This suit undеr ERISA for disability payments presents the recurring question whether an employee welfare benefits plan creates an entitlement to lifetime benefits rather than just to benefits that can be terminated by an amendment to the plan.
In 1997 Michael Marrs, an employee of Motorola, ceased working because of a psychiаtric condition and began drawing disability benefits under Motorola’s Disability Income Plan. Six years later Motorola amended the plan to place a two-year limit on benefits for disability resulting from certain “Mental, Nervous, Alcohol, [or] Drug-Related” (MNAD) conditions, including Marrs’s. Such limitations on MNAD conditions are common in employee disability plans.
Rogers v. Department of Health & Environmental Control,
His suit is on behalf of himself and others in the same position, and a class action has been certified. The district court granted summary judgment in Motorоla’s favor. In an earlier stage of the litigation, the district court had dismissed two other claims under Rule 12(b)(6). Marrs renews them on appeal, but they are too clearly without merit to require us to discuss them.
Marrs contends that the application of the amendment to persons in his situation violates a provision of the disability-income plan thаt, like the provision in Article V of the U.S. Constitution according to which a state cannot by constitutional amendment be deprived of its right to two senators without its consent, limits Motorola’s power to amend the plan. The provision states that no amendment “shall adversely affect the rights of any Participant to receive benefits with resрect to periods of Disability prior to the adoption date of the [amendment].” Marrs interprets “periods of Disability prior to the adoption date” to mean one or more periods of disability that began before the plan was amended but may not have ended before then.
That is a forced reading. The reference in the рlan to “periods” rather than “period” suggests the segmentation of a period of disability, with some segments (“periods”) lying before and some after the amendment. It is true that the plan defines the term “Period of Disability” to mean “one or more periods of absence from Active Employment due to Disability,” and if we substituted “Period of Disability prior tо the plan” for “periods of Disability prior to the plan” we would come closer to Marrs’s preferred interpretation. But the plan provides that only words the initial letters of which are capitalized are defined terms, and so “periods of Disability” cannot be equated to “Period of Disability.”
Marrs’s interpretation is further undermined by the disаbility plan that was in force in 1997 when he stopped working and that states that if a participant became disabled prior to 1994, the benefit levels specified in the disability income plan in force then would “continue in force until [the participant] returns to work for thirty (30) days.” This provision would be surplusage in the superseding plan (where it also appears) if the plan guaranteed the continuation of disability benefits without diminution even if, as in Marrs’s case, the disability did not arise before 1994.
Whether this interpretation of the plan, which is the plan administrator’s interpretation, is correct or not, it is reasonable; and we are inclined to stop with that observation. But Marrs asks us to give no wеight to the administrator’s interpretation because the administrator labored under a conflict of interest: Motorola is both the plan administrator and the payor of benefits awarded under the plan.
Marrs cites the Supreme Court’s recent decision in
Metropolitan Life Ins. Co. v. Glenn,
— U.S. -,
Marrs reads
Glenn
to require “a more penetrating inquiry into the actions of a conflicted administrator” than the ear
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lier case law, which was all оver the map— see Kathryn J. Kennedy, “Judicial Standard of Review in ERISA Benefit Claim Cases,” 50
Am. U.L.Rev.
1083, 1135-62 (2001); see also
Denmark v. Liberty Life Assurance Co.,
True, the issue in this case is the interpretation of a plan document rather than the application of the plan’s criteria for an award of benefits to particular facts; and the interpretation of a contract, unless extrinsic evidеnce is considered, is usually treated as an issue of law, which an appellate tribunal therefore resolves without deferring to the opinion of the first-line decision maker. But when an ERISA plan gives the plan administrator discretion to interpret its terms as well as to determine eligibility for benefits under terms the meaning of which is not questioned, the court can, as the parties to this case agree, reject the administrator’s interpretation only if it is unreasonable (“arbitrary and capricious”).
Firestone Tire & Rubber Co. v. Bruch,
The аdministrator is not by virtue of such a grant of authority free to disregard unambiguous language in the plan,
id.
at 822-23;
Swaback v. American Information Technologies Corp.,
Yet
Vallone v. CNA Financial Corp.,
Confusion may have been injected into the issue of deference to interpretive discretion by cases which say that the
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interpretation of an ERISA plan is governed by the ordinary federal common law principles of contract interpretation, e.g.,
Ruttenberg v. United States Life Ins. Co.,
The play between principles of contract interpretation and the scope of review of a plan administrator’s decision is illustrаted by
Hackett.
The court had to determine which version of a plan controlled the determination of entitlement to disability benefits. The earlier version did not grant interpretive authority to the plan administrator, but the later one did, so we had to determine as a matter of contract law which plan controlled because that would detеrmine the standard of review of the plan administrator’s interpretation that we should use.
But maybe the court in Vallone thought that an alleged misinterpretation of a plan’s eligibility criteria is less serious than an alleged misinterpretation of a plan provision that affects an emрloyer’s right to amend it without trampling on vested rights, and therefore that appellate review of the latter claim should be less deferential. Neither Vallone nor, to our knowledge, any other case says that. Nor is it apparent why the interpretive principles (including the scope of judicial review of the first-line interpreter’s decision) that govern the two types of issue should differ. In any event we do not think that the Glenn decision has the significance that Marrs attaches to it even if it is fully applicable to cases involving the interpretation of plan amendments alleged to infringe on vested rights.
When a payment of benefits comes out of the plan administrator’s pocket, the administrator has an incentive to resolve a close case in favor of a denial of benefits. But that incentive may be outweighed by other incentives, such as an employer’s interest in maintaining a reputation among current and prospective employees for fair dealing — a reputation that may enable him to obtаin a better-quality employee at a lower cost in wages and benefits. E.g.,
Williams v. Interpublic Severance Pay Plan,
But how much weight should it be given? The nub of the Glenn opinion is the following passage:
[W]hen judges review the lawfulness of benefit denials, they will often take account of several different considerations of which a conflict of interest is one. This kind of review is no stranger to the judicial system. Not only trust law, but also administrative law, can ask judges to determine lawfulness by taking account of several different, often case-specific, factors, reaching a result by weighing all together. In such instances, any one factor will act as a tiebreaker when the other factors are closely balanced, the degree of closeness necessary depending upon the tiebreaking factor’s inherent or case-specific importance. The conflict of interest at issue here, for example, should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration. It should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decisionmaking irrespective of whom the inaccuracy benefits.
There are two ways to read the majority opinion. One, which tracks its language and has been echoed in opinions in this and other circuits, e.g.,
Jenkins v. Price Waterhouse Long Term Disability Plan,
If that’s the test the Supreme Court has adopted, we must bow. But it is not clear that the rudderless balancing test suggested by the passage that we quоted was intended to be the last word on the standard that should guide decision in these cases. The test can be made more directive, without contradicting the Court’s opinion, by first recognizing that while a decision may
look
reasonable if one just reads the decision and the record, a decision that is “reasonable” rather than clearly сorrect is a decision that might just as well have gone the other way,
United States v. Williams,
The
likelihood
that the conflict of interest influenced the decision is therefore the decisive consideration, as seems implicit in the majority opinion’s reference to indications of “рrocedural unreasonableness” in the plan administrator’s handling of the claim in issue,
Justice Scalia appears tо believe that if the plan administrator has no improper motive, the existence of a conflict of interest cannot have affected the denial of benefits: “if one is to draw any inference about a fiduciary from the fact that he made an informed, reasonable, though apparently self-serving discretionary decisiоn, it should be that he suppressed his selfish interest (as the settlor anticipated) in compliance with his duties of good faith and loyalty.” Id. at 2360 (emphasis in original). But if, as we have suggested, both a decision in favor of the applicant for benefits and a decision against may be reasonable, the plan administrator’s conflict of interest may cause him unconsciously to dеcide against the applicant and thus in favor of the plan’s financial welfare; hence the majority Justices’ interest in whether the plan establishes safeguards designed to minimize such a tendency. There are no indications in this case, however, that the plan administrator labored under a conflict of interest serious enough to influence his decision consciously or unconsciously — a decision that was otherwise entirely reasonable — decisively. The district court’s decision must therefore be
Affirmed.