Conflict of Interest Evident when Disability Insurer Both Reviews and Pays Claim for Benefits Says First Circuit Court of Appeals

Massachusettts Personal Injury Attorney, Keith L. Miller, reviews and analyzes a recent U.S. First Circuit Court of Appeals decision. This is the second part of a two part blogpost, involving the denial of an employee long term disability claim, where the insurer both reviewed and paid claims, allegedly giving rise to a conflict of interest. The First Part reviewed facts leading up the to the employee’s application for long term disability insurance, which the insurer rejected, and resulted in an action in Federal District Court.

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In June of 2002, the plaintiff employee in this case filed for long-term benefits. She would qualify as disabled under the long-term plan if, for two consecutive years, she was unable to perform the material and substantial duties of her occupation, and subsequently was unable to perform “the material and substantial duties of any occupation”. The same Liberty nurse who had denied her earlier claim, also reviewed this file, which contained medical support for a finding that the plaintiff’s symptoms had become worse. She had also completed an activities questionnaire in which she claimed to have severe restrictions on her ability to sit, stand, walk, drive, and concentrate.

liberty mutual 2.jpgIn her second review, the Liberty Mutual nurse discounted the IME report, suggested that the plaintiff’s condition was not as grave as the completed questionnaire implied, concluded that the plaintiff did not qualify for benefits and Liberty denied the claim. The plaintiff requested further review. Liberty responded by hiring a private investigator to observe the plaintiff’s activities. The investigator produced reports and photographs showing that the plaintiff was active.

With this information, Liberty then utilized a referral service furnishing physicians to evaluate the functional abilities of claimants. One of its physicians concluded that the plaintiff was capable of working full-time in her primarily sedentary position. On December 10, 2002, Liberty reaffirmed its earlier denial of benefits.

Fourteen months later, an administrative law judge ruled the plaintiff was entitled to social security disability benefits retroactive to her last day of actual work. The judge premised this decision on a subsidiary finding that the plaintiff was disabled within the meaning of the Social Security Act. Although the definition of disability under the Act differed from the definition of disability under the Liberty’s plan, the plaintiff forwarded the SSDI ruling to Liberty, along with a further report from her rheumatologist, seeking reconsideration of the denial.


Liberty refused to reverse its decision, which resulted in the district court action. The U.S. District Court granted summary judgement to Liberty, deciding that Liberty had not abused its discretion in denying the claim. On initial appeal, the Appeals Court affirmed, but then the United States Supreme Court made a ruling, which changed the substantive law in the area and resulted in a successful request for rehearing of this case.

IThumbnail image for supreme court.jpgn rehearing the case, the Court analyzed the Supreme Court’s decision in  Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008). There, the Supreme Court had reviewed a denial of benefits by an administrator that passed judgment upon and paid claims under an ERISA-regulated plan.  It concluded that courts should recognize that a conflict exists whenever a plan administrator, whether an employer or an insurer, is in the position of both adjudicating claims and paying awarded benefits.

In the prior eighteen years, courts had struggled with how to handle structural conflicts of interest in ERISA cases, most courts using the classic abuse of discretion model, taking account of the impact, if any, of a conflict in evaluating whether a denial of benefits was arbitrary and capricious and thus, an abuse of discretion. 

The Court in this case applied the newly refined standard following Glenn. It assessed relevant factors, including the plan administrator’s “structural conflict, its inconsistent positions concerning a social security determination, its unexplained emphasis on medical opinions favoring a denial of benefits, and its offhand discounting of contrary medical opinions”. The Court concluded that the decision should be set aside.

The Court concluded that it was obligated to inquire into what steps a plan administrator had taken to insulate the decision making process against the potentially “pernicious effects of structural conflicts”. But the Court went further and also addressed the issue of discovery in such cases. Normally, such cases are adjudicated on the record compiled before the plan administrator, and courts have been disinclined to permit discovery, which might distort that view. Plaintiff in this case has sought discovery to investigate the conflict issues.

The Court concluded that where a colorable claim of bias had been shown, targeted discovery on the specific issues raised seemed appropriate. Based on the Glenn case, the Court determined that some discovery was appropriate on the issue of whether a structural conflict had  “morphed” into an actual conflict, in particular where the plan administrator failed to sufficiently detail its procedures.

Under the circumstances, the Appeals Court vacated the district court judgment below and remanded the case for further consideration, consistent with Glenn and leaving open the possibility of modifying the discovery order previously imposed.

Denmark v. Liberty Mutual Insurance Company of Boston
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The above information is provided by the Law Offices of Keith L. Miller, a Boston, Massachusetts personal injury and civil trial lawyer, specializing in the legal representation of individuals who believe that they have been injured as the result of the negligence of others and have been involved in all types of accidents causing personal injury. If you or a loved one has been injured in an accident where you believe someone else is at fault, contact Keith L. Miller to arrange a free consultation 24 hours a day, 7 days a week either by telephone at (617) 523-5803, or click here to send him an email. You will be contacted within 24 hours.