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March 20, 2009
What Makes for a Conflict of Interest?
A California saleswoman was injured in a work-related car accident—and then reinjured a month later in a second accident that was not work related. Some time after the second accident, she reported that she was totally disabled and applied for long-term disability benefits. She received payments for a time, but then doctors disagreed about her condition.

What happened.“Brown” was hired in late 1995 as an outside salesperson by Pitney Bowes. Her first accident happened in June 1998, leading only to 5 days’ absence. But in the second accident, she sustained more serious back and neck injuries. Brown tried to work after that but couldn’t and began disability leave in October. She has not worked since.

When she applied for benefits under Pitney Bowes’s long-term disability (LTD) program, they were initially denied because her first accident was work related. Brown sued in state court, and the two sides reached a settlement in 2002 under which she was to receive benefits. A year later, however, the employer’s physician-consultant chose another doctor to examine Brown. That doctor found no physical or neurological basis for Brown’s symptoms, described her as having “a very high level of self-perceived impairment,” and said she could do “light work.” Pitney Bowes promptly cancelled her benefits, and Brown appealed in early 2004.

Company-chosen doctors continued to disagree with Brown’s own doctor, and plan administrators continued to refuse her benefits. She sued again, this time in federal district court, where a judge dismissed her case. She appealed to the 9th Circuit, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

What the court said. Between the two courts’ reviews of the case, the U.S. Supreme Court in 2008 issued a ruling about LTD plans covered by ERISA (Metropolitan Life Insurance v. Glenn). Justices created a framework for evaluating whether, when a plan is both funded and administered by an employer, there is a conflict of interest.

Pitney Bowes’s plan is funded partly by the company and partly by employee payroll deductions. And, it is administered by a benefits committee composed of company employees. So that conflict of interest must be a factor in determining whether the committee “abused its discretion” in refusing Brown’s benefits.

Appellate judges sent the case back to the district court for reconsideration in light of Glenn. Burke v. Pitney Bowes, U.S. Court of Appeals for the 9th Circuit, No. 06-15341 (2008).

Point to remember: When an employer both funds a benefit plan and makes decisions regarding payment, it can be tempted to deny too many claims.

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