July 24, 2008

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Supreme Court Ruling Ups Risk for Self Funded Plans -- Employer Alert

July 14, 2008

Supreme Court Cites Inherent Conflict of Interest Issues in Self Funded Plans --

Employers Should Consider Reviewing Procedures Immediately

Any employer who sponsors a self funded benefit plan (including medical, disability, or life ) should take note of this recent ruling.

A United States Supreme Court decision issued in June increased the litigation risk for sponsors of self funded plans. On June 19, 2008, the Court announced its holding in Metropolitan Life Insurance Company v. Glenn. The case reinforced the conflict of interest factor that courts will consider in any review of a denied benefit claim.

Self funded plans at risk:

  •  disability plans
  •  medical plans
  •  life insurance plans

The scenario is familiar to self funded plans, even those that use a third party to administer claims. If the plan sponsor (the employer) is deciding either the claim, or the appeal of a denied claim, and is also going to pay the benefit if the claim, or the claim denial, is decided in favor of the plan participant, there is a conflict of interest. A plan participant, or several plan participants acting as a class, can assert and possibly win, a law suit based on a heavy emphasis on the inherent conflict of interest that the Supreme Court discussed in June.

Based on the recent reemphasis on the conflict of interest issue that will now run through the Courts of Appeals and Federal District Courts, and the possible severe result on plan sponsors of self insured plans, we have examined many clients' claims procedures inside their employee benefit plans. Whether the claims procedures are written by the employer or a third party administrator, we have found that claims procedures are lacking in the specific identification of the fiduciaries making the decisions, as well as other operational shortcomings that could lead to liability.

We have developed strategies to align claims and appeals procedures within the controlling Department of Labor requirements, as well as provide litigation defense to challenges to claims processing based on conflict of interest.