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Cindy Curtis v. Hartford Life and Accident Insurance Company

January 18, 2012

CINDY CURTIS, PLAINTIFF,
v.
HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Jeffrey T. Gilbert Magistrate Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Cindy Curtis seeks to recover long-term disability benefits under an employee welfare benefits plan pursuant to Section 502(a)(1)(B) the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(1)(B). Plaintiff worked at Children's Memorial Hospital and was a participant in its Long-Term Disability Benefits Plan (the "Plan"), which is administered by defendant Hartford Life and Accident Insurance Company. Pl's Compl. [Dkt.#1], at ¶¶3-9. Plaintiff became disabled and stopped working on January 30, 2007, exhausted her short-term disability benefits, and applied for long-term disability benefits under the Plan. Pl's Compl. [Dkt.#1], at ¶¶16,17. Hartford approved plaintiff's application and began paying disability benefits on August 6, 2007. Pl's Compl. [Dkt.#1], at ¶18. On August 5, 2009, Hartford determined that plaintiff no longer was eligible for long-term disability benefits under its Plan and ultimately terminated her disability benefits on April 2, 2010. Pl's Compl. [Dkt.#1], at ¶19. Plaintiff filed this lawsuit to recover her benefits on December 9, 2010.

PROCEDURAL POSTURE OF THE CASE

This matter is before the Court to determine the standard of review applicable to Hartford's decision to terminate plaintiff's disability benefits. The parties ask the Court to make this determination now because the applicable standard of review is relevant to the nature and scope of discovery they can take in accordance with Rule 26(b)(1) of the Federal Rules of Civil Procedure. Such a ruling is within the scope of the District Judge's referral to this Magistrate Judge "for the purpose of holding proceedings related to: discovery motion(s), discovery supervision and settlement conference." [Dkt.#39].

Plaintiff argues that Hartford's decision to cut-off her benefits is subject to de novo review under ERISA and, consequently, that she is entitled to take wide-ranging discovery concerning the reasonableness of Hartford's decision to stop paying her benefits. Hartford contends, on the other hand, that its decision is subject to review under the more limited arbitrary and capricious standard so that plaintiff only is entitled to narrow discovery concerning Hartford's decision.

The starting point for any analysis of the applicable standard of review for a plan administrator's decision to terminate an individual's long-term benefits is ERISA. Under ERISA, the nature and scope of judicial review of a decision to terminate benefits depends, in the first instance, on whether an employer's long-term benefits plan grants the plan administrator discretionary authority to make decisions. Judicial review of a plan administrator's determination regarding an individual's eligibility for benefits is de novo unless the plan grants discretionary authority to the administrator. Marszalek v. Marszalek & Marszalek Plan, 485 F. Supp. 2d 935, 936-37 (N.D. Ill. 2007) (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)). When a qualifying plan under ERISA gives the administrator discretionary authority to determine a claimant's eligibility for benefits, the court then reviews the administrator's decision to deny benefits under the arbitrary and capricious standard. Hackett v. Xerox Corp., 315 F.3d 771, 773 (7th Cir. 2003).

To determine whether a plan administrator has discretionary authority, the court looks to the plain language of the plan. Postma v. Paul Revere Life Ins. Co., 223 F.3d 533, 538 (7th Cir. 2000). In this case, it is not disputed that the Children's Memorial Hospital Long-Term Disability Benefits Plan contains a provision that gives Hartford discretionary authority to determine a claimant's eligibility for long-term disability benefits. The Plan specifically provides that Hartford has "full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the Policy." Hartford's Reply [Dkt.#48-1], Ex.4 at 35. Typically, this alone ends the inquiry, and the Court would review Hartford's denial of benefits under the arbitrary and capricious standard. Hackett, 315 F.3d at 773.

Plaintiff, however, has challenged that conclusion, asserting that the Plan's discretionary clause is invalid in light of a regulation promulgated by the Illinois Department of Insurance in July 2005 (the "Illinois Regulation") which bans discretionary clauses in insurance contracts offered or issued in Illinois. Specifically, the Illinois Regulation provides:

No policy, contract, certificate, endorsement, rider application or agreement offered or issued in this State, by a health carrier, to provide, deliver, arrange for, pay for or reimburse any of the costs of health care services or of a disability may contain a provision purporting to reserve discretion to the health carrier to interpret the terms of the contract, or to provide standards of interpretation or review that are inconsistent with the laws of this State.

50 Ill. Admin. Code § 2001.3 (2010); 29 Ill. Reg. 10172. Courts have recognized that "[t]he express purpose of Section 2001.3 in prohibiting discretionary clauses was to ensure that courts would apply de novo review in ERISA cases when the denial of benefits is challenged." Garvey v. Piper Rudnick LLP Long Term Disability Insurance Plan, 2011 WL 1103834, at * 2 (N.D. Ill. March 25, 2011) (citing 29 Ill. Reg.10172 ("The legal effect of discretionary clauses is to change the standard for judicial review of benefit determinations from one of reasonableness to arbitrary and capricious. By prohibiting such clauses, the amendments aid the consumer by ensuring that benefit determinations are made under the reasonableness standard.")).

The Illinois Regulation, plaintiff argues, bars Hartford from relying on the discretionary clause contained in the Plan and mandates that Hartford's decision to terminate her benefits is subject to de novo review. Hartford disagrees and argues that the Illinois Regulation is inapplicable and that its decision to terminate plaintiff's disability benefits is to be reviewed under the arbitrary and capricious standard. If Hartford's decision is subject to de novo review, then more leeway will be permitted in discovery into the reasonableness of Hartford's decision than if its decision is to be reviewed under the more narrow arbitrary and capricious standard.

FACTUAL BACKGROUND

Hartford issued Group Policy No. GLT-674774 to Children's Memorial Hospital as the policy holder on January 1, 2004 (the "January 2004 Policy"). [Dkt.#47-1], Ex. A at 1. That policy states on its face that it was delivered to Children's Memorial Hospital in Illinois. Id. The January 2004 Policy was amended on April 19, 2006 (the "April 2006 Amended Policy"). Id. The April 2006 Amended Policy again was issued to Children's Memorial Hospital as the policy holder, and it says it was delivered in Illinois. Id.

In September 2008, Children's Memorial Hospital subscribed to the Healthcare Benefits Alliance Group Insurance Trust (the "Trust") by signing a subscription agreement pursuant to which it became a Participating Member in the Trust.*fn1 [Dkt.#48-1], Ex. 1. On September 2, 2008, Hartford issued Group Policy No. GLT-674774 to the Trust as the policy holder (the "September 2008 Policy"). Id. at ¶¶ 6, 7. That policy identified Children's Memorial Hospital as the Participating Employer and states on its face that it was delivered to the Trust in Delaware. Id.

The September 2008 Policy was amended on February 16, 2010 (the "February 2010 Amended Policy" or the "Policy"), and any changes between the September 2008 Policy and the February 2010 Amended Policy became effective April 1, 2009. [Dkt.#48-1], Ex. 3 at 1. The February 2010 Amended Policy is the policy that was in effect when Hartford terminated plaintiff's disability benefits on April 2, 2010. Hartford Reply Br. [Dkt.#48], at 2-3; Hartford's Rebutter Br. [Dkt.#52], at 2. There is no dispute that Children's Memorial Hospital's Long-Term Disability Benefits Plan at all relevant times contained a provision that ...


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