Ball v. Standard Ins.Co., 2011 U.S.Dist.LEXIS 19146 (N.D.Ill. February 23, 2011)(Issue: Standard of Review)

The wall of discretionary authority to decide claims is coming down. The trend in the courts of upholding state laws prohibiting discretionary clauses continues in this ruling where the court found that the Illinois prohibition contained in 50 Ill.Admin.Code § 2001.3 is saved from preemption and that any policy issued or renewed since the effective date of that regulation (July 1, 2005) is subject to that law in accordance with Company Bulletin 2010-05 issued by the Illinois Department of Insurance on June 28, 2010.

The court analyzed both an express preemption and a conflict preemption argument and rejected both. Although the regulation on its face would arguably be preempted by 29 U.S.C. § 1144(a), state laws regulating insurance are saved from preemption pursuant to 29 U.S.C. § 1144(b)(2)(A). The court easily determined that the regulation was specifically directed toward entitles engaged in insurance and regulates insurance companies and insurance practices by specifying what provisions can and cannot be included in a policy. Although the defendants argued that a law aimed at judicial deference fails to meet that test, the court agreed with every other court that has ruled on this issue and found that the impact on the standard of review is merely a "consequence" of the law (citing Standard Ins. Co. v. Morrison, 584 F.3d 837, 842 (9th Cir. 2009); Am. Council of Life Insurers v. Ross, 558 F.3d 600, 606 (6th Cir. 2009); Haines v. Reliance Standard Life Ins. Co., No. 09 C 7648, 2010 U.S. Dist. LEXIS 104625 (N.D. Ill. Sept. 9, 2010); McClenahan v. Metro. Life Ins. Co., 621 F. Supp. 2d 1135, 1140 (D. Colo. 2009). The court also relied on those cases to determine that the prohibition affects the risk pooling arrangement between insurer and insured, rejecting the defendant's reliance on Lucero v. Hartford Life & Accident Ins. Co., No. 2:08-CV-302 TS, 2009 WL 2170048 (D. Utah July 17, 2009) which was in conflict with the cases upholding discretionary clause prohibitions.

The court also summarily rejected the defendants' conflict preemption argument which asserted the regulation conflicts with Congress' objectives in enacting ERISA. The court first observed that the Supreme Court has explicitly remarked that ERISA is silent regarding standard of review (citing Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 372, 122 S. Ct. 2151, 153 L. Ed. 2d 375 (2002)). The court also pointed out that the Supreme Court ruled in Firestone v. Bruch, 489 U.S. 101 (1989) that the default standard of review of ERISA claims is de novo. The court also cited Ross extensively on this point. Although the Supreme Court did point out the importance of deferential review in Conkright v. Frommert, 130 S. Ct. 1640, 176 L. Ed. 2d 469 (2010), as defendant asserted, the court did not find that argument persuasive because Conkright had nothing to do with the specific issue under consideration and that ruling did not overrule the prior rulings which have addressed ERISA standards of review. Finally, the court rejected the insurer's argument that the regulation only applies to interpreting the terms of the contract, not from making vocational and medical determinations. The court relied heavily on the National Association of Insurance Commissioners' Discretionary Clauses Model Act. 1 NAIC Model Laws, Regulations and Guidelines, 42-1 to 42-6 (2002, amended 2004).

The court did, however, uphold its order denying plaintiff leave to take discovery.