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Haines v. Reliance Standard Life Ins.Co., 2010 U.S.Dist.LEXIS 104625 (N.D.Ill. September 9, 2010)(Issue: Standard of Review). In 2005, the Illinois Department of Insurance issued a regulation banning discretionary clauses in health and disability insurance policies. 50 Ill.Admin. Code § 2001.3, which reads:
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.
That regulation left open the question of whether a policy issued prior to 2005, but renewed after the regulation was promulgated, was subject to the regulation. The Illinois Department of Insurance issued a bulletin on June 28, 2010, which offered the following interpretation:
It has come to the attention of the Department that, with respect to insurance policies originally issued before the July 1, 2005 effective date of the regulation, certain insurers continue to exercise discretionary clauses against their policyholders. Typically this is done under the theory that the regulation has no retroactive application. Such conduct does not comply with the law in that it does not properly take into account the renewal of the policy.
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Illinois case law requires that statutory provisions in effect at the time of issuance or renewal are incorporated into the policy: When an insurance policy is issued or renewed, applicable statutory provisions in effect at the time are treated as part of the policy.
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The regulation prohibiting discretionary clauses is accordingly applicable to all currently issued and outstanding accident, health, and disability insurance policies in that all such policies will have either been issued or renewed since the effective date of the regulation.
Illinois Department of Insurance, Company Bulletin 2010-05, June 28, 2010. In Haines, the court ruled that an agency's interpretation of its own regulation was controlling unless plainly erroneous or inconsistent with the regulation. See Joseph v. Holder, 579 F.3d 827, 831 (7th Cir. 2009). Finding that not to be the case, the court overruled its own prior determination finding the arbitrary and capricious standard applicable.
Defendant nonetheless argued the policy was not actually renewed but stayed in effect so long as premiums were paid. However, the court found the policy's provision for an "anniversary date" was the equivalent of a renewal, citing another Illinois Insurance Regulation, 50 Ill.Admin.Code § 2025.30, which defines "Renewal Date" as "each annual anniversary date unless otherwise specifically defined by the contract." The Department of Insurance Bulletin also advised, "Policies offering accident, health and disability benefits typically are renewed annually." Thus, the court agreed with the Insurance Department's interpretation that the regulation banning discretionary clauses applied both the policies issued and renewed since the regulation's effective date in July 2005.
The only remaining question is whether the regulation is preempted by ERISA. Although the Seventh Circuit has not ruled on the issue, two separate appellate courts found comparable laws in other states were not preempted. See American Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009) (Ross); Standard Ins. Co. v. Morrison, 584 F.3d 837 (9th Cir. 2009) (Morrison). The court found the reasoning in those two cases persuasive and rejected the defendant'spreemption argument.
Discussion: The court could have also remarked about another principle of insurance law that hold that any legislative or regulatory enactment affecting the policy is automatically incorporated into the policy upon renewal, whether the policy says so or not. In Illinois, "[w]hen an insurance policy is issued or renewed, applicable statute provisions in effect at the time are treated as part of the policy." Eipert v. State Farm Mutual Auto. Ins. Co., 189 Ill. App. 3d 630, 637, 545 N.E.2d 497, 501 (1st Dist. 1989) (citing Boyd v. Madison Mutual Ins. Co., 146 Ill. App. 3d 420, 496 N.E.2d 555 (5th Dist. 1986), aff'd 116 Ill. 2d 305, 507 N.E.2d 855 (1987)). "Each time a policy is renewed it results in a new contract for purposes of incorporating statutory provisions into the policy." Id. (citing Thieme v. Union Labor Life Ins. Co., 12 Ill. App. 2d 110, 138 N.E.2d 857 (1st Dist. 1956)). "Correspondingly, whatever version of the applicable statutory provisions is in force when the policy is issued or renewed determines any questions arising under that policy and is normally controlling throughout the policy's term." Boyd v. Madison Mutual Ins. Co., 146 Ill. App. 3d 420, 425, 496 N.E.2d 555, 558 (5th Dist. 1986) (citing Coronado v. Fireman's Fund Ins. Co., 131 Ill. App. 3d 450, 453, 475 N.E.2d 1048, 1051 (1st Dist. 1985)). Federal district courts, including a court in this District, have concurred with the reasoning in Eipert and Thieme. See, e.g., National Union Fire Ins. Co. v. Bauman, 1991 U.S. Dist. LEXIS 18668, *32-33 (N.D. Ill. Dec. 31, 1991) (agreeing with plaintiff's reliance on Eipert and Thieme as "authority" for the proposition that "each time a[n] [insurance] policy is renewed it results in a new contract," and finding that "the fact that the initial policy and renewal policy bear the same [policy] number does not signify the issuance [to the defendant] of a single policy").
Other jurisdictions have issued similar rulings. See, e.g. Young v. Am. Family Mut. Ins. Co., 2007 U.S. Dist. LEXIS 39168, *5-9 (D. Ariz. May 25, 2007) (citing the Eipert case, among others, in support of its ruling that "renewals of [insurance] policies constitute new contracts that incorporate the then existing law"). Furthermore, a leading treatise in insurance law-also cited by the Arizona district court in Young-says the same. See Lee R. Russ & Thomas F. Segalla, 2 Couch on Insurance, § 29:43 (3d 2006) ("One exception to the principle that the renewal contract is the same as the original contract, involves statutes enacted prior to the renewal; these ordinarily become a part of the renewal contract, since, generally, a renewal contract is subject to the laws in force at the time it is effected").
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