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Anti-Discretionary Language Statute Not Applicable – E.D. Ar.

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  • Anti-Discretionary Language Statute Not Applicable – E.D. Ar.

    Anti-Discretionary Language Statute Not Applicable – E.D. Ar.

    Attached is a case out of the Eastern District of Arkansas, Kochanek v. Aetna Life Insurance Company, et. al. The case is before the court on cross motions for judgment. As an initial matter, the court determines the appropriate standard of review. Plaintiff argues that a de novo standard of review should apply, in part, because Arkansas has an anti-discretionary language statute. The court finds that the abuse of discretion standard of review is appropriate.

    Second, Kochanek argues that Arkansas Department of Insurance Rule 101 bars the enforcement of discretionary clauses in insurance contracts. In the absence of a discretionary clause, an ERISA benefits appeal is reviewed de novo. Several states, including Arkansas, prohibit the enforcement of discretionary clauses in insurance contracts. See Davis v. Unum Life Insurance Company of America, No. 4:14-CV-00640 KGB, 2016 WL 1118258, at *3 (E.D. Ark. March 22, 2016). Rule 101 states in part that “[n]o policy, contract, certificate or agreement offered or issued in this State providing for disability income protection coverage may contain a provision purporting to reserve discretion to the insurer to interpret the terms of the contract.” Ark. Admin. Code 054.00.101-4.

    Critically, Rule 101 applies only to policies issued or renewed within the state of Arkansas on or after March 1, 2013. Owens v. Liberty Life Assurance Co. of Boston, 184 F. Supp. 3d 580, 584 (W.D. Ky. 2016). Here, the policy was issued by Aetna, a Connecticut insurer, AR at 65, to Home Depot, a Delaware corporation headquartered in Georgia. Tikkanen v. Liberty Life Assurance Co. of Boston, 31 F. Supp. 3d 913, 916 (E.D. Mich. 2014) (“Home Depot . . . has its principal place of business in Atlanta and is incorporated in Delaware.”). It was, therefore, issued to Home Depot in Georgia—not to Kochanek in Arkansas. See, e.g., Brake v. Hutchinson Technology Inc., 774 F.3d 1193, 1197 (8th Cir. 2014) (“[W]hen an ERISA benefit plan is a group employment plan as opposed to a single policy, it is ‘issued’ to the employer rather than each individual employee”) (citing Hamilton v. Standard Ins. Co., 516 F.3d 1069, 1073 (8th Cir. 2008)). Accordingly, the policy is not subject to Rule 101. See also Burmania v. Hartford, No. 1:12-CV-1244, 2013 WL 6512951, at *3–4 (W.D. Mich. Dec. 12, 2013). Further, the policy itself has a choice-of-law provision that selects Georgia and federal law to govern its terms, and such provisions “should be followed, if not unreasonable or fundamentally unfair.” Brake, 774 F.3d at 1197 (declining to apply a South Dakota regulation barring discretionary clauses when the plan at issue adopted a Minnesota choice-of-law provision). Finally, the policy was issued on November 20, 2012, and became effective on January 1, 2013, preceding Rule 101’s effective date of March 1, 2013. See Owens, 184 F. Supp. 3d at 584.
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