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State Ban on Discretionary Clause Upheld Again – E.D. Cal.

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  • State Ban on Discretionary Clause Upheld Again – E.D. Cal.

    Here’s a new case out of the Eastern District of California, Renee Johnson Monroe v. Metropolitan Life Insurance Company. In this matter, the sole issue before the court is whether or not California’s ban on discretionary clauses applies. The court concludes that it does applying the recent Ninth Circuit Orzechowski case.

    Plaintiff argues California Insurance Code § 10110.6 voids the discretionary portions of the Plan and the Summary Plan Description such that a de novo standard applies. (ECF No. 28-1 at 10.) Defendant argues an abuse of discretion standard is appropriate for three reasons: (1) Section 10110.6 does not apply to the Plan and Plan documents; (2) the Plan did not renew after the statutes effective date; and (3) Section 10110.6 is preempted by ERISA. Defendant as the administrator bears the burden of establishing abuse of discretion is appropriate. However, the Court need not address the merits of Defendant’s arguments, because the Ninth Circuit recently issued a ruling disposing of Defendant’s arguments. See Orzechowski v. Boeing Company Non-Union Long-Term Disability Plan, 856 F.3d 686, (9th Cir. 2017).
    MetLife argues that the statute only applies to insurers and insurance policies or insurance contracts. The court disagrees.

    Defendant argues that by the express terms of Section 10110.6, the statute only applies to “insurers and insurance policies or insurance contracts.” (ECF No. 29 at 5 (emphasis in original).) Defendant asserts nothing in the legislative history provides that it “was intended to invalidate discretionary provisions contained within employee benefit plans.” (ECF No. 29 at 6.) In Orzechowski, the Ninth Circuit reviewed a district court’s finding that Section 10110.6 did not apply to ERISA plans. The Ninth Circuit reversed holding Section 10110.6 “regulates entities engaged in insurance even if they are not insurance companies.” Orzechowski, 856 F.3d at 694 (citing Kentucky Ass’n of Health Plans v. Miller, 538 U.S. 329, 342 (2003)). The Ninth Circuit further stated “[b]y its express terms, [Section] 10110.6 covers not only policies that provide or fund disability insurance coverage but also contracts, certificates, or agreements that fund disability insurance coverage. An ERISA plan is a contract and thus the Master Plan falls under [Section] 10110.6.” Id. at 695 (internal citations omitted). Accordingly, Section 10110.6 applies to Defendant as an entity engaged in insurance and Section 10110.6 covers the Plan and Supplemental Plan Descriptions as contracts pertaining to insurance.
    Next, MetLife argues that the policy did not renew after the statutes effective date.

    Here, the parties do not dispute that the “Policy does not explicitly state an ‘anniversary date’ but the Certificates of Insurance for the Policy are always dated January 1.” (SUF ¶ 22.) The Certificates thus represent the anniversary date of the Policy. As in Orzechowksi, Defendant’s Policy renewed when it continued in force beyond its anniversary date of January 1. The Plan “similarly renewed when it continued in force beyond the Policy’s effective date.” Orzechowski, 856 F.3d at 695. Accordingly, in the instant case the Plan renewed after the statute’s effective date and Section 10110.6 is applicable.
    Finally, the court concludes that ERISA does not preempt the state law.

    Defendant argues Section 10110.6 does not trump the plan document’s grant of discretion because to do so is contrary to the purpose of ERISA. (ECF No. 29 at 8.) Defendant argues “plan documents, such as the Kaiser Plan Document as issue here, are governed exclusively by ERISA and pursuant to Supreme Court authority must be enforced as written.” (ECF No. 29 at 10.) Defendant’s arguments amount to a claim that ERISA preempts Section 10110.6 and thus, it does not apply. However, as the Ninth Circuit explained, ERISA’s saving clause is used to save from preemption, “any law of any state which regulates insurance, banking, or securities.” 29 U.S.C. § 1144(b)(2)(A). The Ninth Circuit held that Section 10110.6 came within ERISA’s saving clause because it met both prongs of the Supreme Court’s test in Miller. Orzechowski, 856 F.3d at 693 (citing Miller, 538 U.S. at 342 (requiring a two-step test for when a state statute comes within the savings clause; (1) law must be specifically directed towards entities engaged in insurance; and (2) the law must substantially affect the risk of pooling arrangement between the insurer and the insured)). Based on this analysis, the Ninth Circuit held ERISA did not preempt Section 10110.6. Orzechowski, 856 F.3d at 692. Accordingly, Defendants argument is unavailing.
    The opinion is attached below.
    Attached Files