A couple of days ago I blogged about Bennett v. Kemper Nat’l Servs., Inc., a recent decision from the U.S. Court of Appeals for the Sixth Circuit. As I mentioned, there is a concurring decision in Bennett that is worth separate comment. Judge Deborah Cook took the time to make a couple of points she felt strongly about regarding conflicts of interest and what deferential review of an ERISA plan fiduciary’s decision means. Because she felt constrained by Sixth Circuit precedent, her concerns did not justify a dissent in her mind. But the gulf between her thinking and the judges joining in the majority opinion is evident on several fundamental issues.
First, Judge Cook makes clear her feeling that, generally speaking, the Sixth Circuit precedent in dealing with ERISA benefit denials has begun to "stray improperly" from an arbitrary and capricious standard of review to a more searching one. More specifically, she takes issue with the majority’s concern that Bennett's insurer did not appropriately take into account Bennett’s social security disability award in evaluating her right to disability benefits under the insurance policy. Judge Cook makes clear that she does not believe the social security definition of disability should be equated with a private insurer’s definition of disability. However, she never really explains why.
Absent from the concurring opinion is any attempt to compare the actual language from the Social Security Act establishing the standard under which individuals may become entitled to disability benefits with the language in the insurance policy identifying the standard an insured had to meet to get policy benefits. It’s hard to be too critical of concurring opinion on this point because the majority likewise slights this seemingly fundamental comparison and discussion of the two standards. In fact, few disability insurance policies contain a standard for obtaining disability benefits that is as or more stringent than the social security disability standard.
The concurring opinion goes on to say that the Sixth Circuit framework for handling the conflict of interest that exists when an insurer is both the payer of claims and the decision-maker on those same claims is wrong. The Sixth Circuit, like most others around the country, makes clear such an arrangement carries with it an inherent, substantial conflict of interest. The Sixth Circuit’s analysis on this issue is presently being evaluated by the Supreme Court in MetLife v. Glenn. Judge Cook makes clear that she doesn’t see the inherent problem with the arrangement.
The theory behind her thinking is that if employers are unduly stingy with benefits, they will lose good employees to other employers offering more generous benefit packages or that the employees will insist on additional compensation in other forms. In other words, we should just leave employees and employers to their own devices with the knowledge that Adam Smith’s invisible hand, the free market, will even things out in the end. This is the panglossian view of the employment relationship I’ve referred to on other occasions. I don’t know of many folks who deal with the real world on a regular basis who find merit in this analysis. Following this reasoning, there is no need for labor unions because employees and employers have equal bargaining power.
Maintaining its disconnect with reality, the concurring opinion states that Adrienne Bennett was not "deprived of the kind of contractually bargained-for benefit that ERISA was enacted to protect." There are some employment benefit packages, such as collectively bargained union agreements, that would qualify in my book as being meaningfully bargained for. But they are few and far between. Certainly, the type of disability benefits provided through a group policy of insurance will rarely be freely bargained for by both parties before a hiring agreement is struck. These insurance policies are almost invariably offered by employers and insurers to employees on a "take it or leave it" basis.
They are akin to the ticket one receives out of a machine as the gate lifts and you go into a private parking garage. Can anyone really say they "bargained" for whatever "terms" of the "contract" exist on the back side of the ticket the machine spits out? Courts in the parking lot situation recognize the absurdity of claiming that there is any meaningful mutual assent associated with this arrangement and fill in rights and duties between the parties that are reasonable and that reflect the objectively reasonable expectations of the average persons in the circumstances.
ERISA, with its disclosure requirements, fiduciary duty standards and rigorous claims procedure obligations, is an extraordinarily paternalistic statute in many ways. It is jarringly inconsistent to believe that Congress also intended to allow an insurers to enforce any terms it chooses to put into a policy under the guise that ithose policy terms are freely, meaningfully bargained for by the insurer and ERISA participants and beneficiaries. Again, this belief demonstrates a remarkable ignorance or denial of what really happens in the labor market.