Discovery in ERISA: The Exception, Not the Rule
By J. Wesley Pebsworth
The Employee Retirement Income Security Act of 1974 (ERISA) set minimum federal standards for employer-sponsored retirement, health and other welfare benefit plans.1 Although ERISA does not apply to all employer-provided benefit plans, when it does apply, the plan and claim administrators must ad-here to “various uniform procedural standards concerning reporting, disclosure, and fiduciary responsibility.”2 An ERISA participant or beneficiary who believes these standards have not been met may bring a civil action to enforce or determine his rights under the plan. 3
Courts presented with these cases must base their standard of review on the specific language of the plan at issue. Unless the plan specifically “gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan,” the court should conduct a de novo review of the administrator’s decision.4 On the other hand, when the plan gives the administrator discretionary authority to interpret the plan, the court’s review is limited to determining whether the administrator abused its discretion under the “arbitrary and capricious” standard. 5
Regardless of the standard of review to be applied, courts in the 10th Circuit generally confine their review to the administrative record that existed before the administrator when it made its decision.6 Courts recognize that permitting parties to supplement the administrative record in litigation would interfere with ERISA’s goal of “provid[ing] a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously.”7 Accordingly, ERISA requires plan participants and fiduciaries to develop the record with facts and information pertinent to a claim before the administrator’s final determination is made. Only under specific circumstances will the court permit supplementation of the administrative record in litigation. One such circumstance is the existence of an inherent conflict of interest.
In Metropolitan Life Insurance Company v. Glenn, the U.S. Supreme Court acknowledged that a dual-role conflict of interest exists “when the entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays the benefits out of its own pocket.”8 Although the existence of a conflict of interest does not change the standard of review to be applied by a reviewing court,9 it is one factor the reviewing court may weigh in determining whether an administrator has abused its discretion. The weight given to that factor depends on the seriousness of the conflict.10 A conflict of interest will “prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision … It should prove less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and to promote accuracy.”11
Because courts may weigh a conflict of interest in evaluating whether an administrator abused its discretion, courts, including the 10th Circuit Court of Appeals, have recognized that “discovery related to the scope and impact of a dual role conflict of interest may, at times, be appropriate.”12 The 10th Circuit has not, however, recognized an automatic right to conflict-of-interest discovery.13 Indeed, in Murphy, the court recognized that discovery related to a conflict of interest may often prove inappropriate, and it is the “party moving to supplement the [administrative record] or engage in extra-record discovery [who] bears the burden of showing its propriety.”14 To carry this burden, the party seeking discovery must show that the proposed discovery balances “the need for a fair and informed resolution of the claim and the need for a speedy, inexpensive, and efficient resolution of the claim.”15 The party must also show that the benefits of extra-record discovery outweigh its inherent burdens and costs.16
Courts have identified some specific situations in which the burden of extra-record discovery outweighs its potential benefit. For example, when “the dual role conflict makes [the administrator’s] financial interest obvious,” discovery is not necessary.17 The same is true when “the substantive evidence supporting denial of a claim is so one-sided that the result would not change even giving full weight to the alleged conflict.”18 The court should also deny a request for extra-record discovery when the administrative record specifically addresses the conflict of interest, or when the court can otherwise “evaluate the effect of a conflict of interest on an administrator by examining the thoroughness of the administrator’s review … based on the administrative record.”19 Thus, before it permits discovery based on an alleged conflict of interest, the court should conduct some level of preliminary analysis to determine if the discovery is even necessary. The existence of a conflict, by itself, will not justify the burden and expense of discovery.
Moreover, even when conflict-of-interest discovery is permitted, it is governed by Fed. R. Civ. P. 26(b), which limits the permissible discovery to only those matters relevant to the conflict of interest and proportional to the needs of the case. Courts will not permit unlimited discovery, but must limit a party’s proposed discovery to the scope and impact of the dual-role conflict of interest. Discovery “relate[d] to a claimant’s eligibility for benefits” will not be allowed, as such discovery is not relevant to the potential effect of the conflict of interest.20
Discovery will also not be allowed when the burden of the discovery promises to outweigh its usefulness. For example, discovery related to an administrator’s handling of comparable or similar claims “could create a morass of secondary and remote arguments going to which other cases are comparable and relevant to showing prejudice or bias … The utility of such expensive discovery is likely in all but the most unusual cases to be outweighed by the burdensomeness and costs involved.”21 Courts in the 10th Circuit have also held that discovery seeking the personnel files of specific insurance company employees is overly burdensome and “raises the specter of a fishing expedition, rather than a reasoned request for discovery.”22 Likewise, discovery seeking “any and all documents regarding or reflecting communications … relating in any way to” the plaintiff or his claims are “overbroad, irrelevant and/or improperly seeking discovery into the merits of the claim.”23 Because conflicts of interest only “affect the outcome at the margin, when [the Court] waiver[s] between affirmance and reversal,” the burdens of discovery will often outweigh its benefits.24
It is clear that Glenn and Murphy opened the door for some ERISA claimants to conduct some limited discovery beyond the administrative record, but the opening was only a crack. Judicial review of most ERISA cases should still be limited to the administrative record as it existed at the time the administrator made its final decision. When a plan gives the plan administrator the authority to construe the terms of the plan, thereby triggering a review of the court’s use of the “arbitrary and capricious standard,” extra-record discovery should only be allowed if there is a dual-role conflict of interest, i.e. when the administrator is vested with responsibility for both determining participants’ eligibility for benefits and paying those benefits. Even then, however, the party seeking discovery in an ERISA case bears the heavy burden of showing it is both necessary and properly limited so that the burdens and expense of the proposed discovery will not outweigh its utility. While courts “may, at times” find conflict-of-interest discovery is appropriate, that discovery should not be permitted to interfere with ERISA’s primary purpose of allowing parties to “resolve disputes over benefits inexpensively and expeditiously.”25
1. 29 U.S.C. §§1001, et seq.
2. Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732 (1985).
3. 29 U.S.C. §1132(a)(1)(B).
4. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).
5. Weber v. GE Grp. Life Assur. Co., 541 F.3d 1002, 1010 n.10 (10th Cir. 2008).
6. Hall v. UNUM Life Ins. Co. of Am., 300 F.3d 1197, 1201 (10th Cir. 2002); Geddes v. United Staffing Alliance Emp. Med. Plan, 469 F.3d 919, 928 (10th Cir. 2006).
7. Sandoval v. Aetna Life & Cas. Ins. Co., 967 F.2d 377, 380 (10th Cir. 1992) (emphasis added) (quoting Perry v. Simplicity Eng’g, 900 F.2d 963, 967 (6th Cir. 1990)).
8. Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 108 (2008).
9. Murphy v. Deloitte & Touche Grp. Ins. Plan, 619 F.3d 1151, 1158 n.1 (10th Cir. 2010).
10. Id. at 1162.
11. Foster v. PPG Indus., Inc., 693 F.3d 1226, 1232 (10th Cir. 2012) (quoting Glenn, 554 U.S. at 117.)
12. Murphy, 619 F.3d at 1162 (emphasis added).
13. Williams v. Metro. Life Ins. Co., No. 10-1504, 459 Fed. Appx. 719, 728 (10th Cir. 2012) (explaining that Murphy “acknowledge[s] extra-record evidence is not appropriate in every case involving bias or a conflict of interest”).
14. Murphy, 619 F.3d at 1163.
15. Id. at 1164.
16. Id. at 1163.
17. Id. See also Hurley v. Dyno Nobel, Inc., No. 2:08-cv-415-CW-PMW, 2011 WL 587591, *3 (D. Utah Feb. 9, 2011) (finding “the benefit of [extra-record] discovery is outweighed by the potential burden and cost because ‘the inherent dual role conflict makes [the Plan’s] financial interest obvious’”).
18. Murphy, 619 F.3d at 1163.
20. Id. at 1162. See also Sandoval, 967 F.2d at 377 (holding that insured “is not entitled to a second chance to prove his disability”); Paul v. Hartford, No. 08-cv-890-REB-MEH, 2008 WL 2945607, *3 (D. Colo. July 28, 2008) (rejecting proposed discovery “into the merits of the claim”); Kohut v. Hartford Life & Acc. Ins. Co., 710 F. Supp. 2d 1139, 1152 (D. Colo. 2008) (recognizing “prohibition on extra-record discovery…directed at uncovering additional evidence of a claimant’s eligibility for benefits”).
21. Gundersen v. Metro. Life Ins. Co., No. 2:10-CV-50 DB, 2011 WL 487755, *3 (D. Utah Feb. 7, 2011). See also Martinez v. Standard Ins. Co., CV-14-00758 JAP/WPL, 2015 WL 12806492, *2 (D.N.M. Jan. 23, 2015) (denying discovery into administrator’s “interpretation and application of the alcohol exclusion in other cases and statistical data concerning the number of files sent to the [reviewing] physicians and the number of times the physicians found claimants not entitled to benefits” because the benefit was outweighed by the cost and burden) and Rivera v. Unum Life Ins. Co. of Am., No. 11-CV-02585-WYD-KLM, 2012 WL 2709138, at *4 (D. Colo. July 9, 2012) (denying discovery of administrator’s “internal guidelines and procedures” when administrator agreed to produce its claims manual and additional discovery would be “duplicative”).
22. Rivera, 2012 WL 2709138, at *4.
23. York v. Prudential Ins. Co. of Am., No. 13–cv–03289–REB–MJW, 2014 WL 1882475, *2 (D. Colo. May 12, 2014).
24. Hancock v. Metro. Life Ins. Co., 590 F.3d 1141, 1155 (10th Cir. 2009).
25. Sandoval, 967 F.2d at 380.
ABOUT THE AUTHOR
J. Wesley Pebsworth is an associate in the Tulsa office of GableGotwals. He advises clients in a variety of areas, including insurance law, general commercial litigation and multidistrict litigation. He is admitted to practice in all state and federal courts in Oklahoma, the 10th Circuit Court of Appeals and North Dakota state courts.
Originally published in the Oklahoma Bar Journal --
OBJ 88 pg. 1989 (Oct. 21, 2017)