Conflict of Interest in ERISA Plan Decisions – Disability Insurance Companies
Scenario: A disability insurance company is deciding claims for your employer’s disability plan…a plan they also insure. The insurance company is deciding disability claims under its own insurance policy.
Question: Isn’t that a conflict of interest?
Yes, it certainly is a conflict of interest. The U.S. Supreme Court has clearly held that an insurance company which both funds an ERISA disability plan and decides disability claims for that same plan under its policy suffers from a conflict of interest which courts must consider when deciding ERISA cases. There is an inherent conflict of interest when the insurance company is deciding claims which it is also paying from its own money. This is actually called a “structural conflict of interest” by the courts that have written decisions about it.
In a case called Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), the Supreme Court explained, “the significance of the factor will depend upon the circumstances of the particular case.” It went on to state:
The conflict of interest at issue . . . 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.
There are some things that an insurance company can use to try to show that it is is taking steps to try to avoid its conflict of interest in ERISA claims. Some courts have found these types of things significant to reduce the amount any structural conflict weighs into a case:
- whether the insurance company “walled off” its different business units from each other to ensure that the claims department and appeals unit are separate from financial underwriters and other employees with interests in the insurer’s finances;
- if the insurance company maintains a separate appeals unit from the claims department, so the same people that decide claims are not deciding appeals too; and
- ensuring that employees who are making claims decisions have no financial or professional incentive to admit or deny claims.
However, at least one court has found that “these procedural safeguards do not minimize the structural conflict ‘to the vanishing point,’” and “the structural conflict will remain a factor weighing in favor of [a claimant’s] position.” Tebo v. Sedgwick Claims Mgmt. Servs., Inc., 848 F. Supp. 2d 39, 54 (D. Mass. 2012).
When disability insurance companies do not take these actions, their conflict must weigh into a court’s decision more. In addition, disability insurance companies administering ERISA plans often do things that plainly demonstrate their continuing bias or conflict, such as:
- having a subsidiary company conduct a vocational review of a disability claim;
- referring a claimant to a captured vendor or subsidiary to help them apply for and obtain Social Security Disability;
- omitting evidence that helps a claimant’s position from their decision or an appeal review;
- hiring so-called “independent medical reviewers” from a vendor that works exclusively for the disability insurance company or a select few disability insurance companies, receiving huge amounts of revenue from these insurance companies under the guise of being a separate company and therefore independent; and
- cherry-picking evidence that supports a denial, while ignoring evidence that proves the claimant is disabled.
As the Supreme Court noted, every case is different. The actions of an ERISA administrator may or may not show their conflict, but they must be evaluated in every ERISA case that goes to court.