Trust Law as Regulatory Law: The Unum/provident Scandal and Judicial Review of Benefit Denials under Erisa

Essay INTRODUCTION 1315 I. THE UNUM/PROVIDENT SCANDAL 1317 II. BRUCH 1322 A. Setting the Default Standard: De Novo Review 1322 B. Subordinating De Novo Review 1323 C. The Conflict Proviso 1324 III. ERISA's CONFLICTED DECISIONMAKERS 1325 A. Plan Administration As Fiduciary Law 1325 B. Denigrating the Conflict 1327 C. Analogizing to Administrative Law.. 1331 D. Developing Bruch's Conflict Proviso 1333 IV. THE LIMITS OF TRUST LAW 1335 A. Default or Mandatory Law? 1336 B. Textual Support. 1336 C. Protective Principles from State Insurance Law 1340 CONCLUSION 1342 INTRODUCTION Authoritative evidence has come to light that for a period of some years, stretching from the mid-1990s into the present decade, Unum/Provident Corporation (Unum), the largest American insurer specializing in disability insurance, was engaged in a deliberate program of bad faith denial of meritorious benefit claims. Part I of this Essay reviews what is known of this episode. The Unum/Provident scandal draws attention to a major failing in how the federal courts have understood their role in reviewing benefit denials under the Employee Retirement Income Security Act of 1974 ("ERISA").1 Most disability insurance in the United States (apart from the Social Security program) is employer-provided,2 and hence ERISA-governed.3 Many, probably most, of the victims of the Unum/Provident scandal were participants and beneficiaries of ERJSA-covered disability insurance plans. As regards Unum's ERISA-governed policies, Unum's program of bad faith benefit denials was all but invited by an ill-considered passage in an opinion of the United States Supreme Court, Firestone Tire & Rubber Co. v. Bruch? which allows ERJSA plan sponsors to impose self-serving terms that severely restrict the ability of a reviewing court to correct a wrongful benefit denial. Part II of this Essay reviews the Bruch decision. Part III locates Unum's program of bad faith benefit denials in ERISA's landscape of conflicted plan decisionmaking. Most ERISA plan benefit denials are the work of conflicted decisionmakers. ERISA places the plan administrator under a fiduciary duty to act "solely in the interest of the participants and beneficiaries,"5 yet, as the Third Circuit observed of the defendant in Bruch, "every dollar saved by the [plan] administrator on behalf of his employer is a dollar in Firestone' s pocket."6 This Essay directs attention to a prominent line of Seventh Circuit cases in which that court has purported to invoke law-and-economics principles to minimize or deny the significance of these conflicts of interest. I explain why the Seventh Circuit cases are mistaken, and I point to a contrasting strand of Eleventh Circuit case law that, if more widely followed, could overcome much of the mischief that results from conflict-tainted benefit denials. Part IV develops the view that the Unum/Provident scandal, by demonstrating the extent of the danger of self-serving plan benefit denials, should cause the Supreme Court to revisit the branch of its decision in Bruch that allows plan drafters to require reviewing courts to defer to self-serving plan decisionmaking. …