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Charles Barrett v. Life Insurance Company of North America

August 16, 2012


The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge


This Court's June 14, 2012 memorandum order ("Order") ruled that certain areas of discovery were available to Charles Barrett ("Barrett") as an ERISA plaintiff seeking to overturn an employee benefit plan's decision to deny him benefits. With defendants' motion to reconsider that decision having been filed and briefed by the litigants, this memorandum opinion and order takes a fresh look at that question.

Background of the Case

Barrett filed a claim for benefits from his long-term disability plan, the Aon Corporation Long Term Disability Plan (the "Plan"). Life Insurance Company of North America ("LINA") both insured and administered the Plan. After it had rejected Barrett's claim for benefits, he sued both the Plan and LINA to enforce his rights under the Plan, invoking ERISA §502(a)(1)(B) (29 U.S.C. §1132(a)(1)(B)).

Soon after Barrett filed his Complaint, the Plan and LINA moved for a protective order limiting discovery. Such cases as Semien v. LINA, 436 F.3d 805 (7th Cir. 2005) hold that when an insurance policy gives the administrator discretion to decide eligibility for benefits, a reviewing court may overturn the administrator only if its decision was arbitrary and capricious -- and in making that decision, the reviewing court ought not look beyond the administrative record. With a few exceptions that will come into focus later, material outside the administrative record is viewed as irrelevant, so that a plaintiff cannot obtain discovery beyond the administrative record.

Because Barrett's insurance policy (D. Mem. Ex. A) included such a discretion-conferring provision, the Plan and LINA sought to limit discovery. Barrett responded by pointing to an Illinois regulation, 50 Ill. Admin. Code §2001.3,*fn1 that prohibits discretion-granting clauses in insurance policies:

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.

In the Order this Court initially resolved the dispute by finding the regulation applicable in this case, thus triggering a more generous standard of review and allowing for discovery normally provided by the Federal Rules of Civil Procedure.

But the Plan and LINA have now filed a motion to reconsider, pointing out that the Illinois regulation applies only to policies issued or renewed after July 1, 2005 -- the effective date of the regulation. Although this opinion finds that the Illinois regulation does not indeed apply for the reason advanced by defendants, it nevertheless holds that Barrett is entitled to discovery because of a potential conflict of interest on the part of the Plan's administrator.

Section 2001.3

In 2010 the Illinois Insurance Department issued Company Bulletin 2010-05. Barrett's counsel suggests that the Bulletin purported to apply Section 2001.3 retroactively to all insurance plans, so that the Bulletin operated to invalidate the discretionary clause in the policy. That contention, however, is too simplistic, because the argument misreads the Bulletin, which merely states that Section 2001.3 applies to plans renewed after July 1, 2005 because under Illinois state law a renewal is equivalent to the issuance of a new plan. So the relevant question is whether the Plan was or was not "renewed" or "issued" after that date.

According to the Plan and LINA, the group policy under which Barrett claims benefits was issued on January 1, 2003 and has not been renewed since (P. R. Mem. 3). If so, that would preclude application of the regulation, which (as already said) relates only to policies issued or renewed after July 1, 2005. There was, however, one amendment to the policy after Section 2001.3 became effective (P. Supp. 3) -- an amendment that changed a definition of a certain class of employees covered by the policy (id.).

If this were a question on a Contracts 101 examination, Barrett could fashion a tenable argument -- one that would earn at least a passing grade. After all, any mutually-agreed-upon modification of an existing contract is itself a new contract. Its terms are different from the parties' earlier agreement at least in part, and it includes the requisite consideration -- a promise for a promise.

In that respect Illinois law views renewals, for example, as newly issued policies. Hence the law might treat amendments in the same way. Indeed, Section 2006.30, which deals with "Required Benefits for Mental, Emotional or Nervous Disorders," says that a "contract will be considered a new policy or contract of insurance from the date of any ...

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