Supreme Court Weighs Insurer’s Conflict of Interest in Claim Denial

The Supreme Court struggled last week with how much weight to give an
insurance company’s potential conflict of interest when it denies an
employee’s health or disability benefits claim.
The lawyer representing the Ohio woman who sued MetLife Inc. over a
disability claim argued that insurance companies have a financial
incentive to deny claims. That conflict of interest should weigh heavily
in employees’ favor when they challenge benefit claims in court, Joshua
Rosenkranz said in court papers.
The dispute is being closely watched by insurance companies and
business groups. Depending on how the justices rule, the dispute could
make it easier for employees to win benefit payments in court.
Disability benefits are a big business. Disability insurance
plans cover 28 million Americans, and insurers paid more than $7.2
billion in long-term disability claims to more than 500,000 people in
2006, according to court papers filed by the U.S. Chamber of Commerce,
America’s Health Insurance Plans and the American Benefits Council.
But many health and disability claims are denied, which can lead
to lawsuits. The justices’ questions during oral argument echoed the
confusion that plagues the issue in lower courts.
Most federal appeals courts consider so-called “dual role
insurers” — those that both pay benefits and decide eligible to receive
them — to have some conflict of interest. But, the question of how much
weight to give that conflict has “befuddled the lower courts,” the
Legal Aid Society said in a friend of the court brief.
Justice Ruth Bader Ginsburg suggested the question should be,
“Has the trustee in fact slipped and taken unfair advantage because of
the conflicting interest?”
The case began when Wanda Glenn, 55, of Columbus, sued New
York-based insurance provider MetLife Inc. in 2003 after it stopped
paying her disability benefits.
“I am not asking for a handout,” she said in an interview. “I’d
rather be working.”
MetLife administered a disability plan for Sears, where Glenn
worked for 14 years. Sears, owned by Sears Holdings Corp., is not
involved in the case.
MetLife paid benefits for two years but in 2002 said her
condition had improved and refused to continue the benefit payments.
MetLife saved $180,000 by denying Glenn disability benefits until
retirement, her lawyers said in court filings.
Dual arrangements like MetLife’s are allowed under ERISA, the
Employee Retirement Income Security Act. Approximately 45 percent of all
employer health, disability and life insurance plans are administered
by such arrangements, Rosenkranz said.
The 6th U.S. Circuit Court of Appeals ordered Glenn’s benefits
reinstated in September 2006, ruling that MetLife “acted under a
conflict of interest” and made a decision that “was not the product of a
principled and deliberative reasoning process.”
MetLife appealed that ruling to the Supreme Court, arguing that
the standard used by the 6th Circuit would “encourage participants with
dubious claims to file suit,” which in turn would raise the costs of
benefit plans to both companies and employers.
It is also more efficient to have a single company perform both
functions, MetLife said in court papers, and the resulting cost savings
to employers allows them to offer better benefit plans.
Unless there is actual evidence that a company’s conflict of
interest influenced its decision, MetLife said, the conflict shouldn’t
carry much weight in the courts.
The Bush administration weighed in on Glenn’s side. Solicitor
General Paul Clement wrote that MetLife “benefits financially if it
denies an employee’s claim,” which is a “commonsense understanding of
what constitutes a conflict of interest.”
But Nicole Saharsky, assistant to the Solicitor General,
acknowledged there is no formula for a judge to apply.
Meanwhile, Glenn said that MetLife hasn’t resumed paying
benefits, pending the outcome of the Supreme Court case. She primarily
lives off Social Security disability benefits, which MetLife helped her
obtain only a month before removing her from its own rolls.
Ginsburg said the Social Security claim could be evidence that
the insurer had acted in its own interest, rather than the employee’s.
The case is MetLife v. Glenn, 06-923. The court is expected to rule
by July.
AP Writer Mark Sherman contributed to this report.