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N.D. Cal.: Standard of Review and Discretionary Bans

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  • N.D. Cal.: Standard of Review and Discretionary Bans

    In a fairly new case from California, the court addresses how discretionary bans relate to the applicable standard of review. The Plaintiff's contend that the standard should be de novo while Cigna, the Defendant believes that the abuse of discretion standard should apply instead. California Insurance Code bans discretionary clauses in certain insurance policies rendering them void: "If a policy, contract, certificate, or agreement . . . that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer . . . to determine eligibility for benefits or coverage . . . that provision is void and unenforceable."

    Obviously, both parties disagree as to whether the policy in question falls under the above authority:

    Defendant posits that the Plan’s discretionary clause is valid because § 10110.6 — and its reference to life and disability insurance — should be read narrowly to exclude health insurance plans. (“The express language of Section 10110.6 limits its application to life and disability insurance . . . .”). Defendant urges that the standard of review should shift accordingly to abuse of discretion. Plaintiffs respond that the Plan’s discretionary clause is void under § 10110.6, and de novo review applies, because under the California Insurance Code health insurance is included as a form of disability insurance.
    The Defendant relied heavily on Bain v. United Health Inc. in vying for its narrow interpretation of the Code. However, the court was not persuaded:

    Defendant fails to explain its narrow interpretation in the context of the entire Insurance Code, and instead relies heavily on a single district court case, Bain v. United Healthcare Inc. The Court respectfully disagrees with the reasoning in Bain. There, the court did not consider disability or health insurance in the context of the entire Insurance Code. Instead, the court limited the definition of disability insurance to disability income insurance, citing several California state cases. See id. at *7 (citing Erreca v. W. States Life Ins. Co., 19 Cal. 2d 388, 397 (Cal. 1942); Austero v. Nat’l Cas. Co., 84 Cal. App. 3d 1, 22 (Cal. Ct. App. 1978)). However, under the Insurance Code, disability insurance and disability income insurance are not synonymous, and the definition of “health insurance” in § 106(b) specifically excludes disability income insurance as its own category, distinct from the other excluded forms of disability insurance.
    The court ultimately relied on a plain reading of the California Insurance Code, and granted the Plaintiff's motion while denying the Defendant's. The opinion is attached below.
    Attached Files