In Curtis v. Metropolitan Life Insurance Company, a Texas District court focused only on the standard of review it will use when it evaluates MetLife’s denial of plaintiff’s long term disability benefits. Three issues were raised: 1) Did MetLife’s plan contain a discretionary clause; 2) Was the clause banned under Texas law applicable to insurance policies; and, 3) Was the Texas law banning the clause preempted by ERISA.
In 1989, the U.S. Supreme Court decided, in Firestone Tire & Rubber Co. v Bruch, that in evaluating a denial of benefits under ERISA, courts should use the de novo standard unless the plan contained a clause granting discretion to the plan administrator, then review should be for abuse of discretion. This is known as the Bruch rule. The standard of review used by a court can make a major difference in whether the court upholds a denial of benefits on the grounds that the administrator did not abuse his/her discretion or whether the court reviews the denial according to law without any deference given to the administrator’s denial.
MetLife’s Plan Contained a Discretionary Clause
The Texas court analyzed several parts of the particular disability policy and concluded that the language met the Bruch rule and did in fact include a discretionary clause, meaning that the court would give deference to the administrator’s decision when evaluating the termination of benefits.
Texas Law Bans Discretionary Clauses
The Texas Insurance Code as well as the Texas Administrative Code ban discretionary clauses in disability insurance policies “offered, issued, renewed, or delivered on or after February 1, 2011.” There was no question that this particular policy was issued after that date so the ban on such clauses applied unless preempted by ERISA.
ERISA Does Not Preempt the Texas Ban on Discretionary Clauses
The court began its analysis by noting that a majority of circuit courts “have sustained such state law prohibitions, despite ERISA.” Although ERISA “expressly preempts all State laws that relate to any employee benefit plan,” it also has “a savings clause that excepts ‘any law of any State which regulates insurance, banking, or securities’ from preemption.”
The court relied on a 2003 Supreme Court case, Kentucky Association of Health Plans, Inc. v. Miller, which established a two-prong test to determine if the State law under discussion regulated insurance so as not to be preempted by ERISA:
1. The law must specifically be aimed “toward entities engaged in insurance,” and
2. Substantially affect the risk pooling arrangement between insurer and the insured.
The district court engaged in a detailed analysis of each prong of the Miller test as well as referencing each circuit that has, to date, been faced with a similar issue. It then concluded: “Texas laws prohibiting discretionary clauses affect the benefits an insured has access to, alter the scope of permissible bargains between insurers and insured, and thus substantially affects their risk pooling arrangement. As a result, the Texas laws satisfy both Miller prongs, and fall within ERISA’s Savings Clause.” Since the Texas ban on discretionary clauses was upheld, the court ruled that “under Bruch, the appropriate standard of review for the denial of benefits determination is de novo, not abuse of discretion.”
This case was not handled by our office, but we feel it is instructive to those who live in a state that has banned discretionary clauses. This case demonstrates the way to establish the standard of review before the court begins its examination of the adverse administrative ruling. If you have any questions about your disability case, call one of our attorneys for a free case evaluation.