In Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008), the Supreme Court held that the structural conflict affecting insurance companies that both decide and pay claims for benefits is a factor for courts to weigh in determining whether the insurance company abused its discretion in denying a claim for benefits, but does not modify the arbitrary and capricious standard of review that ordinarily applies to such determinations. With that ruling, Glenn resolved a significant, long-standing Circuit split. It left unanswered, however, another important question: the extent to which the conflict’s impact on the benefit determination could be investigated in discovery.
In the first Circuit Court decision to rule on the issue, the Tenth Circuit recently held in Murphy v. Deloitte & Touche Group Ins. Plan, 2010 WL 3489673 (10th Cir. 2010), that a district court may consider evidence outside the administrative record related to an administrator's dual role conflict of interest. The Court cautioned, however, that conflict discovery may often prove to be beyond the confines of the Federal Rules of Civil Procedures' prohibitions against overly broad or unnecessary discovery and, as such, may be inappropriate.
The Magistrate Judge's Decision
The plaintiff, Murphy, filed a claim for long-term disability benefits under the Deloitte & Touche Group Insurance Plan (Plan). Metropolitan Life Insurance Company (MetLife), which was both the insurer and plan administrator, ultimately denied the claim. Shortly after filing a complaint in federal court seeking judicial review of MetLife's decision, Murphy propounded discovery requests on MetLife concerning MetLife’s dual role conflict of interest. The magistrate judge assigned to the case at the parties’ consent refused to permit the discovery, finding that "the conflict of interest was apparent on the face of the administrative record, which rendered discovery on that issue unnecessary." The magistrate judge subsequently granted summary judgment in favor of the Plan and MetLife.
The Tenth Circuit's Decision
On appeal, Murphy challenged the magistrate judge's denial of her discovery request and his grant of summary judgment in favor of the Plan and MetLife. The Tenth Circuit rejected Murphy’s argument that Glenn changed the standard for dual role conflict of interest discovery, but stated that in light of "the lack of clarity in our case law on this issue and the Glenn decision" it would take the opportunity to "clarify the appropriate standard for discovery related to a dual role conflict of interest."
The Tenth Circuit's analysis began with the observation that it has "frequently, consistently, and unequivocally reiterated that, in reviewing a plan administrator’s decision under the arbitrary and capricious standard, the federal courts are limited to the administrative record." (Internal quotations omitted.) The Court reasoned that a general prohibition on discovery outside of the administrative record "makes sense," since a district court would have no justification for concluding that an administrator abused its discretion by failing to consider materials never submitted to it. In addition, the Court explained that Congress designed ERISA to provide for an inexpensive and expeditious method for participants and beneficiaries to resolve disputes over benefits, and that allowing the district court to consider extra-record materials would undermine this goal.
The Court acknowledged, however, that these broad statements were potentially misleading in cases involving a dual role conflict of interest and that it had, in some cases, permitted such discovery to take place. It further observed that the Supreme Court's decision in Glenn contemplated the possibility of discovery related to a dual role conflict of interest. Although the Supreme Court did not rule on this issue in Glenn, the Tenth Circuit reasoned that the Court must have contemplated that, at least in some cases, discovery and consideration of extra-record materials may be necessary and appropriate, since it stated that a conflict of interest weighs more heavily against an administrator that has a history of biased claims administration, which typically would not be reflected in the administrative record.
Having determined that discovery related to the scope and impact of a dual role conflict of interest may, at times, be appropriate, the Court next considered the standard for addressing such discovery requests. The Court cited the Supreme Court's admonition in Glenn against special procedural and evidentiary rules focused narrowly upon the evaluator/payor conflict and concluded that this admonition also applied to discovery rules. It thus determined that the discovery dispute in this case should be governed by the standards set forth in Federal Rule of Civil Procedure 26(b).
In so ruling, the Court warned that neither party should be permitted to engage in unnecessarily broad discovery that slows the efficient resolution of an ERISA claim. In fact, the Court stated that discovery related to a conflict of interest may often prove inappropriate because a district court must balance the need for a fair and informed resolution of claims against the desire for a speedy, inexpensive, and efficient resolution of claims. It also must consider the necessity of such discovery in light of the facts and circumstances of the case; for example, the need for conflict discovery decreases when the administrative record already contains evidence of proper procedures and practices, or where the benefit denial was supported by the plain terms of the plan.
In the case before it, the Tenth Circuit rejected the magistrate judge's conclusion that discovery was not required merely because MetLife conceded it served as both the administrator and insurer of the Plan. The Court stated that Murphy might be able to argue that discovery, appropriately circumscribed, would be appropriate to allow her to determine, and present evidence on, the seriousness of the inherent conflict and the likelihood that it compromised MetLife's decision-making process in her case. The Court recognized, however, that the magistrate judge was understandably concerned by the breadth of Murphy's discovery request, which sought "extensive evidence of how the administrator and independent physicians had resolved other cases." According to the Court, in all but the most unusual cases the need for such expansive discovery is likely to be outweighed by the burdensomeness and costs involved.
Because the magistrate judge did not apply the correct legal standard for resolving Murphy's discovery request, the Tenth Circuit vacated the lower court’s decision and remanded the case for further proceedings.
Insofar as the Tenth Circuit stated that dual role conflict of interest discovery may be warranted, but should be carefully circumscribed, the Tenth Circuit's ruling arguably represents a middle ground between those district courts that have unconditionally permitted such discovery and those that have limited it by, for example, requiring a threshold showing of evidence that the conflict may have tainted the administrative process. Because the Court failed to articulate a specific standard other than the general Rule 26 requirements, however, the interpretation of its ruling is left to the whims of the district courts, which may unfortunately expose plans to the risk of broad discovery rulings.