Supreme Court to Rule Whether Disability Insurer in Conflict of Interest

January 22, 2008

The Supreme Court last Friday said it would rule on an appeal by MetLife Inc. in a case that could make employee benefit plans more expensive.

The dispute centers on whether insurance companies such as
MetLife have a conflict of interest when they both administer
employee disability plans — which requires deciding whether
employees are eligible for benefits — and pay benefits under them. If the court rules that handling both functions constitutes a
conflict, that could encourage employers to hire separate companies
for each function, potentially raising the plans’ costs, lawyers
for MetLife argue.

“The more an employer has to pay for its benefit plans, the less generous the benefits will be,” Gene Schaerr, counsel for MetLife, said.

The dual arrangements are allowed under ERISA, the Employee Retirement Income Security Act, but the question before the justices is whether judges should consider such arrangements potential conflicts in disputes between employees seeking disability benefits and plan administrators.

The case began in 2000 when Wanda Glenn, who worked at Sears, Roebuck & Co. for 14 years, sought disability benefits due to a heart condition. Sears, now owned by Sears Holding Corp., is not a party to the case.

MetLife provided Glenn short-term disability but in 2003 denied her request for benefits under a long-term disability plan, disputing her claim that she was totally disabled. MetLife also paid benefits under the plan, out of premiums provided by the company.

Glenn sued, but a federal district court refused to overturn MetLife’s decision. A three-judge panel of the Sixth U.S. Circuit Court of Appeals, however, ruled in Glenn’s favor.

MetLife’s decision “was not the product of a principled and deliberative reasoning process,” the appeals court said, and the company “acted under a conflict of interest.”

Other appeals courts, however, have ruled that judges don’t have to weigh the potential conflict of interest in benefit disputes. MetLife asked the Supreme Court to take the case to resolve the differences between the appeals courts.

The Justice Department’s Solicitor General, the Bush administration’s lawyer, also urged the court to take the case to clarify the issue.

The case is MetLife v. Wanda Glenn, 06-923. Oral arguments in the case haven’t yet been scheduled.

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