The 9th Circuit Court of Appeals, which covers California, delivered a great opinion for disabled workers wrongfully denied long term disability benefits from their insurer.
This case involves Boeing, and Aetna Life Insurance Company. A few years ago, all of the LTD insurers reserved “discretionary” authority for themselves. Discretion in LTD policies, in my opinion, amounts to highway robbery. The insurance company sells you a long term disability policy, supposedly to protect you should you become disabled and can no longer work.
Aetna reserves discretion in ERISA Long Term Disability Policies
So they sell you this policy, but in the language they reserve for themselves “discretion.” Meaning, they get to decide whether you are disabled or not. And courts respected this discretion. The insurance company would only lose if they abused this discretion.
I won’t get into how an insurer can abuse their discretion, as it’s a lengthy, unclear and complex topic. Just know, that in California, discretion for LTD policies is effectively dead. California passed a law in 2012, stating any discretion clause in a policy, contract, certificate, or agreement offered, issued, delivered, or renewed after that date, will be void.
Aetna argues California law prohibiting discretion doesn’t apply to them
The insurer argued this new law didn’t apply to their policy, because the language in the agreement existed before 2012, and was not renewed or modified since. The Court disagreed, and stated under California law, a policy is “renewed” if it continues to be in force beyond it’s anniversary date. In essence, all policies renew every year in its existence.
As we have quoted above, § 10110.6 voids any “provision that reserves discretionary authority to the insurer, or an agent of the insurer.” Cal. Ins. Code § 10110.6(a). The statute applies to any “policy, contract, certificate, or agreement offered, issued, delivered, or renewed.” Id. “‘[R]enewed’ means continued in force on or after the policy’s anniversary date.” Id. § 10110.6(b). Thus, for § 10110.6 to void the discretionary clauses in question, “a policy, contract, certificate, or agreement” must have been “offered, issued, delivered, or renewed” after the statute’s effective date of January 1, 2012. See Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917, 927 (9th Cir. 2012) (“The law in effect at the time of renewal of a policy governs the policy . . . .”).
Boeing argues, and the district court agreed, that § 10110.6 did not apply to Orzechowski’s claim because its Master Plan was dated January 1, 2011.3 There is no dispute that Boeing’s Policy—which is different from its Plan—had an anniversary date of January 1, 2012, and renewed accordingly. We think this is sufficient to invoke the statute. The statute makes clear that it applies when the “policy” renews. When the definition of “renewed” found in § 10110.6(b) is inserted into section (a), the statute reads:
If a policy, contract, certificate, or agreement
offered, issued, delivered, or [continued in
force on or after the policy’s anniversary
date], . . . contains a provision that reserves
discretionary authority to the insurer . . . that
provision is void and unenforceable.
Cal. Ins. Code § 10110.6(a). A document (not just a policy, but also the contract, certificate, or agreement) is “renewed” if it “continue[s] in force on or after the policy’s anniversary date.” Id. § 10110.6(b). Boeing’s Policy here “renewed” when it continued in force beyond its anniversary date of January 1, 2012 and, accordingly, the Master Plan similarly “renewed” when it continued in force beyond the Policy’s anniversary date.
Boeing argues that § 10110.6(b) must refer only to insurance policies and not other plan documents. Thus, claims Boeing, the discretionary clause in the Master Plan survives and applies to Orzechowski’s claim. This is a variation on the prior argument that ERISA’s saving clause applies only to insurance companies, and not to insurance provided or funded by other companies. The argument fares no better the second time. By its terms, § 10110.6 covers not only “policies” that provide or fund disability insurance coverage but also “contracts, certificates, or agreements” that “fund” disability insurance coverage. “An ERISA plan is a contract,” Harlick v. Blue Shield of Ca., 686 F.3d 699, 708 (9th Cir. 2012), and thus the Master Plan falls under § 10110.6.
This is a great decision for disabled workers living in California. Discretion is unfair, morally and ethically wrong. And California did the right thing protecting its residents.
San Diego Long Term Disability Attorney, Joseph Dang
While I did not handle this case, and this is just a summary of a disability case, if Unum or any other company denied or terminated your benefits, call us right now, or complete the contact form on my website.
Anti-discretionary case in California ERISA LTD decision