If you’ve been disabled and applied for long-term disability through your employer-provided disability plan, and been denied, then you know that the insurance company requires an administrative appeal. These hoops you have to jump through may seem useless. Denied, denied, denied. This is the whole premise behind John Grisham’s book The Rainmaker (and the subsequent movie).
During that process, you might find it odd that the same entity that pays your benefits also decides your administrative appeal. This is what we call a conflict of interest. Even odder is that, when you finally get into court over a denial, the standard is whether the insurance company “abused its discretion” in denying benefits. This standard is highly deferential to the insurance company and often insurmountable by the claimant in federal court.
There is no doubt that this conflict of interest exists, but the courts are generally ok with it as long as it is considered in context:
(1) In “determining the appropriate standard of review,” a court should be “guided by principles of trust law”; in doing so, it should analogize a plan administrator to the trustee of a common-law trust; and it should consider a benefit determination to be a fiduciary act (i.e., an act in which the administrator owes a special duty of loyalty to the plan beneficiaries).
(2) Principles of trust law require courts to review a denial of plan benefits “under a de novo standard” unless the plan provides to the contrary.
(3) Where the plan provides to the contrary by granting “the administrator or fiduciary discretionary authority to determine eligibility for benefits,” . . . “[t]rust principles make a deferential standard of review appropriate,”
(4) If “a benefit plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest, that conflict must be weighed as a ‘factor in determining whether there is an abuse of discretion.'”
Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 111 (2008) (internal citations omitted). The “a factor” test here has been applied over and over again in ERISA Disability cases. The weight of this factor can increase or decrease given the particular facts of each case:
The conflict of interest at issue here, for example, should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, 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 to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.
Id. at 117.
While this may all seem very odd, sometimes the law is odd. This impact of these rules on conflicts of interest is beneficial to claimants and not so much to the employers and claims administrators. The Supreme Court has not required that the claimant demonstrate that the conflict has actually influenced the denial. This was a point central to Justice Scalia’s dissent in the Glenn case.
If your disability application has been denied by your insurance company and you want to appeal, give us a call and tell us your story.