Lambert Coffin
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ERISA Blog

California’s Discretionary Ban Statute Saved from Preemption by ERISA

California Insurance Code § 10110.6 reads 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.
(b) For purposes of this section, “renewed” means continued in force on or after the policy’s anniversary date.
(c) For purposes of this section, the term “discretionary authority” means a policy provision that has the effect of conferring discretion on an insurer or other claim administrator to determine entitlement to benefits or interpret policy language that, in turn, could lead to a deferential standard of review by any reviewing court.
(d) Nothing in this section prohibits an insurer from including a provision in a contract that informs an insured that as part of its routine operations the insurer applies the terms of its contracts for making decisions, including making determinations regarding eligibility, receipt of benefits and claims, or explaining policies, procedures, and processes, so long as the provision could not give rise to a deferential standard of review by any reviewing court.
(e) This section applies to both group and individual products.
(f) The commissioner may adopt regulations reasonably necessary to implement the provisions of this section.
(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
In life or disability insurance, the only measure of liability and damage is the sum or sums payable in the manner and at the times as provided in the policy to the person entitled thereto.

The statute is significant because it is a broad discretionary ban that effectively eliminates the possibility of courts deferentially reviewing claims administrators’ determinations on group benefit claims governed by ERISA.

In Orzechowski v. Boeing Company Non-Union Long-Term Disabilty Plan, the Ninth Circuit Court of Appeals held that § 10110.6 is not preempted by ERISA because it falls within the savings clause set forth in 29 U.S.C. § 1144(b)(2)(A) since the statute is directed toward entities engaged in insurance, and it substantially affects the risk-pooling arrangement between the insurer and the insured.

This is HUGE for plaintiffs who can argue this statute applies, as the case should then be reviewed de novo.  This is why, in any case, I first analyze the prospective forum.  If you can litigate in California, even though you no longer live there, that’s an option you’ll certainly want to consider.

Here’s a link to the opinion.

Andrew Davis