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Supreme Court Clarifies the Standard of Review in ERISA Actions



On June 19, 2008, the United States Supreme Court issued Metropolitan Life Insurance Co. ("MetLife") v. Glenn, an opinion clarifying its position on the standard of review appropriate for ERISA disputes as previously set forth in Firestone Tire & Rubber Co. v. Bruch. In Firestone, the Court had articulated four factors for determining the appropriate standard of review, the fourth of which requires courts to weigh a conflict of interest as a "factor in determining whether there is an abuse of discretion" whenever a plan gives discretion to an administrator or fiduciary who is operating under a conflict of interest.

Because MetLife served as both an administrator and the insurer of Sears, Roebuck, & Company's long-term disability insurance plan, the Court found an inherent conflict of interest. Following MetLife, courts will continue to be guided by the factors set out by Firestone. However, courts will be required to consider the conflict of interest whenever the same entity both funds the plan and evaluates the claims. The Court provided little guidance as to how much weight a conflict of interest should be given, concluding that claims denials should be reviewed on a case-by-case basis depending on the facts and circumstances.

While MetLife may increase the scrutiny courts subject to claims denials whenever the same entity both funds the plan and evaluates claims, steps can be taken to minimize risk and create claims procedures that will withstand court review. The MetLife majority specifically recommended steps such as segregating claims administrators from personnel involved in the entity's finances and creating an internal accuracy checking system that penalizes all forms of inaccurate decision-making. Employers and plan administrators should consider revisions to their claims procedures to take into account the new guidance issued by the Supreme Court.

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