In a 2008 decision, Metropolitan Life Ins. Co. v. Glenn, the United States Supreme Court addressed the perceived conflict of interest in benefit award decisions that are entrusted to the discretion of a plan administrator. In Glenn, the Court held that a plan administrator's potential conflict of interest must be taken into account in a judicial review of benefit determinations. Recently, in Marrs v. Motorola Inc., the Seventh Circuit expanded the application of Glenn to a plan administrator's interpretation of plan language and concluded that the decisive standard in the judicial review of such interpretation is the likelihood that a conflict of interest influenced the decision. In doing so, the Seventh Circuit rejected the multi-factor approach used by other appellate courts, including a previous decision by another Seventh Circuit panel in Jenkins v. Price Waterhouse Long Term Disability Plan.

The Marrs Case

Michael Marrs was an employee of Motorola before he ceased working and began receiving benefits under Motorola's disability benefit plan. The version of the plan in effect at the time Marrs first began receiving benefits contained no limit on benefits for disabilities caused by mental, nervous, alcohol-related, or drug-related (MNAD) conditions. Six years after Marrs began receiving benefits, Motorola amended its disability benefit plan to place a two-year limit on benefits for participants disabled due to MNAD conditions. Motorola applied this amendment to Marrs and terminated his benefits two years after the effective date of the amendment.

Marrs filed a lawsuit against Motorola arguing that under the plan's terms Motorola was prohibited from amending the plan in any way that would adversely affect his right to continue receiving benefits. Although Marrs acknowledged that the plan gave Motorola the right to amend the plan, Marrs pointed to a provision in the plan restricting amendments that would “adversely affect the rights of any Participant to receive benefits with respect to periods of Disability prior to the adoption date of the action amending or terminating the Plan” in arguing for lifetime benefits.

Marrs argued that this provision prohibited any plan amendment that would affect his continued receipt of benefits because his disability period started prior to the amendment. Motorola countered that the plan provision prohibited Motorola from requiring Marrs to return benefits that he already received or that had accrued prior to the amendment date but that it did not prohibit prospective changes. Marrs argued that, based on the Supreme Court's concern with the appearance of a conflict of interest when the plan administrator is both the decision maker and the payor of benefits in Glenn, the court should give no weight to Motorola's interpretation of its plan. Essentially, Marrs argued that Motorola had a disqualifying conflict of interest in that it was both the interpreter of plan provisions and payor of benefits.

The Seventh Circuit agreed that Glenn extended to cases where there are challenges to plan administrators' interpretation of plan language. In an opinion written by Judge Richard Posner, the court then rejected the multi-factor approach previously used by many appeals courts. Under the multi-factor approach, the existence of a conflict of interest is one factor of many considerations in determining the reasonableness of a plan administrator's decision. In rejecting this approach, Judge Posner explained that the multi-factored approach is “not conducive to providing guidance to courts or plan administrators.” In addition, Judge Posner did not believe that the Supreme Court had clearly adopted such a balancing test in Glenn. Instead, he found that, in applying Glenn, a court should consider the likelihood that the conflict of interest influenced a benefit decision. Under this approach, "[i]f the circumstances indicate that probably the decision denying benefits was decisively influenced by the plan administrator's conflict of interest, it must be set aside."

After discussing the impact of Glenn, the court found no indication that Motorola's plan administrator labored under a conflict of interest serious enough to influence its decision. As a result, the court upheld the decision applying the two-year limit to MNAD benefits.

The Take Away

Since the earlier Jenkins court simply applied the multi-factor test rather than considering whether it was the proper application of Glenn, Marrs may signal that the Seventh Circuit is moving away from the multi-factor test in any review of a plan administrator's actions. For now, however, the multi-factor test continues to apply in other circuits.

Marrs highlights the importance of plan administrators' vigilance in minimizing the appearance of any conflicts of interest in their decision rendering. Glenn made clear that courts will consider such conflicts with respect to a plan administrator's benefit determinations, and now Marrs makes clear that courts will consider such conflicts with respect to a plan administrator's interpretation of plan provisions. The uncertainty that exists with respect to the weight a court will give a plan administrator's conflict of interest only accentuates the importance of minimizing the possibility and appearance of such conflicts.