In this 6th Circuit decision that wound its way up to the US Supreme Court, it was held by SCOTUS that federal law imposes a special standard of care on insurers requiring full and fair review of claim denials. Justice Breyer noted that MetLife had emphasized a medical report that favored denial, de-emphasized other reports suggesting benefits should be granted and failed to provide MetLife’s vocational and medical experts with all relevant evidence.
Many of these thoughts are of a preliminary nature; and hopefully they might stir some debate or thoughts by others.
In looking at an ERISA third party administrator's duties it was noted that that a company which both administers and funds a benefit plan operates under a conflict of interest that must be considered as a factor in a court’s review of claim denials.
Click here for the SCOTUS Wikipedia summary and anaysis of Met Life v. Glenn.
However, my question is whether or not the same analysis for conflicts of interest applicable to the ERISA TPA should apply to a first party insurance coverage claim within any insurance context where a person pays for a premium, the insurer accepts that premium, and promises to pay under certain conditions. Alas, that is the heart of any insurance contract which is part and parcel of a business highly regulated by government.
Insurance contracts are approved by the state agency regulating insurers; and their terms are not freely negotiated, much less some parity between the parties. Kentucky decisions have long held the terms of the policy will be interpreted against the drafter. However, what about the application of those terms in payment of claims?
Does the Kentucky Unfair Claims Settlement Practices Act constitute sufficient oversight on the insurer's conduct? Does the creation of a fiduciary relationship with conflict of interest concerns in ERISA set up a standard that (a) can be extended to non-ERISA first party contracts; and (b) would the conflict of interest duties preempt any state law to the contrary?
I would submit the ERISA standard is clearly not going to control and regulate the non-ERISA contract. But a federal recognition of the standard of care in processing the claim to avoid a conflict of interest is a clear sign that something may be in the air and constitute persuasive authority to develop law along the fiduciary standards rather than an unfair claims settlement practices standard. These two areas clearly are not the same.
Below this line are some cases which discuss good faith and the applicability of a fiduciary duty in first party insurance. Does a conflict of interest analysis need now to be considered?
See, Morton v. Bank of the Bluegrass and Trust, 18 S.W.3d 353 (Ky. App., 1999):
A fiduciary relationship "is one founded on trust or confidence reposed by one person in the integrity and fidelity of another and which also necessarily involves an undertaking in which a duty is created in one person to act primarily for another's benefit in matters connected with such undertaking." Steelvest, Inc. v. Scansteel Service Ctr., Inc., Ky., 807 S.W.2d 476, 485 (1991). Although a bank is not traditionally held to be in a fiduciary relationship with its depositors, "services to borrowers and pledgors may support a finding that a bank, in taking a borrower's note and collateral, falls under a fiduciary duty to disclose material facts affecting the loan transaction." Id.
Addington v. Lewis, No. 2006-CA-001340-MR (Ky. App. 8/17/2007) (Ky. App., 2007):
A fiduciary relationship, we are instructed, "is one founded on trust or confidence reposed by one person in the integrity and fidelity of another and which also necessarily involves an undertaking in which a duty is created in one person to act primarily for another's benefit in matters connected with such undertaking." Steelvest, 807 S.W.2d at 485.
The sad fact is that the insurance industry sells their policies under an umbrella of trust and concern for protecting the policy holder and providing a benefit when needed which is replaced with a fiduciary duty to stockholders and other insureds in managing those company assets to see that only appropriate claims are paid. Hmmmm..... Does this sound like a conflict of interest and what MetLife v. Glenn was looking at in the ERISA context? Now do you catch my drift?
First party claims take on an air of adversity pitting the insured against the company that took his premium dollars while placing the insured under a duty to cooperate, the failure of which may vitiate the policy protections, and the insurer's duty to disclose material facts and to primarily act for the insured's benefits sometimes forgotten.
An older Kentucky decision incorporated language from Chief Justice Cardozo of the New York Court of Appeals, in the case of Meinhard v. Salmon et al., 249 N.Y. 458, 164 N.E. 545, 546, 62 A.L.R. 1, who in that case had before him the duties of one occupying the position of trustee or fiduciary for the benefit of others.
"Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctillio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the `disintegrating erosion' of particular exceptions. Wendt v. Fischer, 243 N.Y. 439, 444, 154 N.E. 303. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court." So say we. Also see to the same effect the case of Re Estate of Elder, 160 Or. 111, 83 P. 2d 477, 119 A.L.R. 302, and annotations thereto in the ALR volume, and our late case of Karsner's Ex'r v. Monterey Christian Church, 304 Ky. 269, 200 S.W. 2d 474.
Carpenter v. Planck, 304 Ky. 644 (KY, 1947).
I submit to you that Justice Breyer has reminded us that fiduciary duty is more than a litany of don'ts under the guise of unfair claims practices and that the field of propriety is much larger and more demanding. In a world in which insurance companies supposely sell peace of mind, more is promised, more is expected, and more is required.
Tanner lectures on Human Values that Justice Breyer delivered at Harvard University in November 2004. In it, Justice Breyer argues that the Constitution’s lasting brilliance is that its principles may adapt to cope with current sitations. (courtesy: 