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Rachel Zuckerman v. United of Omaha Life Insurance Company

September 6, 2012

RACHEL ZUCKERMAN, PLAINTIFF,
v.
UNITED OF OMAHA LIFE INSURANCE COMPANY, AMERICAN PHARMACEUTICALS, INC., AND AMERICAN PHARMACEUTICALS PARTNERS, INC. EMPLOYEE BENEFIT PLAN, DEFENDANTS.



The opinion of the court was delivered by: Judge John J. Tharp, Jr.

MEMORANDUM OPINION AND ORDER

Plaintiff Rachel Zuckerman seeks to recover long-term disability benefits under the American Pharmaceuticals Partners, Inc. Employee Benefit Plan ("Plan"), sponsored by Defendant American Pharmaceuticals Partners Co. ("APP") and underwritten by Defendant United of Omaha Life Insurance Company ("United"), pursuant to § 502(a)(1)(B) of the Employment Retirement Income Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a)(1)(B). The matter now before the Court is the determination of the appropriate standard of review applicable to United's denial of Zuckerman's claim for long-term disability ("LTD"). Zuckerman argues that, pursuant to federal and Illinois law, the standard of review should be de novo. Defendants argue that the Court must review the denial of benefits under an arbitrary-and-capricious standard, pursuant to a discretionary clause in the Plan's policy. For the reasons set forth below, the Court finds that the applicable standard of review is de novo.

I. Background

Zuckerman was employed by APP as a Senior Scientist-project leader in Melrose Park, Illinois. She stopped working at APP on April 4, 2006 due to the combined effects of headaches, fibromyalgia, sleep difficulty and cognitive impairments, which she believes was caused by chemical exposure in the workplace.

To fund its long-term disability benefits offered under the Plan, APP purchased Group Policy No. GUD-252C ("Policy") from United. Def. Mot. to Dismiss, Dkt. 18, Ex. 1 at 2. The Policy states an effective date of July 1, 2005, and contains a clause reserving to United the discretion and final authority to construe and interpret the Policy. Id. at 8. Specifically, the clause states that:

By purchasing the policy, the Policyholder grants United of Omaha Life Insurance Company the discretion and the final authority to construe and interpret the policy. This means that United has the authority to decide all questions of eligibility and all questions regarding the amount and payment of any policy benefits within the terms of the policy as interpreted by United. In making any decision, United may rely on the accuracy and completeness of any information furnished by the Policyholder or an insured person. United's interpretation of the policy as to the amount of benefits and eligibility shall be binding and conclusive on all persons.

Id.

Plaintiff applied for benefits and was approved for short-term disability. However, on November 24, 2008, United issued a determination that Zuckerman was not disabled. Zuckerman appealed the determination, but on May 11, 2009, United affirmed its decision and refused to pay LTD benefits. On August 6, 2009, Zuckerman filed a complaint with this Court averring that she is entitled to all LTD benefits under the Plan due since September 19, 2006. The parties submitted position papers on the issue of the standard of review of the LTD determination on July 11, 2011 and supplemental position papers on March 15, 2012. The Court must now decide the appropriate standard of review applicable to United's denial of Zuckerman's claim for LTD benefits.

II. Analysis

Zuckerman argues that the appropriate standard of review is de novo. "The standard of judicial review in civil actions under 29 U.S.C. § 1132(a)(1)(B) depends upon the discretion granted to the plan administrator in the plan documents." Semien v. Life Ins. Co. of North America, 436 F.3d 805, 810 (7th Cir. 2006). "Generally, the denial of benefits under an ERISA employee benefits plan is reviewed 'under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.'" Ball v. Std. Ins. Co., No. 09 C 3668, 2011 WL 759952, at *2 (N.D. Ill. Feb. 23, 2011) (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)). When the plan contains a discretionary clause, however, the standard of review is "the more deferential [arbitrary-and-capricious] standard." Id. (citing Semien, 436 F.3d at 810). United's Policy contains a discretionary clause, and the Defendants argue that the Court must therefore review United's determination under the more deferential arbitrary-and-capricious standard.

Zuckerman contends that the discretionary clause in United's policy is unenforceable under § 2001.3 of Title 50 of the Illinois Administrative Code,*fn1 a regulation promulgated by the Illinois Director of Insurance ("Director") that prohibits discretionary clauses, like the one in United's policy, in any health or disability insurance policy issued in Illinois. Defendants contend that § 2001.3 is invalid and unenforceable because the Director exceeded his statutory grant of authority under the Illinois Insurance Code by promulgating a rule that prohibits all discretionary clauses. See 215 ILCS 5/143(1) & 401. Defendants also argue that, even if a valid exercise of the Director's authority under Illinois law, § 2001.3 is preempted by ERISA, and therefore, the Policy's discretionary clause is effective under Firestone Tire, and an arbitrary-and-capricious standard of review applies to Zuckerman's claim.

A. Validity and Enforceability of Section 2001.3 of Title 50 of the Illinois Administrative Code Defendants acknowledge that, if § 2001.3 is valid (and not preempted by ERISA, an argument addressed below), review of United's LTD determination is de novo. They contend that § 2001.3 is invalid and unenforceable because the Director did not have authority under the Illinois Insurance Code to issue regulations categorically banning certain insurance practices and because the discretionary clause in United's Policy does not give rise to any of the harms that the Legislature authorized the Director to address.*fn2

Section 2001.3 prohibits discretionary clauses in health and disability insurance policies, providing that:

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 ...


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