The Ninth Circuit Court of Appeals, in Wallace v. Hartford Life, has upheld a lower court’s determination that a Long-Term Disability (“LTD”) plan’s benefit denial was appropriate despite a clear structural conflict of interest presented in the case by the plan’s insurer also being the administrator.
Background. Most ERISA benefit plans give the insurer or claims administrator “discretion” to decide claims and to interpret plan terms. When a plan does so, federal courts review the resulting denial under an abuse of discretion standard. That standard is deferential: the court asks whether the administrator’s decision was reasonable, not whether the court would have reached a different outcome. Alternatively, under a de novo review, the court evaluates the merits of a claim independently, based on the evidence generated by the insurer’s process for the claim.
Law. In Metropolitan Life Ins. Co. v. Glenn, the Supreme Court held that where an insurance company both decides claims and pays them, that creates a “structural conflict of interest” courts must weigh as a factor. The conflict gets more weight when the insurer’s process suggests bias and less weight when the insurer has taken steps to reduce potential bias and promote accuracy.
Even though abuse of discretion is the standard to be used where a plan document provides the administrator with discretion, the Ninth Circuit’s decision in Abatie v. Alta Health & Life Ins. Co., established that abuse of discretion review is “tempered by skepticism’ when a structural conflict exists, and that the level of skepticism depends on procedural factors visible in the record.
Facts. The plaintiff was receiving LTD benefits and had them terminated following an annual review of the claim by the insurer based on its determination that he failed to meet the plan’s definition of disability. In particular, the plaintiff’s updated medical records failed to provide any restrictions or limitations on his ability to work, and his treating physician failed to respond to the insurer’s request for clarification. The insurer arranged for an independent medical examination which also revealed no restrictions or limitations on the plaintiff’s ability to work.
After the plaintiff appealed the termination, the insurer retained three additional independent medical examiners (“IMEs”), each of whom reviewed the entire claim file independently. The plaintiff’s attending physician also submitted an additional opinion during the appeal that provided no basis for any restrictions or limitations, which led the IMEs to confirm their original conclusions. Before issuing a final denial, the insurer gave the plaintiff another opportunity to respond.
Ninth Circuit. On review, the Ninth Circuit first confirmed that abuse of discretion review was appropriate because the plan expressly granted the insurer full discretion and authority to determine eligibility for benefits.
The court next addressed the insurer’s structural conflict of interest because it served as both the LTD plan’s administrator and insurer. It noted that abuse of discretion review is “tempered by skepticism” and that conflict is to be considered. However, the court gave this conflict little weight because the insurer’s determination was supported by the results of a thorough, neutral and independent review process.
Finally, the court held that the insurer did not abuse its discretion in concluding that the plaintiff failed to meet his burden of proving continued eligibility to entitlement to LTD benefits. The court observed that in response to the plaintiff’s appeal, the insurer engaged in a “meaningful dialogue” with the plaintiff and conducted a “full and fair review” of its decision to deny benefits. Accordingly, the court found the insurer’s determination and lengthy explanation of the reasons for its denial to be reasonable.
Therefore, the Ninth Circuit affirmed the lower courts’ dismissal of the lawsuit.