At Least One Judge Gets It
Judge William Acker is a federal district court judge in the Northern District of Alabama. He understands the absurdity that passes for analysis of conflict of interest in most ERISA cases.
But first, a little background. ERISA requires that any person or entity with any discretionary control over the management or disposition of the assets of an ERISA plan is a fiduciary. A good example of an ERISA fiduciary is when an employer purchases a policy of group insurance for its employees. Because it is deciding what benefits will be paid or denied to the employees, there is no question that the insurer in that situation is a fiduciary under ERISA. As such, ERISA requires that it act in the sole interest of the insureds and for the exclusive purpose of providing them benefits. 29 U.S.C. Sec. 1104. A fiduciary duty is the highest known to the law. Its duty of loyalty is rigid and uncompromising. ERISA fiduciaries may not balance their loyalties to participants in the plan against other loyalties. To do so is a violation of ERISA and can make the fiduciary personally liable for payment of benefits.
Of course, insurers don’t work that way in the real world. They are profit making entities that cease to exist unless they make money for the individuals who own a share of the business.
So how does the federal judiciary reconcile the self-evident conflict that exists between the insurance company’s need to look after its own financial interest and ERISA’s duty of loyalty? Sometimes, as the Seventh Circuit has repeatedly done, the court simply denies that a conflict exists. This has the effect of keeping the judges’ dockets clear in that area of the country because such a rule is a powerful disincentive to challenging insurance company denials. And as the Seventh Circuit has informed us, it does not have the time, energy or resources to ensure that justice is meted out in that section of the country. At least not for ERISA cases. So insurers can do pretty much what they want in Wisconsin, Illinois and Indiana unless they act in a completely unreasonable way.
The Supreme Court has taken a different approach. It has stated that an ERISA fiduciary can put a boilerplate clause in the plan documents (including an insurance policy) that calls for the trial court to defer to any decision the ERISA fiduciary makes. However, if there is a conflict of interest the court should somehow factor that in to the judge’s review process. In practice the lower courts have struggled to figure out how to make that type of not-quite-so-deferential review workable.
So back to Judge Acker. He has written other thoughtful opinions and at least one law review article about ERISA and its flaws. Last week he issued a ruling in Burroughs v. BellSouth Telecommunications that I’ve placed in the library of this website. Click here to read it. It’s an excellent critique of the idea that insurers are anything but completely and inherently conflicted when it comes to deciding claims in a way that satisfies ERISA fiduciary duty requirements. Don’t miss it.