Compliance May 22, 2009

1st Circuit Tweaks Benefits Denial Case Law

May 15, 2009 (PLANSPONSOR.com) - After tweaking their standard for how federal judges should handle employee benefits denial cases involving a conflicted plan administrator, federal appellate judges have ordered more hearings in just such a case.
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The 1 st U.S. Circuit Court of Appeals sent back to a lower courtDenmark v. Liberty Life Assurance Co. of Bostonwith instructions to gather more evidence on the issue of why disability benefits were denied in a case that has made several trips through the federal judicial system.In Denmark   the lower court found the denial of long-term disability was supported by substantial evidence and within the plan administrator’s discretion, and ruled for the insurance company.

Senior U.S. Circuit Judge Bruce M. Selya, writing for the court, said the appellate panel felt its latest holding in Denmark kept case law in the circuit in line with the U.S. Supreme Court’s closely watched benefits denial case inMetropolitan Life Insurance Co. v. Glennreleased last year. The Boston-based 1 st Circuit hears federal court appeals from Maine, Massachusetts, New Hampshire, Puerto Rico and Rhode Island.

In Glenn , the Supreme Court ruled that a conflict of interest by a benefits decisionmaker   does not change how a reviewing court should consider the legal issues – the “standard of review.” The high court said a conflict arising from the decisionmaker’s dual role as reviewer of benefits claims and payor of claims must simply be considered as a factor when applying the review standard of whether the decisionmaker abused hiror her discretion.

Selya explained in the ruling that the 1 st Circuit panel opted to make two tweaks to the case law prevailing in the circuit:

  • The court decided that it could no longer disregard a structural conflict of interest simply because market forces arguably prevented insurers from abusing their discretion when making benefit determinations.
  • The court explicitly recognized that if a conflict “infects” a benefit-denial decision, that may justify a conclusion that the denial was arbitrary and capricious.

“While the refinements are modest, this case is hair’s-breadth close,” Selya wrote. “Given that precarious balance, even a slight adjustment in the mix of factors or in the weight of a single factor may make a decisive difference. Hence, we think it incumbent upon us to remand the case and permit the district court to reconsider its decision in light of Glenn .”

The 1st Circuit opinion is here .

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