A case out of the 9th Circuit holds that ERISA LTD plans can still contain discretionary clauses. This is a complicated, but important issue, and I’ll try to distill it down into as simple of a discussion as I can.
When an insurer denies your LTD benefits, and you want a court to review and overturn the denial, the insurance company is held to a standard.
First, you need to determine if your case falls under ERISA. If you receive LTD insurance from your employer, it’s safe to assume you have an ERISA plan.
Abuse of Discretion Standard in Long Term Disability Cases
Under Federal law, ERISA plans can “reserve” discretion for themselves. Meaning, when a court reviews their decision to deny your request for benefits, the court must find the insurance company “abused” their discretion. The court will give deference to the administrator’s decision, and will only overturn if there is clear abuse. This is a hard standard to overcome. It makes it tougher for you to win.
De Novo Standard
California banned these discretionary clauses. That means, when a court goes to review your case, they don’t give any deference to the plan administrator. It’s essentially 50/50 between you and the insurance company.
The problem is, and this is where it gets really complicated, California can only regulate ERISA plans under very narrow circumstances. I won’t get into the how and the why, just be aware that if a plan is self-funded, then California’s ban on discretionary clauses will not apply.
A plan is self funded when the company itself puts it’s money up to fund the plan. As you can tell, only big companies with a lot of cash can do this. In this case, it’s Boeing.
So it’s important to find out whether your plan is self-funded or not.Self-Funded Plans Can Have Discretionary Clauses in California