Appeals Panel Declares Taft-Hartley Plans Inherently Conflicted

June 30, 2010 ( – A federal appellate court has ruled that a lower court judge should have more seriously considered inherent conflicts in a Taft-Hartley benefits plan when turning away a benefits denial challenge by a plan member. 

The 2nd U.S. Circuit Court of Appeals said the structure of Taft-Hartley plans, in which employers also help evaluate claims which they will ultimately have to pay, represents the type of conflict addressed in a 2008 U.S. Supreme Court ruling in Metropolitan Life Insurance Co. v. Glenn. In Glenn, justices asserted that having an insurer both decide and pay claims should be considered when courts consider benefits denial challenges. 

The appellate panel threw out a lower court ruling by Senior U.S. District Judge Frederic Block of the U.S. District Court for the Eastern District of New York dismissing the benefits denial challenge by plaintiff Bejaze Durakovic, a long-time office cleaner and union member. 

Block had deemed the conflict relatively unimportant, while the plan argued it was not conflicted as defined by Glenn. Durakovic contended it was significant and should have played a greater role in Block’s ultimate ruling.  

Chief Circuit Judge Dennis Jacobs, writing for the appellate panel, said Taft-Harley plans, administered by trustee boards made up of equal numbers of union and employer representatives, suffer from the actions of board members with conflicting loyalties.  While board members have fiduciary interests that weigh in favor of the trusts’ beneficiaries they also have representational and other interests that weigh to the contrary; namely, rejecting claims will reduce future employer contributions, Jacobs asserted.  

According to the appellate opinion, Durakovic suffered chronic pain and weakness after a 1999 car accident, leading to her eventual disability benefit application to her union-sponsored plans. The plan trustees turned down the request and a subsequent appeal.  

The appellate judges decided that the trustees’ conclusions about the benefits request were “unsupported by substantial evidence, and therefore arbitrary and capricious,” because it did not afford Durakovic’s treating physician reports sufficient weight and the plans’ independent report inappropriately concluded that Durakovic was vocationally qualified for three occupations.   

A client alert from the Proskauer Rose LLP law firm pointed out that even though the 2nd Circuit is requiring lower courts in its jurisdiction to consider Taft-Hartley plans as conflicted, it is still up to the lower court jurists how much weight to such a conflict should be given. 

The 2nd Circuit ruling is here.