An Insurance Company’s Conflict of Interest

In cases where the insurance company acts as both the payer and administrator of claims, courts have recognized that a conflict of interest may influence insurance companies to wrongly deny insurance benefits.  In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), the Supreme Court held that a fiduciary’s conflict of interest “must be weighed as a factor in determining whether there is an abuse of discretion.” Although the presence of a conflict does not change the standard of adjudication, the Court in MetLife v. Glenn held:

Trust law continues to apply a deferential standard of review to the discretionary decisionmaking of a conflicted trustee, while at the same time requiring the reviewing judge to take account of the conflict when determining whether the trustee, substantively or procedurally has abused his discretion.

128 S.Ct. at 2350. The weight the court assigns to the conflict factor depends on the facts and circumstances of each particular case. Id.  A conflict of interest should prove more important where circumstances suggest a higher likelihood that it affected the benefits decision.  Id. at 2351.  Specifically, the Glenn court held:

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 [cite omitted]. 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 2351.  In analyzing the Glenn case, the Seventh Circuit held “[T]he gravity of the conflict, and thus the likelihood that the conflict influenced the plan administrator’s decision should be inferred from the circumstances of the case, including the reasonableness of the procedures by which the plan administrator decided the claim, any safeguards the plan administrator has erected to minimize the conflict of interest, and the terms of employment of the plan administrator’s staff that decides benefit claims.” Majeski, 590 F.3d at 482.