When the same health plan administrator both administers a benefit plan and pays the benefits due under the plan, it is considered by courts to have a structural conflict of interest.  That conflict of interest is not problematic on its own – it is perfectly legal, and it is not a breach of fiduciary duty.  However, when a plan member files a lawsuit challenging the administrator’s denial of the member’s benefits, a court can consider the conflict of interest as a factor in whether the administrator’s denial was arbitrary and capricious.

Over the last several years, courts have provided administrators and their attorneys with guidance on how to limit the impact of this common structural conflict of interest.  When defending against denial of benefits claims under ERISA, 29 U.S.C. § 1132(a)(1)(B), defendant plan administrators should be aware of whether the conflict of interest exists and address it proactively to avoid negative inferences.

What negative inferences can be taken?

As noted, the existence of a conflict of interest is a factor courts consider when reviewing § 1132(a)(1)(B) denial-of-benefits claims, and courts give the factor different weight depending upon the circumstances.  Generally, the weight of the factor depends upon the likelihood that the conflict impacted the benefits decision.  If the benefits denial is strongly supported by the administrative record, courts generally give a conflict of interest little weight (likely because the decision appeared untied to the conflict but rather supported by the record).  On the other hand, if strong evidence supports the plan member’s entitlement to benefits, courts will look to see if the conflict of interest was the motivation for the denial. 

All considered, a conflict of interest – even one with little to no safeguards in place – will not solely result in a court reversing an administrator’s benefits decision as arbitrary or capricious.  However, in a close call – when members have a strong case supporting their entitlement – the conflict of interest may be the tie-breaking factor that pushes the decision in the member’s favor.

Courts generally do not permit discovery in ERISA denial of benefits claims under § 1132(a)(1)(B).  A court’s review is limited to the administrative record, so discovery into other information is not necessary.  However, because courts will consider evidence outside the record relating to a conflict of interest and the safeguards in place, discovery into such information is permitted.  The good news for administrators is that they are permitted to submit affidavits or other documents from outside the administrative record that show that the conflict of interest played no role in the decision-making. 

What evidence can an administrator submit or reference in an affidavit to support an argument that a conflict of interest should be given little to no weight? 

The following is a non-exclusive list of evidence federal courts have considered in ERISA opinions issued within the last three years.  Courts viewed the items in this list as showing that the administrators took active steps to reduce potential bias and to promote accuracy.

• The persons making the benefits decisions were walled off from financial departments and other financial information, and they did not consult with persons with knowledge of finances. 
• The persons making the benefits decisions were not compensated based upon whether they approved or denied benefits claims – they had no individual financial interests in the benefits decision.
• The administrator had a process for reviewing claims decisions and penalized inaccurate decision-making, regardless of whether the inaccuracy was in the administrators’ or the members’ favor.
• A separate appeals unit independently considered claims that were denied by different employees during the initial reviews.
• Independent third parties played a significant role in the benefits review process.  This includes participation of independent medical experts who reviewed records or examined plan members; non-employees of the administrator serving on appeals committees; or outreach for independent opinions.  Any involvement of independent parties was considered relevant, as long as those parties were not compensated based upon whether their opinion supported the approval or denial of benefits.

What evidence have courts found to be a strong factor that a conflict of interest affected the benefits decision?

The list below is a non-exhaustive list of actions that courts found to be strong evidence that a structural conflict of interest did play a strong factor in the denial of benefits within the last three years.  Plan administrators and their attorneys should be prepared to address these issues affirmatively and counter with evidence like that in the list above.

• Procedural irregularities that only appeared to benefit the administrators.  Examples included processes that are shorter or longer than standard, non-standard requests for additional medical reviews, delays in sending required ERISA notices, or failing to provide information required by ERISA.
• Inconsistent reasons were given to the member for denying the benefits claim, making it appear as if the administrator was searching for a reason for denial.
• A documented history of arbitrary claims denials by the administrator.  Plaintiff plan members are likely to seek this type of information in discovery.  They are also likely to research for publicly available information, like judicial opinions ruling against the administrator.
• Documentation showing that the “independent” third parties brought in to review claims (or the “independent” medical experts utilized to issue opinions) were strongly encouraged to deny claims or financially incentivized to do so.  Plaintiffs may also research judicial opinions for reference to medical experts to see if courts previously found the experts to be unreliable or biased.
• Adverse determination letters that read more like arguments made by an attorney against an opposing party as opposed to the decision of an impartial arbiter with a fiduciary duty to weigh all the facts and render an impartial decision.
• The failure to request necessary information from the plan member or refusing to credit clearly reliable and relevant information, such as a social security finding of disability in a disability benefits review.

Addressing conflicts of interest at the forefront and not reacting defensively will likely result in better results when defending denial-of-benefits claims.  Husch Blackwell LLP’s healthcare litigators have experience in defending claims like these, and we can also help to advise on front-end solutions that will set you up to be in a better position should a lawsuit be filed. 

Examples of Recent Legal Authority Reviewed

Noga v. Fulton Financial Corp. Employee Benefit Plan, 19 F.4th 264 (3d Cir. 2021).

McIntyre v. Reliance Standard Life Insurance Co., 73 F.4th 993 (8th Cir. 2023).

Midthun-Hensen v. Group Health Cooperative of South Central Wisconsin, Inc., –F. Supp. 3d–, 2023 WL 3303865 (W.D. Wisc. May 8, 2023).

Chacko v. AT&T Umbrella Benefit Plan No. 3, –F. Supp. 3d–, 2023 WL 5806455 (E.D. Cal. Sept. 7, 2023).

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