Employees in Chicago, and all over Illinois, are starting to become more aware of a state law ban on discretionary clauses in various insurance policies that fund their employee benefit plans, such as long-term disability, health insurance, and life and accidental death insurance. In 2005, the Illinois Department of Insurance enacted 50 Ill. Adm. Code § 2001.3, which bans insurers offering or issuing long term disability, health, or life or accidental death insurance policies in Illinois from having a discretionary clause in any “policy, contract, certificate, endorsement, rider application or agreement”. However, this regulation only applies to insurance policies issued or offered in Illinois. If you work in Illinois, how do you know then whether you have protection from this ban on discretionary clauses?
The answer is not as simple as one might expect. Where an insurance policy is issued or offered can be a tricky question to answer. It may involve looking at the face of the policy, and where the policy said it was executed. Where is the employer’s headquarters? Recently in a case in Michigan, the employee (or plan participant) argued that the Michigan ban on discretionary clauses should apply because the insurance policy benefited Michigan employees. See Foorman v. Liberty Life Assurance Co. of Boston, No. 12-927 (W.D. Mich. May 3, 2013). The court rejected this argument because the employer, Comcast, was headquartered in Philadelphia, Pennsylvania. Also, the insurance policy expressly stated it was issued in Pennsylvania, and governed by that state’s laws. Pennsylvania has no similar ban on discretionary clauses.
On the other hand, a Chicago court has reached a slightly different conclusion in Curtis v. Hartford Life & Accident. Insurance. Co., No. 11 C 2448 (N.D. Ill. Jan. 18, 2012). There, Children’s Memorial Hospital, based in Illinois, subscribed to a trust based in Delaware, that pooled employers to buy an insurance policy issued in Delaware, which has no ban on discretionary clauses. However, Children’s Memorial paid the premiums to Hartford, and Hartford was not obligated to accept any employer subscribed to the trust. The Chicago court held that to not apply the ban on discretionary clauses in these circumstances would promote “form over substance.”
If you have a claim for long term disability, health, or life insurance benefits, call an experienced ERISA attorney who knows how to determine whether your benefit plan will include an enforceable discretionary clause.