Motorola Ruling Clarifies Conflicted Administrator Law

With a recent decision ruling in favor of a Motorola employee, federal court judges continue refining their approach to handling benefits award cases involving a conflict of interest by a plan administrator.

Upholding a decision by U.S. Magistrate Judge Susan E. Cox of the U.S. District Court for the Northern District of Illinois, the 7th U.S. Circuit Court of Appeals ruled that the key issue in benefits award disputes, such as the one involving plaintiff Michael Marrs, was the likelihood the plan administrator’s conflict shaped the ultimate resolution.

The Marrs suit against the Motorola’s Disability Income Plan concerned a cutoff of benefits for treatment of a psychiatric condition after the plan put amended documents in place containing a time limit for such treatments.

“The likelihood that the conflict of interest influenced the decision is therefore the decisive consideration,” Circuit Judge. Richard A. Posner wrote for the court. “It is thus not the existence of a conflict of interest—which is a given in almost all ERISA cases—but the gravity of the conflict, as inferred from the circumstances, that is critical.”

Posner continued: “Thus, for decisions that could go either way (it would be reasonable to either grant benefits or deny them), what matters is the likelihood that the conflict of interest influenced the decision (not the mere existence of a conflict). If the circumstances suggest it is probable that a benefit denial was decisively influenced by a plan administrator’s conflict, it must be set aside.”

The ruling is different than holdings by other federal courts that such an administrator conflict was simply one of many issues to consider when judging whether such conflict made the benefits award decision arbitrary and unreasonable in instances where plan documents gave the administrator decisionmaking discretion.

The various federal court interpretations all stem from the Metropolitan Life Ins. Co. v. Glenn case decided last year by the U.S. Supreme Court in which the same entity was both the plan administrator and the benefits payer (see “Supreme Court Considers Conflict for Plan Administrators That are Also Payers”).

Posner contended that courts that have adopted a reading of the Glenn case, making the conflict only one of a list of considerations, are not helping judges and others in the orderly administration of the law.

“That sounds like a balancing test in which unweighted factors mysteriously are weighed,” complained Posner about the “one of many” factors approach. “Such a test is not conducive to providing guidance to courts or plan administrators.”

The Posner ruling in Marrs v. Motorola, Inc., is available here.