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Appeals Court Upholds Illinois' Efforts in Disability Benefit Decisions

Agreeing with AARP’s friend-of-the-court brief supporting Illinois’ prohibition of “deference clauses” when making eligibility determinations for insurance benefits, the U.S. Court of Appeals for the Seventh Circuit held that federal law does not preempt the state insurance law.


Most insurance contracts, including those in plans covered by the federal Employee Retirement Income Security Act (ERISA), have language which grants the reviewer of benefit claims the power to construe uncertain terms or provide that the plan’s eligibility determinations are to be given deference. Therefore, if the participant appeals his or her claim to court, the court must review the benefit denial under a standard of review that only looks at whether the reviewer was “arbitrary and capricious.” This is an extremely difficult legal standard to meet.

In 2005, the Illinois Department of Insurance issued regulations that prohibited discretionary clauses in all insurance contracts issued in Illinois. Almost half the states have banned these clauses in some type of insurance contract, either legislatively or administratively.

Mary Fontaine, an Illinois resident, sought disability benefits from the insurer of her ERISA governed plan, MetLife. The disability insurance policy included a deference clause. Fontaine argued that because of the deference clause prohibition under Illinois regulations, the proper standard of review for MetLife’s denial of her benefit claim was de novo  (which would give the court the opportunity to look at all of the evidence all over again and start with a clean slate).  MetLife argued that ERISA — the federal benefits law — preempts the Illinois’ regulation.

Attorneys with AARP Foundation Litigation filed AARP's brief, which argued that ERISA does not preempt Illinois’ regulation prohibiting deference clauses.  The brief also noted that this regulation is part of a trend in the courts, state legislatures, and the insurance community to prohibit those clauses that require deference to the insurer.  

Joining the Sixth and the Ninth Circuits, the Seventh Circuit held that ERISA does not preempt an Illinois state law that prohibits the use of discretionary clauses in health and disability insurance policies

What’s at Stake

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. Not only does this decision have a substantial positive impact on Illinois members’ receipt of health and disability benefits, it also sends a signal to state legislatures that ERISA will not be a barrier to their states’ enactment of such prohibitions. 

Case Status

Fontaine v. MetLife was decided by the United States Court of Appeals for the Seventh Circuit.