Littleton v. Liberty Life Assurance Company of Boston
Filing
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MEMORANDUM OPINION & ORDER: Defendant's Motion for application of the arbitrary and capricious standard of review (DE 14 ) is GRANTED. Motions terminated: 14 MOTION for Order by Liberty Life Assurance Company of Boston For Application of the Arbitrary and Capricious Standard of Review filed by Liberty Life Assurance Company of Boston. Signed by Judge Karen K. Caldwell on 6/1/2016.(RBB)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
AT LONDON
ALAN LITTLETON,
CIVIL ACTION NO. 6:15-187-KKC
Plaintiff,
V.
MEMORANDUM OPINION AND
ORDER
LIBERTY LIFE ASSURANCE
COMPANY OF BOSTON d/b/a LIBERTY
MUTUAL,
Defendant.
*** *** ***
This ERISA action is before the Court on Defendant Liberty Life Assurance
Company of Boston’s motion for application of the arbitrary and capricious standard of
review. (DE 14). For the reasons set forth below the Court will grant Defendant’s motion.
I. BACKGROUND
This dispute involves a group disability insurance policy (the “Policy”) issued by
Defendant to Plaintiff Alan Littleton’s employer LPC Services, Inc. to provide coverage for
its group insurance plan (the “Plan”). Plaintiff obtained coverage through documents issued
by his employer describing the Plan terms. Those terms made clear that claims were to be
administered by Defendant. On October 28, 2015, Plaintiff filed a complaint with this Court
alleging that Defendant wrongfully denied him benefits due under the Policy when it halted
payments in December of 2014. (DE 1.) This Court has jurisdiction over these claims
pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §
1132, which provides a mechanism for enforcing insurance policies like Plaintiff’s.
This Court’s January 12, 2016, scheduling order set a briefing schedule in the event
that the parties could not agree on the applicable standard of review. (DE 9.) Defendant
argues for the deferential arbitrary and capricious standard based on the Plan documents
issued by Plaintiff’s employer, which delegate discretionary authority to Defendant for
administration of the claims made under the Plan. (DE 16 at 1.) Plaintiff argues for a de
novo review relying on provisions of the Texas Insurance Code, which Plaintiff contends
invalidate the Plan documents’ grant of discretion. (DE 15 at 3.)
II. ANALYSIS
Courts reviewing benefit determinations under ERISA apply a de novo standard
unless the plan provides “the administrator or fiduciary discretionary authority to
determine eligibility for benefits,” in which case a “deferential standard of review [is]
appropriate.” Firestone, 489 U.S. at 111, 115. Both parties agree that the Policy documents
do not confer discretion because, even if they sought to, any conferral of discretion
contained therein would be prohibited by Texas law, and that the Texas restriction on
discretionary clauses (“Texas Restriction”) is saved from preemption by ERISA’s savings
clause. (DE 15 at 4–5; DE 16 at 1.) Likewise, there is no dispute that the language
contained in the Plan documents would, if valid, adequately confer the discretion necessary
to justify an arbitrary and capricious review standard. (DE 15 at 4.) Thus, the sole issue
presented for this Court’s determination is whether the Plan document’s discretionary
language is, like the Policy language, invalidated by the Texas Restriction.
Normally, an Administrator Defendant establishes an entitlement to deferential
review by showing “that the benefit plan gives the administrator . . . discretionary
authority[.]” Firestone, 489 U.S. at 115. However, Texas has restricted insurer’s ability to
obtain such deferential review through its Insurance Code; section 1701.062 provides that:
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(a) An insurer may not use a document described by Section
1701.002 in this state if the document contains a discretionary
clause.
Tex. Ins. Code § 1701.062. Section 1701.002 lists the following documents:
(1) a policy, contract, or certificate of:
(A) accident or health insurance, including group accident
or health insurance;
(B) medical or surgical insurance, including group medical
or surgical insurance;
(C) life or term insurance, including group life or term
insurance;
(D) endowment insurance;
(E) industrial life insurance; or
(F) fraternal benefit insurance;
(2) an annuity or pure endowment contract, including a group
annuity contract;
(3) an application attached or required to be attached to the
policy, contract, or certificate; or
(4) a rider or endorsement to be attached to, printed on, or used
in connection with the policy, contract, or certificate.
Tex. Ins. Code § 1701.002. Plaintiff argues that this language was clearly drafted “to
prevent insurers from exercising discretionary authority pursuant to any document issued
within the State, no matter the form.” (DE 15 at 9.) This Court disagrees.
Plaintiff’s position is not supported by the text of law upon which he relies; if the
intent of the Texas Legislature was to ban the exercise of discretion by insurers pursuant to
any document, they could have said as much. The plain language of the statute limits “use”
of the identified documents, by any insurer, if they contain a discretionary clause. Section
1701.001 defines “use” to include only issuance and delivery. Tex. Ins. Code § 1701.001.
There is no dispute that the Plan documents contain a discretionary clause, thus, they
would be invalid under the plain language of the Texas Insurance Code if they (1) fall
within one of the categories of documents listed in section 1701.002, and (2) they were
issued or delivered by an insurer.
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The Plan documents were neither issued, nor delivered by an insurer. The
documents were issued and delivered by Plaintiff’s employer LPC Services, Inc., not the
Defendant. Thus, whether or not the Plan documents fall within the scope of 1701.002, they
fall outside the scope of the section 1701.062 discretionary clause prohibition. The Plaintiff
contends that such a conclusion draws “an artificial distinction between ERISA plan
documents and insurance policies” that would render ERISA’s savings clause meaningless.
(DE 15 at 10.) However, this Court’s decision does not rely on a distinction between the
types of documents, or an interpretation of ERISA’s savings and preemption clauses.
Rather, it is the language enacted by the Texas Legislature that creates the distinction now
applied, whether artificial or otherwise.
Plaintiff argues that the Texas Restriction might nonetheless “indirectly prohibit
[Defendant] from exercising discretion over [Plaintiff’s] claim.” Plaintiff cites to the
Supreme Court’s rejection of the argument that ERISA preempts any state law contrary to
a written plan term in UNUM Life Ins. Co. of America v. Ward in support. 526 U.S. 358
(1999). The Ward Court stated that such a broad interpretation of ERISA’s preemption
clause would leave States “powerless to alter the terms of the insurance relationship in
ERISA plans; insurers could displace any state regulation simply by inserting a contrary
term in plan documents.” Id. at 376. However, this Court’s holding does not conflict with
the Ward decision because the issue of preemption is largely irrelevant to the case at hand.
As noted above, ERISA’s savings clause indisputably applies to save the Texas
Restriction from preemption. Likewise, this Court does not question the availability of
indirect prohibition as an option for the Texas Legislature if it indeed seeks to categorically
bar the exercise of discretion by insurance companies administering ERISA plans. If the
Texas Restriction either directly or indirectly impacted Plaintiff’s employer in its role as a
benefit plan provider then the preemption issue would take on greater significance.
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However, the statute as currently enacted creates only a limited prohibition for documents
issued or delivered by an insurer. Other states have enacted insurance laws that do
indirectly prohibit certain activities by non-insurer plans by virtue of broader restrictions
on contracts that insurers may enter into. Comparing the limited Texas Restriction with
these sweeping prohibitions provides further support for this Court’s holding and clarifies
why any additional discussion of preemption would be superfluous.
For instance, Massachusetts’ mandatory mental health benefit law created
minimum mental health coverage requirements for: “Any blanket or general policy of
insurance . . . or any policy of accident and sickness insurance . . . or any employees' health
and welfare fund which provides hospital expense and surgical expense benefits and which
is promulgated or renewed to any person or group of persons in this commonwealth[.]”
Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 730 n.11 (1985) (quoting Massachusetts
Gen.Laws Ann., ch. 175, § 47B). This law created requirements for any insurance contract
that was promulgated to any state citizen, not merely contracts issued or delivered by the
insurers themselves. In so doing, the Massachusetts law made it necessary for the Court to
address the validity of indirect regulation of benefit plans under ERISA’s preemption
scheme. Massachusetts restricted the terms of all insurance contracts and third party
insured benefit plans were thus indirectly regulated because their own agreements with
their employees could only incorporate policies that contained the mandatory mental health
coverage. By contrast, the Texas Restriction, by its terms, seeks to regulate only those
documents that insurers themselves issue or deliver. It is not a categorical bar to the
exercise of discretion under any policy promulgated to Texas citizens.
If the Texas Legislature sought to indirectly limit the terms a benefit plan might
include in its plan documents, they could have limited insurers’ ability to enter into any
contract that would permit them to exercise discretion in administering a policy they
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underwrote. They did not do so. Plaintiff has offered no evidence that the Texas Legislature
intended to create restrictions other than those they enacted into law. Because the
discretion granted to Defendant by the Plan documents does not run afoul of the Texas
Restriction, Defendant is entitled to this Court’s deference upon review of Plaintiff’s claim
denial.
Accordingly, IT IS ORDERED that Defendant’s Motion for application of the
arbitrary and capricious standard of review (DE 14) is GRANTED.
Dated June 1, 2016.
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