May 22, 2019
Yesterday the U.S. Court of Appeals for the First Circuit issued its long awaited decision in Denmark v. Liberty Life Ass. Co. The case involves Diane Denmark's assertion that Liberty Life wrongly denied her disability claim. The procedural history is long and torturous. The First Circuit ended up delaying a ruling in the case until MetLife v. Glenn, 128 S.Ct. 2343 (2008), was decided to get the Supreme Court's guidance on how an insurer's conflict of interest affects the standard of review a trial court should utilize in ERISA benefit denial cases.
The First Circuit reversed the trial court's ruling in Liberty Life's favor and remanded the case for additional consideration based on "refinements" Glenn required to First Circuit precedent on the appropriate standard of review for conflicted ERISA plan administrators. The court makes clear that Glenn requires a trial court to take the particular facts of an insurer's structural conflict of interest into account on a case by case basis. "[C]ourts are duty-bound to inquire into what steps a plan administrator has taken to insulate the decisionmaking process against the potentially pernicious effects of structural conflicts." In addition, depending on the facts of the case, the conflict may be so signicant that it justifies a ruling by the court that a claim denial was arbitrary and capricious.
But the most interesting aspect of the decision is its language about what discovery is available to claimants in ERISA benefit denial cases. The opinion acknowledges that discovery may be necessary to gather the information the Supreme Court identifies as relevant in Glenn. But, curiously, the majority opinion makes clear its hostility to the idea that the same scope of discovery ordinarily carried out in other types of civil litigation would be proper to flesh out the conflict of interest issues identified by the Supreme Court. Any discovery directed to conflict of interest in an ERISA benefits case ". . . must be allowed sparingly and, if allowed at all, must be narrowly tailored so as to leave the substantive record essentially undisturbed." This, despite the Supreme Court's statement in Glenn that it contemplates no "special procedural or evidentiary rules" different from other litigation as to how evidence of conflict of interest will be presented. Glenn, 128 S.Ct. at 2351.
The majority opinion then goes on to foretell what district courts in the First Circuit can expect the pre-litigation appeal record to contain by way of information that will make discovery as to conflict unnecessary in future cases. Quite honestly, the penultimate paragraph in Section III of Denmark is simply bizarre. Such soothsaying simply has no place in a judicial opinion. This paragraph is a badly concealed attempt to instruct insurance companies and other conflicted ERISA fiduciaries how they can curtail discovery into facts they would rather not have come to light and that could demonstrate they are ignoring their fiduciary duty of loyalty to ERISA plan participants and beneficiaries.
A concurring opinion from Judge Lipez shares some of my heartburn. That concurrence criticizes the majority opinion for its hasty and unwarranted discussion of complex legal issues that neither party to the litigation briefed or raised on their own. Courts are ". . . far more likely . . . to fashon defective rules, and to assert misguided propositions, which have not been fully thought through . . ." when they stray into territory based on their predilections. The majority opinion's language that discovery must be allowed sparingly is an "unwarranted signal that discovery into the existence of an actual conflict is disfavored." In future cases, First Circuit district courts "should not feel bound by the hostile attitude towards discovery that is improvidently reflected in dicta in the majority opinion."
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