Friday, February 22, 2008

Conflict of Interest in ERISA Benefit Claim

This question has haunted lawyers and workers alike for twenty years: "If an administrator that both determines and pays claims under an ERISA plan is deemed to be operating under a conflict of interest, how should that conflict be taken into account on judicial review of a discretionary benefit determination?"

Reading across the article,”The Supreme Court Tackles Conflict of Interest”, posted on February 20, which discusses some of the issues involved in this much-awaited verdict of the High Tribunal, I

As many of us already know, the Employee Retirement Income Security Act of 1974 (ERISA) (Pub.L. 93-406, 88 Stat. 829, September 2, 1974) is a federal law that sets the minimum standards for pension plans in private industry and “provides for extensive rules on the federal income tax effects of transactions associated with employee benefit plans”.

This law was created “to protect the interests of employee benefit plan participants and their beneficiaries by requiring the disclosure to them of financial and other information concerning the plan; by establishing standards of conduct for plan fiduciaries; and by providing for appropriate remedies and access to the federal courts”.

However, based on the article, the granting of most benefits claims under the ERISA have been delayed or blocked due to the issue of conflict of interest on the part of the employer who both act as “the decider and payer of a claim”.

However, the article made mention of one specific case, Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), wherein the Supreme Court “effectively and severely limited the judicial discretionary power” of the employer. In ruling on the case, the High Court warned employers against “arbitrary and capricious” exercise of power or the alleged abuse of discretion against claimants. But the ruling failed to give enough guidance on how lower courts should act on similar cases brought before them. Hence, we are expecting the final decision now.

I think it is worth our time to wait and listen to the Supreme Court’s decision on the legal issue if only to settle once and for all the issue that has been bugging us for years.