In Metropolitan Life Insurance Co. v. Glenn, 128 S.Ct. 2343 (2008), the Supreme Court held that a conflict of interest inheres in a plan administrator’s dual role as insurer and administrator and that the conflict is one factor to be considered in determining the reasonableness of a decision to deny a claim for benefits. A year later, the import of the decision in ERISA litigation continues to the subject of contention. Chief Justice Roberts’ concurring opinion has proved to be prescient: “The Court leaves the law more uncertain, more unpredictable than it found it.” Id. at 2354 (Roberts, J., concurring).
We now have the benefit of Judge Posner’s exegesis of Glenn. In Marrs v. Motorola, Inc., No. 08-2451, 2009 WL 2477650 (7th Cir. August 14, 2009), the court addressed Glenn in an unusual context. The case centered on whether an employee welfare benefits plan creates an entitlement to lifetime benefits or whether the plan may terminate the payment of benefits through an amendment to the plan.
In 1997, Michael Marrs, an employee of Motorola, began receiving disability benefits under Motorola’s Disability Income Plan. Six years later, Motorola amended the plan to impose a two-year limit on benefits per disability resulting from certain “Mental, Nervous, Alcohol, or Drug-Related” conditions, which encompassed Marrs’ disability. Because Marrs had received benefits for more than two years, he was given an additional two years of benefits, commencing on the date of the amendment. Motorola terminated his benefits after that period had elapsed. Marrs then brought a class action against Motorola under ERISA.
Marrs contended that the application of the amendment to a person in his situation contravened a provision in the disability-income plan that limited Motorola’s authority to amend the plan. He interpreted “Periods of Disability prior to the adoption date” to mean one or more periods of disability that began before the plan was amended but may not have ended before then.
Judge Posner characterized Marrs’ interpretation as “a forced reading.” 2009 WL 2477650, at *1. He observed that the “reference in the plan to ‘periods’ rather than ‘period’ suggested segmentation of a period of disability, with some segments (‘periods’) lying before and some after the amendment.” Id. He further remarked that “Marrs’ interpretation is further undermined by the disability plan that was in force in 1997 when he stopped working and that states that if a participant becomes disabled prior to 1994, the benefits level specified in the disability-income plan in force then would ‘continue in force until the participant returns to work for thirty (30) days.’” 2009 WL 2477650, at *2. In Judge Posner’s reading, “this provision would be surplusage in the superseding plan (where it also appears) if the plan guaranteed the continuation of disability benefits without diminution, even if, as in Marrs’ case, the disability did not arise before 1994.” Id.
Judge Posner further observed that “whether Motorola’s interpretation of the plan is correct or not, it is reasonable; and we are inclined to stop with that observation.” Id. Marrs, however, invoked Glenn, arguing that the Court should “give no weight to the administrator’s interpretation, because the administrator labored under a conflict of interest: Motorola is both the plan administrator and a payor of benefits awarded under the plan.” Id. Judge Posner agreed that Glenn applied, remarking that “Marrs’ claim is that the amendment curtailing his benefits violates the plan, and that is a claim of wrongful denial of benefits, and so the Supreme Court’s concern with ‘conflicted’ administrators would seem pertinent.” Id. He explained:
True, the issue in this case is the interpretation of a plan document, rather than the application of a plan’s criteria for an award of benefits to particular facts; and the interpretation of a contract, unless extrinsic evidence is considered, is usually treated as an issue of law, which an appellate tribunal therefore resolves without deferring to the opinion of the first-line decision maker. But when an ERISA plan gives the plan administrator discretion to interpret its terms as well as to determine eligibility for benefits under terms the meaning of which is not questioned, the Court can, as the parties to this case agree, reject the administrator’s interpretation only if it is unreasonable…and both the original and amended plan in this case confer discretion on the plan administrator to ‘construe and interpret the Plan, decide all questions of fact and questions of eligibility and determine the amount, manner, and time of payment of any benefits hereunder.’
Id. He further reasoned that “the administrator is not by virtue of such a grant of authority free to disregard unambiguous language in the plan…that would be unreasonable.” 2009 WL 2477650, at *3. Nonetheless, “the administrator’s use of interpretive tools to disambiguate ambiguous language is, one would think, by the terms of the plan, entitled to deferential consideration by a reviewing court.” Id.
Judge Posner noted that “confusion may have been injected into the issue of deference to interpretive discretion by cases which say that the interpretation of an ERISA plan is governed by the ordinary federal-common law principles of contract interpretation…and by cases in this circuit that say that welfare benefits plans are presumed not to create lifetime benefits.” Id. He noted, however, that “these statements, so far as applicable to plans in which the administrator is given interpretive discretion, are properly understood as aids to determining whether the denial of benefits by the administrator is reasonable, rather than as warrants for a court’s resolving interpretive disputes without any deference to the administrator’s exercise of interpretive discretion.” Id. He concluded that it is not “apparent why the interpretive principles (including the scope of judicial review of the first-line interpreter’s decision) that governs the two types of issue should differ.” 2009 WL 2477650, at *4. “In any event, we do not think that the Glenn decision has the significance that Marrs attaches to it, even if it is fully applicable to cases involving the interpretation of plan amendments alleged to infringe on vested rights.” Id.
Judge Posner assigned to Glenn the gloss of a legal realist:
When a payment of benefits comes out of a plan administrator’s pocket, the administrator has an incentive to resolve a close case in favor of the denial of benefits. But that incentive may be outweighed by other incentives, such as an employer’s interest in maintaining a reputation among current and prospective employees for fair dealing—a reputation that may enable him to obtain better-quality employees at a lower cost in wages and benefits … Then, too, the employees who actually decide benefits claims at the plan-administrator level may not be acutely concerned with the financial implications of a benefits award for their employer … But especially when a firm is struggling…an opportunity for short-run economies may dominate decision making by benefits officers.
Id.
Judge Posner limned Glenn:
The nub of the Glenn opinion is the following passage:
‘When judges review the lawfulness of benefit denials, they will often take account of several different considerations of which the conflict of interest is one. This kind of review is no stranger to the judicial system. Not only trust law but also administrative law, can ask judges to determine lawfulness by taking account of several different, often case-specific, factors, reaching a result by weighing all together. In such instances, any one factor will act as a tie-breaker when the other factors are closely balanced, the degree of closeness necessary depending on the tie-breaking factor’s inherent or case-specific importance. The conflict of interest at issue here…should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including…cases where an insurance company administrator has a history of biased claims administration. It should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and promote accuracy …by walling off claims administrators from those interested in firm finances or by imposing management checks that penalize inaccurate decision making irrespective of whom the inaccuracy benefits.’
A dissent by Justice Scalia argued that a conflict of interest should only prompt an inquiry into the existence of improper motive that would render the plan administrator’s decision unreasonable. If the decision is reasonable, he argued, in the sense in which ‘a reasonable decision is one over which reasonable minds seeking the ‘best’ or ‘right’ answer could disagree,’ the fact that the administrator had a conflict of interest is irrelevant… ‘unless the conflict actually and improperly motivates the decision.’
2009 WL 2477650, at **4-5.
Judge Posner explained that Glenn could be read in two ways:
One, which tracks its language and has been echoed in opinions in this and other circuits…makes the existence of a conflict of interest one factor of many in determining reasonableness. That sounds like a balancing test in which unweighted factors mysteriously are weighed. Such a test is not conducive to providing guidance to courts or plan administrators…But it is not clear that the rudderless balancing test suggested by the passage that we quoted was intended to be the last word on the standard that should guide decision in these cases. The test can be made more directive, without contradicting the Court’s opinion, by first recognizing that, while a decision may look reasonable if one just reads the decision in the record, a decision that is “reasonable” rather than clearly correct is a decision that might just as well have gone the other way…. If the circumstances indicate that probably the decision denying benefits was decisively influenced by the plan administrator’s conflict of interest, it must be set aside, just as a decision by a judge who should have recused himself must be set aside, even if he might well have reached the same decision had there been no basis for recusal.
2009 WL 2477650, at *5.
Judge Posner concluded that under the Glenn analysis, the “likelihood that the conflict of interest influenced the decision is therefore the decisive consideration, as seems implicit in the majority opinion’s reference to indications of ‘procedural unreasonableness’ in the plan administrator’s handling of the claim in issue…and a suggestion that efforts by an administrator to minimize the conflict of interest would weigh in favor of upholding his decision.” Id. “It is thus not the existence of a conflict of interest—which is a given in almost all ERISA cases—but the gravity of the conflict, as inferred from the circumstances, that is critical.” Id. Judge Posner offered as an example, “the terms of employment of the staff that decide the benefits claim might…affect a determination of how likely it is that employees would slant their decisions in favor of the employer’s short-term interests in minimizing his benefits expense.” Id.
Judge Posner took issue with Justice Scalia:
Justice Scalia appears to believe that if the plan administrator has no improper motive, the existence of a conflict of interest cannot have affected the denial of benefits: ‘If one is to draw any inference about a fiduciary from the fact that he made an informed, reasonable, though apparently self-serving discretionary decision, it should be that he suppressed his selfish interest…in compliance with the duties of good faith and loyalty’… But if, as we have suggested, both a decision in favor of the applicant for benefits and a decision against may be reasonable, the plan administrator’s conflict of interest may cause him unconsciously to decide against the applicant and thus in favor of the plan’s financial welfare; hence, the majority Justices’ interest in whether the plan establishes safeguards designed to minimize such a tendency.
2009 WL 2477650, at *6.
On this understanding of Glenn, Judge Posner concluded that “there are no indications in this case, however, that the plan administrator labored under a conflict of interest serious enough to influence his decision consciously or unconsciously—a decision that was otherwise entirely reasonable—decisively.” Id.
