Court sides with employee in benefits case

In 6-to-3 ruling delivered on June 19, 2008 the US Supreme Court held that when ERISA plan administrators that both determine an employee is eligible for benefits and pay benefits out of their own pockets, it creates a conflict of interest and hence a reviewing court should consider such conflict as a factor in determining whether a plan administrator has abused its discretion in denying benefits, and the significance of the factor will depend upon the circumstances of the particular case.

In the case under consideration, Petitioner Metropolitan Life Insurance Company (MetLife) is an administrator and the insurer of Sears, Roebuck & Company's long-term disability insurance plan, which is governed by the Employee Retirement Income Security Act of 1974 (ERISA). The plan gives MetLife (as administrator) discretionary authority to determine the validity of an employee's benefits claim and provides that MetLife (as insurer) will pay the claims. Respondent Wanda Glenn, a Sears employee, was granted an initial 24 months of benefits under the plan following a diagnosis of a heart disorder. MetLife encouraged her to apply for, and she began receiving, Social Security disability benefits based on an agency determination that she could do no work. But when MetLife itself had to determine whether she could work, in order to establish eligibility for extended plan benefits, it found her capable of doing sedentary work and denied her the benefits. Glenn sought federal-court review under ERISA, but the District Court denied relief. In reversing, the Sixth Circuit used a deferential standard of review and considered it a conflict of interest that MetLife both determined an employee's eligibility for benefits and paid the benefits out of its own pocket. Based on a combination of this conflict and other circumstances, it set aside MetLife's benefits denial.

The Supreme Court before arriving at conclusion as mentioned above relied on Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, which sets out four principles as to the appropriate standard of judicial review:

(1) A court should be "guided by principles of trust law," analogizing a plan administrator to a trustee and considering a benefit determination a fiduciary act, id., at 111-113;

(2) Trust law principles require de novo review unless a benefits plan provides otherwise, id., at 115;

(3) Where the plan so provides, by granting "the administrator or fiduciary discretionary authority to determine eligibility," a deferential standard of review is appropriate," id., at 111, 115; and

(4) If the administrator or fiduciary having discretion "is operating under a conflict of interest, that conflict must be weighed as a factor in determining whether there is an abuse of discretion,' " id., at 115.

Breyer, J., delivered the opinion of the Court, in which Stevens, Souter, Ginsburg, and Alito, JJ., joined, and in which Roberts, C. J. filed separate opinion concurring to all but for Part IV and Kennedy, J. filed an opinion concurring in part and dissenting in part. According to them a plan administrator's dual role of both evaluating and paying benefits claims creates the kind of conflict of interest referred to in Firestone.

Whereas, Scalia, J., filed a dissenting opinion, in which Thomas, J., joined.