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  • How To Avoid the 502(a) Train: Protecting Your Fiduciaries from ERISA Litigation*Presented by: Ren Thorne, Esq.

  • *The Impact of MetLife v. Glenn on Claims Procedures, Judicial Review and Discovery in ERISA Cases

  • Structural Conflict

    Exists whenever claim decisionmaker both evaluates claims for benefits and pays benefits claims

    Self-Insured PlansInsured Plans

    Glenn, 128 S. Ct. 2343, 2348-50 (2008)*

  • Structural ConflictWe do not believe that Firestone's statement implies a change in the standard of review, say, from deferential to de novo review. Continue deferential standard of review even for conflicted fiduciaryJudge takes account of the conflict as one of many factors in determining abuse of discretion Glenn, 128 S. Ct. 2343, 2350-51 (2008)*

  • Increased Significance of ConflictGlenn, 128 S. Ct. 2343, 2351-52 (2008) Circumstances that -suggest a higher likelihood that [the conflict] affected the benefits decision: History of biased claims administrationIgnoring SSD awardJustified adding weight to conflict -seemingly inconsistent positions were both financially advantageousAlso a procedural irregularity in its own rightEmphasis on Evidence Supporting DenialDe-emphasizing other reports suggest[ing] a contrary conclusion

    *

  • Decreased Significance of ConflictGlenn, 128 S. Ct. 2343, 2351 (2008) (the Conflict is less important (perhaps to the vanishing point))

    [A]ctive steps to reduce potential bias and to promote accuracywalling off claims administrators from those interested in firm finances

    imposing management checkspenalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits

    *

  • Implications For DiscoveryGlenn gives individual judges/courts more latitude with regard to: determining the existence of a structural conflict whether to allow discovery and, if so, how much the impact of a conflict on the final decision of the courtMyers v. Prudential Life Ins. Co. of America, 581 F. Supp. 2d 904, 925 (E.D. Tenn. 2008) Much of discovery is a fishing expedition of sorts, but the Federal Rules of Civil Procedure allow the Courts to determine the pond, the type of lure, and how long the parties can leave their lines in the water.

    *

  • Implications For DiscoveryDenmark v. Liberty Life Assurance Co. of Boston, 566 F. 3d (1st Cir. 2009)

    The majority opinion in Glenn fairly can be read as contemplating some discovery on the issue of whether a structural conflict has morphed into an actual conflict.

    Seems to be the prevailing view

    *

  • Creating Structural Barriers to the Structural ConflictUltimate Solution:Avoid the Conflict AltogetherDelegate Authority for Final Decision to a Third Party

    *

  • Walling Off Claims Administrators from Those Interested in Firm FinancesNo Interpretative Case Law to DateReferences in GlennHerzel & Colling, The Chinese Wall and Conflict of Interest in Banks, 34 Bus. Law 73, 114 (1978) (recommending interdepartmental information walls to reduce bank conflicts)J. Mashaw, Bureaucratic Justice (1983) (discussing internal controls as a sound method of producing administrative accuracy)

    *Creating Structural Barriers to the Structural Conflict

  • Imposing Management Checkspenalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits GlennAgain, No Interpretive Case Law to DatePractical SuggestionsEstablish Procedures for Routine, Random Review of Claim DecisionsProcedures Should Emphasize Scrutiny for Errors Favoring Plan as Strongly or More So as Errors Favoring Claimants

    *Creating Structural Barriers to the Structural Conflict

  • Imposing Management ChecksPractical Suggestions (Continued)

    Ensure Findings of Errors in Plans Favor Are Treated with Equal Disfavor as Errors Favoring ClaimantsMaintain Records of Reviews and Response to Errors

    *Creating Structural Barriers to the Structural Conflict

  • Reducing the Potential Influence of Bias with Procedural ProtectionsReimann v. Anthem Ins. Cos., 2008 U.S. Dist. LEXIS 88562, at * 93-95 (S.D. Ind. Oct. 31, 2008)Utilization of Multiple Independent Medical Peer ReviewsUtilization of Third Parties to Select Peer Review PhysiciansRequire the Reviewers to Certify their Financial and Professional Independence Dove v. Prudential Ins. Co. of Am., 2009 U.S. Dist. LEXIS 41896 (D. Kan. May 18, 2009) (use of three different reviewing physicians at each stage of claim review was evidence of active steps to reduce potential bias) (reversed and remanded by 10th Cir. Feb. 4, 2010 (2010 U.S. App. LEXIS 2363)).*Creating Structural Barriers to the Structural Conflict

  • Reducing the Potential Influence of Bias with Procedural Protections (Continued)Utilize Independent Third Party Administrators for Initial DeterminationsPrince v. Metro. Life Ins. Co., 2010 DNH 46 (D.N.H. 2010)Here, Verizon took a number of insulating steps. Most notably, it delegated to two outside insurance companies the authority for making the initial benefits determination and hearing Prince's first-level administrative appeal.*Creating Structural Barriers to the Structural Conflict

  • History of Biased DecisionsTreatment of Social Security Disability Awards (LTD)Emphasis on Evidence Supporting Denial*Heeding the Warnings of Glenn

  • Denmark v. Liberty Life Assurance Co. of Boston, 566 F.3d 1, 10 (1st Cir. 2009)In future cases, plan administrators, aware of Glenn, can be expected as a matter of course to document [in the administrative record ] the procedures used to prevent or mitigate the effect of structural conflicts.*Softening The Impact: Preemptive Documentation

  • Softening The Impact: Preemptive DocumentationAbatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 969 (9th Cir. 2006) (a conflicted administrator, facing closer scrutiny, may find it advisable to bring forth affirmative evidence that any conflict did not influence its decisionmaking process) truly independent medical examiners neutral, independent review process No employee incentives to deny claimsConsistent plan interpretations Prohibit potential financial gain business structure (e.g., retroactive payment system)*

  • Practical SuggestionsEstablish Procedures/Instructions for Claims Review that Are Included in Every Administrative RecordUse the Magic Words, e.g., Procedures Adopted to Mitigate Effect of Any Structural ConflictDefault Rule Always Seek Independent Medical ReviewFor Initial Determination & Every Level of AppealRequire Written Documentation Explaining Variation from RuleAlways Use Third-Party Service to Select Reviewers Require Reviewers to Sign a Pre-Prepared Statement Establishing No Incentive for Reaching a Particular Result*Softening The Impact: Preemptive Documentation

  • Practical SuggestionsEstablish Procedures/Instructions for Claims Review that Are Included in Every Administrative Record (Continued)Require All Decision-Makers To Sign Pre-Prepared Statement Verifying No Incentives for DenialConsider Statement By Appropriate Executive Verifying Same and Generally Describing Compensation(E.g., compensation is straight salary with no bonus tied to claim denials)

    *Softening The Impact: Preemptive Documentation

  • Practical SuggestionsEstablish Procedures/Instructions for Claims Review that Are Included in Every Administrative Record (Continued)Where Possible, Base Internal Guidelines on External, Impartial Sources, Such as Recognized Medical Literature Reimann v. Anthem Ins. Cos., 2008 U.S. Dist. LEXIS 88562, at * 95-96 (S.D. Ind. Oct. 31, 2008) (use of internal guidelines based upon an expert and impartial source can promote fair and consistent decision-making and can avoid the need for case-by-case battles of experts) *Softening The Impact: Preemptive Documentation

  • Practical SuggestionsEstablish Procedures/Instructions for Claims Review that Are Included in Every Administrative Record (Continued)Verification by Appropriate Executive Describing How Decision-Makers Are Insulated from Persons/Groups Concerned with Financial ResultsProvide Description of Random/Periodic Quality Reviews Remember, Procedures Should Emphasize Scrutiny for Errors Favoring Plan as Strongly or More So as Errors Favoring Claimants

    *Softening The Impact: Preemptive Documentation

  • SummaryPost Glenn, Increased Discovery Is on the Whole A Fact of LifeFor Some Courts, Thorough Review Procedures and Detailed Written Decisions May Be Persuasive that Conflict Not a FactorFor Now, Preemptive Documentation of Conflict Vanishing Point Factors Appears to Be Expected by Many CourtsAt Best, May Preclude DiscoveryAt Least, May Substantially Limit Discovery

    *

  • *Avoiding ERISA Penalties In Responding To Documents Requests

  • Avoiding ERISA Penalties In Responding To Documents RequestsSection 104(b)(4) governs a plan administrators obligation to provide certain documents:The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.*

  • Avoiding ERISA Penalties In Responding To Documents RequestsUnder Section 502(c)(1), a Plan Administrator who fails to respond within 30 days to a document request under Section 104(b)(4) may be personally liable for a monetary penalty of up to $110 for every day of the violation.

    May also be liable for participants attorneys fees*

  • Avoiding ERISA Penalties In Responding To Documents RequestsIncreasingly, plan participants are including claim for penalties in be