Legal Advocacy
AARP Urges Court to Uphold Montana’s Efforts to Limit Arbitrariness in Disability Benefit Decisions
AARP has filed a “friend of the court” brief in the United States Court of Appeals for the Ninth Circuit supporting the State of Montana’s efforts prohibiting “deference clauses” when making eligibility determinations for insurance benefits. AARP argues that federal law does not preempt the state insurance law.
Background
Most insurance contracts, included those in ERISA covered plans (that is, employee benefit plans that are governed by the federal Employee Retirement Income Security Act), have language which grants the reviewer of benefit claims the power to construe uncertain terms or make eligibility determinations. Therefore, if the participant appeals his or her claim to court, the court must review the benefit denial solely under the “arbitrary and capricious” standard of review. Because it requires a court to uphold decisions unless the decision-maker has no justification for his/her decision or has clearly treated one claim differently than other claims, this is an extremely difficult standard to meet.
During the fall of 2004, Montana’s Insurance Commissioner issued a regulation deeming all discretionary clauses in all insurance plans violated Montana law. On January 17, 2006, after almost a year of correspondence, Commissioner Morrison denied approval of riders containing discretionary clauses in Standard’s insurance contracts. In response, Standard filed a lawsuit claiming that federal ERISA preempts the State Commissioner’s actions. A federal district judge in Montana rejected Standard’s claim and Standard appealed.
AARP’s brief
Attorneys with AARP Foundation Litigation presented AARP's position by filing “friend of the court” briefs as Standard v. Morrison has traveled through the courts. The briefs argue that ERISA does not preempt the Montana Insurance Commissioner’s action of prohibiting deference clauses. The briefs also note that the Commissioner’s action is part of a trend both in the courts, state legislature, and the insurance community to prohibit those clauses which provide deference to the insurer.
The standard of review is crucial to a participant’s case because it determines who has the burden of proof and therefore can sharply tilt the playing field between employees and insurers. If the law is clarified regarding disability insurance policies written in that state, there will be a substantial positive impact on Montana’s members’ receipt of health and disability benefits. Finally, other states are considering the same standard of review issue, so this case may affect their decision to take action similar to that of the Montana Insurance Commissioner.
Contact person:
Mary Ellen Signorille
msignorille@aarp.org
(202) 434-2060