Borich v. Life Ins.Co. of North America, 2013 U.S.Dist.LEXIS 56974 (N.D.Ill. April 26, 2013)(Issues: Standard of Review; Discovery).
The Illinois ban on discretionary clauses has led to several rulings barring insurers from claiming discretionary authority under policies written subsequent to the July 2005 issuance of 50 Ill.Admin.Code § 2001.3. This latest ruling from one of our cases reinforces the authority of the Director of Insurance to ban the inclusion of discretionary clauses in health and disability insurance policies. The ruling also defines the scope of permissible discovery under the de novo standard of adjudication.
Lily Borich was employed by BP until 2008 when she became disabled. Although BP's insurer, the Life Insurance Company of North America, initially approved Borich's claim under the "own occupation" definition of disability, benefits were terminated shortly thereafter. Following a claim appeal, benefits were reinstated, but LINA refused to pay more than 24 months of benefits and litigation ensued after a pre-suit claim appeal was unsuccessful. In this ruling, the court was asked to address the standard of adjudication applicable to the litigation.
Although the policy itself did not contain any language giving discretionary authority to the insurer, the court acknowledged that the BP benefit plan did so. The plan became effective on 2011, which was after Borich ceased working but before her benefits were finally terminated and her claim appeal exhausted. The court found the plan in effect when the claim "accrues" is the operative plan; and after discussing the issue, the court determined that the accrual date is when appeals are exhausted since suit cannot be filed prior to that date. Therefore, since Borich's appeal was denied after the adoption of the BP Consolidated Welfare Plan, that plan was found to be controlling.
Although the Plan granted discretion, the court determined that § 2001.3 trumped the plan language. The court cited three rulings - Ehas v. Life Ins. Co. of N. Am., No. 12 C 3537, 2012 WL 5989215, *5 (N.D. Ill. Nov. 29, 2012) ("if Section 2001.3 applies, it strips the policy of its discretion-conferring language, and the standard of review reverts to de novo"); Zuckerman v. United of Omaha Life Ins. Co., No. 09 C 4819, 2012 WL 3903780, *2 (N.D. Ill. Sep. 6, 2012) (finding that if § 2001.3 applies, then de novo review is appropriate); Curtis v. Hartford Life & Accident Ins. Co., No. 11 C 2448, 2012 WL 138608, *10 (N.D. Ill. Jan. 18, 2012) (requiring de novo review where § 2001.3 invalidated discretionary clause). Thus, the court rejected the insurer's argument that the prohibition applies to policies, but not "plans," finding "the regulation expressly applies not only to an insurance "policy" but also to a "contract, certificate, endorsement, rider, application or agreement." The court added,
The regulation is written broadly to eliminate deference to an insurer's interpretation of policy language. The regulation's bar on insurer interpretive discretion would be meaningless, however, if it could be avoided by the expedient of entering into a separate agreement, outside the insurance policy, that provides the same discretion that § 2001.3 takes away. Therefore, like the other courts in this district to have addressed this question, the Court finds that § 2001.3 applies to employer-sponsored benefit plan documents. Id.; Difatta v. Baxter Int'l, Inc., No. 12 C 5023, 2013 WL 157952, *3 (N.D. Ill. Jan. 15, 2013).
(Although not mentioned in the opinion, the same rationale was also advanced in Unum v. Ward, 526 U.S. 358, 376 (1999), where the Supreme Court expressly found that insurers cannot "displace any state regulation simply by inserting a contrary term in plan documents."). The court also rejected LINA's preemption argument based on ERISA's savings clause. Hence, the court clearly established the de novo standard's applicability, which it further explained meant the court was not conducting a review proceeding.
Turning to the issue of discovery, the court ruled that plaintiff was entitled to discovery on the merits of the claim, but could not take "conflict discovery." The court explained, "The Court's mission is to independently decide whether Borich is disabled under the terms of the Policy. Because the Court will not rely in any way on LINA's denial of benefits, whether LINA's decision was influenced by a conflict of interest has no probative value whatsoever." Nonetheless, the court permitted discovery of the medical expert's potential bias, explaining:
But discovery into whether Borich is or was actually disabled under the Policy definition is appropriate and will be allowed. This includes discovery relating to any medical opinions in the administrative record on which LINA will rely to show that Borich is or was not disabled. From the discovery that she has propounded, it appears that Borich will attempt to show that the medical experts that LINA relied on in denying her claim were biased towards finding that she was not disabled because they were paid by LINA. Unlike an administrator's conflict of interest, a doctor's "potential bias is relevant to evaluating the credibility of his report," and the Court will have to consider those reports in deciding whether the plaintiff is disabled. Shepherd v. Life Ins. Co. of N. Am., No. 11 C 3846, 2012 WL 379775, *4 (N.D. Ill. Feb. 3, 2012). In other words, the doctors' bias or conflict of interest could directly affect the Court's decision whether Borich is or was actually disabled. It would be unfair for the Court to allow LINA to rely on medical opinions without giving Borich the opportunity to seek discovery regarding those opinions and to discredit them if they are the product of bias. Further, if Borich wishes to affirmatively present evidence of her disability, she may do so. See Krolnik, 570 F.3d at 843. Evidence regarding Borich's disability will enable the Court to make an informed and independent judgment as to whether she is entitled to benefits.
The court added, "to make an informed judgment as to whether the reports are accurate, Borich must have the opportunity to probe the biases of whichever experts LINA relies on." Moreover, the court found, "The administrative process provided Borich no opportunity to obtain information relevant to the potential bias of the medical providers LINA retained, but even if she had been permitted to obtain and present such information, it seems unlikely that LINA would have found persuasive an argument that the medical experts it chose were biased because they were financially beholden to LINA." Although the defendant argued that permitting discovery cuts against the doctrine of administrative finality, the court found that argument was "not compelling." Therefore, the court concluded, "Though the record compiled during the administrative proceeding is extensive and might conceivably provide all of the necessary evidence about Borich's medical condition, it likely does not contain evidence of the medical providers' conflicts of interest, if any, and it seems unlikely that further discovery relating directly to her medical condition will be extensive."
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