"People make mistakes," writes SCOTUS Chief Justice Roberts, in opening the opinion of Conkright v. Frommer __ U.S. __ (April 21, 2010), a case under the Employment Retirement Income Security Act, 29 U.S.C. § 1001, ("ERISA"), that excuses a plan administrator's arbitrary (read, abuse of discretion) calculation of pension benefits by ordering a remand to the Plan Administrator to try again. And, despite its previous improper determination, the Court refused to strip the Plan Administrator of its discretion to interpret the Plan provisions.
This follows the decision in Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343, 2349-50 (2008)where the Court similarly refused to remove an insurance company's discretion to determine eligibility for benefits even though infected with a "structural conflict of interest," due to its both making the benefit/claim decisions and profiting from claim denials or terminations (i.e., adverse claim determinations.)
Employees seeking benefits under ERISA (e.g., health, disability, life insurance, and pension benefits) continue to face a deck stacked against them when the Plan documents delegate a grant of discretion to the Plan Administrator to interpret the Plan provisions and/or determine eligibility for benefits.
ERISA was enacted by Congress in 1974 to "protect. . .participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal Courts." 29 U.S.C. § 1001(b).
It did so by superseding all state laws governing employee benefit plans, except it "shall be construed to exempt or relieve any person from any law of any State which regulates insurance. . ." 29 U.S.C. Sec. 1144 (b)(2)(A). One would think that it would be reasonable to presume that claims for insurance benefits, e.g., health or disability, would proceed under the applicable law. However, that has turned out not to be the case, as the Supreme Court has bastardized the Congressional spirit and intent, and the express language of the statute, turning it into a windfall for insurance companies rather than the promised consumer protection.
One of the most significant ways the Supreme Court has done so is to allow for clauses to be inserted into insurance policies and employee benefit plans that give to the insurance companies (sometimes they even give it to themselves!) discretion to interpret policy terms and to decide questions of eligibility for benefits. (Talk about judicial activism!) Firestone Tire & Rubber Co. v. Bruch 489 U.S. 101 (1989). Without such a provision, review by the Courts is de novo, i.e., evidence is looked at by the trier of fact, and a determination is made as to who is right and who is wrong.
However, by the inclusion of a "discretionary" clause, the insurance company becomes, in essence, a trustee under a trust, whose decisions may not be overturned unless they are an abuse of such discretion, requiring a finding that it acted arbitrarily and capriciously in rendering its determination. That means the employee/insured/consumer must effectively prove the insurer's decision was "unreasonable, and not merely incorrect." Herzberger v. Standard Insurance Co., 25 F.2d 327, 331. Thus, it does not matter if the insurance company is wrong in denying benefits, if it is not proven it was unreasonable, the erroneous decision will still not be reversed!
The application of trust law and trust law principles is especially nefarious because the insurance company most always has the aforementioned blatant conflict of interest by which it profits from decisions adverse to the people the statute supposedly requires it to protect.
The insurance companies do their very best to rig the game, by retaining doctors, vocational consultants, and other reviewers to merely look at records and other documents, and write reports that support the insurer's view. As the standard of proof is that the insurance company has any "substantial evidentiary grounds" for its decision, the company merely points to the reports of its board-certified hired guns to say it is reasonable to rely on their opinions. Almost always, supposed "experts" are either employed directly by the insurance company, earn a substantial part of their livelihood writing such reports, or are connected with a third-party vendor that reviews hundreds, if not thousands, of claims annually from its contract with the insurance company. This seems not to matter with many judges who continue to defer to the insurance company's discretion to make the benefit decision except in extreme circumstances.
Overcoming the insurer's discretion requires a painstaking development of evidence that establishes the bias of the company and the people it hires. The evidence must point out the company's selectivity in referring only to certain evidence supporting its position, while ignoring credible and persuasive evidence pointing to the consumer's entitlement to benefits. This must be done prior to any lawsuit being filed, because the Department of Labor Regulations, specifically 29 CFR Sec. 2560.503-1, require the claimant to exhaust an administrative appeal process as a condition to pursuing his or her rights in the courts. And, despite the Supreme Court's pronouncements in the aforementioned Glenn and Conkright decisions that protect the insurance company's delegation of discretion, the cases can be won with the proper presentation and effective advocacy of an experienced lawyer.
I had the opportunity to talk about these topics this past Sunday on the Sirius Left radio program, "Live from the Land of Hope and Dreams," and the host, Dave Marsh, asked me what people can do about the potential problems that these cases present. I answered with three actions.
First, if you believe your claims has been unfairly denied, immediately seek the advice of a competent lawyer in ERISA matters. There are short time frames for appealing a claim denial, and in most cases, it should not be done without proper assistance.
Second, educate yourself. Ask for and read your benefit plans and insurance policies. Know what they cover and exclude. Understand what must be done in the event of a claim. Ask your human resources representative if you don't understand what are your benefits and rights under the policies.
Third, contact your elected representatives and urge them to propose legislation to abolish the inclusion of discretionary clauses in your state. Do the same with your state's Insurance Commissioner. Several states have worked to prohibit discretionary clause, e.g., see the proposed regulation issued by the New York Insurance Department that is currently accepting comments from the public.
Don't let insurance companies take advantage of you!