One of the costliest pitfalls of administration is litigation stemming from denials.
One of the costliest pitfalls of administration is litigation stemming from denials. Not only is it daunting to consider that a plan may have to pay a claim that it thought properly denied, but the cost of litigation (including possibly having to pay the participant's attorneys' fees) is particularly intimidating.
This theory obtained support from federal courts in Connecticut and New York, which found that one "arbitrary and capricious" interpretation strips an administrator of any future deference for his interpretation of the same term.
Earlier this year, however, the Supreme Court disagreed with those courts and issued its decision in Conkright v. Frommert, reinforcing that an administrator's previous bad decision would not sully its reputation to the point that it loses its deference regarding a subsequent interpretation. Conkright reaffirms what was generally thought to be the state of the law after Glenn and allows administrators deference applicable in probably all circumstances.
In Conkright, Xerox Corp.'s administrators had attempted to interpret the method by which re-hired employees' past distributions would be taken into account when calculating current benefits. The administrator came up with a method that the federal court in Connecticut approved, but which a federal appeals court in New York called "unreasonable."
So, the administrator tried again and both courts refused to give any deference to the administrator's decision, instead looking at the plan terms themselves. The administrator asked the Supreme Court to review the issue, arguing that its second interpretation was due deference even though its first interpretation was found inadequate.
The Supreme Court agreed and found that administrators are due deference in all cases, even when they had previously made a mistake. Although plan administrators strive never to be in a situation where they make an "unreasonable" interpretation in the first instance, Conkright establishes that, even if they do, their interpretive discretion remains intact, avoiding potentially crippling costs.
Christopher S. Williams is a partner in the litigation practice at the Cleveland-based law firm Calfee, Halter & Griswold LLP.
Jeffrey J. Lauderdale is a litigator at Calfee, Halter & Griswold LLP.