What steps should a reviewing court take when the administrator of an employee benefits plan governed by ERISA denies benefits, but has a conflict of interest?  In Montour v. Hartford Life & Accident Ins. Co., No. 08-55803, 2009 U.S. App. LEXIS 20378 (9th Cir. Sept. 14, 2009)(authored by Hawai`i's Judge Clifton), the Ninth Circuit held that a reviewing court must take into account the conflict and utilize a more complex application of the abuse of discretion standard.

   Montour was an employee of Conexant Systems, Inc. for thirty-seven years.  He participated in his employer's group long-term disability insurance plan, which was governed by ERISA.  Hartford was both the insurer and administrator of the Plan.  The Plan granted Hartford, as the administrator, discretionary authority to interpret Plan terms and to determine eligibility for benefits.

   Hartford initially accepted Montour's application and began paying benefits in January 2004.  In August 2006, Hartford informed Montour that his benefits were being terminated because he no longer met the policy's definition of disability.  After an unsuccessful internal review, Montour filed suit.  The district court ordered judgment in favor of Hartford.  Although the district court concluded Hartford had a conflict of interest in its position as both the administrator and payor of benefits, the insurer did not abuse its discretion in determining that Montour failed to prove disability under the policy.

   On appeal, the Ninth Circuit first noted that when the plan gave the administrator discretionary authority, review of the administrator's decision was for abuse of discretion.  Where, however, a conflict of interest existed because the same entity that funded the ERISA benefits plan also evaluated the claims, the abuse of discretion standard required a more complex analysis.  In such a case, the court had to consider numerous case-specific factors, including the administrator's conflict of interest, and decide whether discretion had been abused by weighing and balancing the factors together.

   Here, Hartford's bias in trying to terminate benefits for Montour infiltrated the entire administrative decision-making process.  For example, although Hartford's decision was contrary to the Social Security Administration's determination of Montour's disability, Hartford failed to explain why it reached a different conclusion. 

   The Ninth Circuit concluded that Hartford's conflict of interest improperly motivated its decision to terminate Montour's benefits and was an abuse of its administrative discretion.  The case was remanded with instructions for the district court to order reinstatement of long-term disability benefits.