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Zaccone v. Standard Life Insurance Co.

United States District Court, Seventh Circuit

May 1, 2013

STEVE ZACCONE Plaintiff,
v.
STANDARD LIFE INSURANCE COMPANY, Defendant.

MEMORANDUM OPINION AND ORDER

JEFFREY COLE, Magistrate Judge.

Plaintiff, Steve Zaccone, seeks to recover disability benefits under Tempel Steel's Long Term Disability Insurance plan (the "Plan") pursuant to the Employee Retirement Income Security Act ("ERISA") § 502(a)(1)(B). 29 U.S.C. § 1132(a)(1)(b). The Plan was established in 2002 and contains an "Allocation of Authority" provision that, except for those functions that the Group Policy specifically reserves to the Policy owner or Employer, grants to Standard Insurance Company the "full and exclusive authority to control and manage the Group Policy, to administer claims, and to interpret the Group Policy and resolve all questions arising in the administration, interpretation, and application of the Group Policy." That authority included, but was not limited to, the right to resolve all matters when a review has been requested, the right to establish and enforce rules and procedures for the administration of the Group Policy and any claim under it, and the right to determine eligibility for insurance, entitlement to benefits, and the amount of benefits payable. The Allocation of Authority clause concluded: "Subject to the review procedures of the Group Policy, any decision we make in the exercise of our authority is conclusive and binding." (Def.'s Resp., Ex. A, at 20-21).

Effective January 2007, the defendant issued a new group policy to Tempel Steel that does not contain an Allocation of Authority provision. See (Def.'s Resp., Ex. B). Both plans provide that the version of the plan in effect on the date of disability governs the participant's disability claim. Since the plaintiff became disabled on September 1, 2006, the defendant argues his disability claim is therefore governed by the 2002 Plan, which grants discretionary authority to Standard.

The plaintiff contends that pursuant to Section 2001.3 of Title 50 of the Illinois Administrative Code, the 2002 Plan's Allocation of Authority clause cannot be enforced. That Section prohibits the inclusion in any policy of insurance issued in Illinois by a health carrier that purports to reserve discretion to the carrier to interpret the terms of the contract or to provide standards of interpretation or review. Consequently, the defendant argues, the defendant's benefits determinations in this case require an "[i]ndependent decision-often though misleadingly called de novo review' [which]... is required in ERISA litigation when the plan does not provide differently." Aschermann v. Aetna Life Insurance. Co., 689 F.3d 726, 728 (7th Cir. 2012).

The defendant seeks to avoid the bite of Section 2001.3 by arguing that it is preempted by 29 U.S.C. § 1144(a) and does not fall within ERISA's savings clause. Alternatively, it contends that Section 2001.3 does not apply retroactively to the 2002 Plan. And finally, it argues that the "plain" language of Section 2001.3 is narrow and intentionally limited to interpretations of the plan's terms, not to a determination of benefits. If the defendant is right, review is pursuant to the deferential, arbitrary and capricious standard.

I.

STANDARD OF REVIEW AND PREEMPTION

A.

ERISA does not provide a standard of review for courts to apply when deciding a benefits dispute under § 1132(a)(1)(B). Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 357 (2002)(finding an Illinois statute not preempted by ERISA). "It simply requires plans to afford a beneficiary some mechanism for internal review of a benefit denial and provides a right to a subsequent judicial forum for a claim to recover benefits." Id. The Supreme Court in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989), recognizing that "the validity of a claim to benefits under an ERISA plan is likely to turn on the interpretations of terms in the plan at issue, " held that "a denial of benefits... is to be 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." Id. at 115. If a plan grants such discretion, a deferential standard of review is appropriate. Id. at 111; Metro. Life Insurance Co. v. Glenn, 554 U.S. 105, 111 (2008); Conkright v. Frommert, ___ U.S. ___, 130 S.Ct. 1640, 1646 (2010).

Under deferential review, "the plan's decision must be sustained unless Arbitrary and capricious, with the court's review "limited to the administrative record." Krolnik v. Prudential Insurance Co. of Am., 570 F.3d 841, 843 (7th Cir. 2009). The plaintiff essentially concedes that the Allocation of Authority provision here grants broad discretionary authority to the Plan Administrator. Consequently, under Firestone, the correct standard of review would appear to be arbitrary and capricious. However, prior to the accrual of the plaintiff's claim for termination of benefits, the Illinois Department of Insurance promulgated a rule prohibiting discretionary clauses in health insurance policies in the State of Illinois.[1] Section 2001.3 of the Illinois Administrative Code 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. Adm. Code § 2001.3 (2010); 29 Ill. Reg. 10172, effective July 1, 2005.

The raison d'etre for Section 2001.3 is to protect consumers from having their benefits determinations reviewed under an arbitrary and capricious standard and to:

prohibit all such policies from containing language reserving sole discretion to interpret policy provisions with the insurer. 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.

29 Ill. Reg. 10172 (July 15, 2005). See Borich v. Life Insurance Co. of North America, 2013 WL 1788478, *3 (N.D.Ill. 2013); Zuckerman v. United of Omaha Life Insurance Co., 2012 WL 3903780, 3 (N.D.Ill. 2012).

Thus, consistent with the comprehensive language of Section 2001.3 and the implementing regulations, courts in this District have uniformly recognized that the purpose of Section 2001.3 is to ensure that de novo review would be the standard in ERISA cases when a denial of benefits is challenged. See Borich, supra; 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; Curtis v. Hartford Life and Acc. Insurance. Co., 2012 WL 138608, 2 (N.D.Ill. 2012); Ball v. Standard Insurance. Co., 2011 WL 2708366, 1 (N.D.Ill. 2011).

B.

To escape the grip of Section 2001.3, the defendant contends that ERISA's preemption provision controls. That provision provides that ERISA supersedes all State laws relating to employee benefit plans. 29 U.S.C. § 1144(a). However, ERISA's broad savings clause provides:

Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which ...

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