and then directed her to a law firm to represent her in applying for Social Security Disability Insurance (SSDI) benefits.  After a hearing, an Administrative Law Judge (ALJ) found her disabled under the Social Security Act as of 2000.  Ms. Glenn would be entitled to receive future SSDI benefits, but all past due benefits were used to refund MetLife for the benefits paid during that period.  The attorney was also paid out of the past due benefits.

Initial LTD benefits are paid when an employee is unable to perform her pervious job.  To qualify for continued benefits from MetLife, the insurance company required a finding that the employee is unable to perform any work.  Although this stricter test is the same standard used in her successful Social Security disability claim, MetLife denied Ms. Glenn’s claim for continued benefits and she appealed.  The district court denied relief.

On appeal, the U.S. Court of Appeals for the Sixth Circuit reversed the denial of benefits, holding that, although MetLife had discretionary authority to determine benefit eligibility, a conflict of interest existed and MetLife failed to reconcile its own conclusion that Glenn could work in other jobs with the finding by the Social Security Administration (SSA) that she could not.  The court also held that MetLife failed to consider all relevant evidence in the claim.

MetLife sought certiorari, asking the Court “to determine whether a plan administrator that both evaluates and pays claims operates under a conflict of interest in making discretionary benefit determinations.”  The Court was also asked to consider how any such conflict should “be taken into account of judicial review of a discretionary benefit determination.”

The Supreme Court held that it was a conflict of interest for MetLife to determine whether the employee is eligible for continued benefits and to pay those benefits out of its own pocket.  More specifically, the Supreme Court held that one of the factors to be considered is the fact that MetLife had encouraged Ms. Glenn to argue to SSA that she could do no other work.  When that claim was approved, MetLife was reimbursed for all the benefits it paid out, but then ignored SSA’s disability finding when it concluded that she could do sedentary work.  When determining whether the insurance company exceeded its discretion in denying the plaintiff’s claim, a district court should consider that MetLife’s seemingly inconsistent positions were both financially advantageous.  The Court affirmed the Sixth Circuit reversal of the denial of benefits.