California ERISA Claim: Another ERISA Administrator Loses on Discretion
Why is discretionary language important?
Disability insurance companies that administer employer group disability ERISA plans will not give up fighting about discretionary language in California. Why? If they can keep the concept of discretion in ERISA claims, it makes it much easier for them to get away with denying benefits or cutting off disability claims. Since a late 1980’s Supreme Court case, the law under ERISA, the federal law that governs employee benefits, allowed disability plans to grant “discretion” to the plan administrator to insulate their decisions in disability claims. A disabled employee could not get a discretionary decision overturned unless s/he could show that the disability insurer was outrageously wrong. A close call would go to the insurer. If the discretionary language was not in the plan, then a court could weigh the facts and make a common sense decision based on the evidence. To allow judges to make these common sense decisions, some states started fighting back to level the playing field for employees by passing state insurance laws which ban discretionary language from disability insurance policies and other insurance plans.
California banned discretionary clauses.
California is just such a state where grants of discretion in insurance policies are now “void and unenforceable” under California Insurance Code section 10110.6. Section 10110.6 which states, in relevant part, as follows:
(a) If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed, whether or not in California, that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for benefits or coverage, to interpret the terms of the policy, contract, certificate, or agreement, or to provide standards of interpretation or review that are inconsistent with the laws of this state, that provision is void and unenforceable.…(g) This section is self-executing. If a life insurance or disability insurance policy, contract, certificate, or agreement contains a provision rendered void and unenforceable by this section, the parties to the policy, contract, certificate, or agreement and the courts shall treat that provision as void and unenforceable.