If you have a long term disability claim in Chicago, depending on the location of the headquarters of your employer, you may benefit from a state insurance regulation banning “discretionary clauses” in disability insurance policies. A discretionary clause, under ERISA, gives the insurer discretion in interpreting its policy and weighing the evidence in your claim. It also makes it much more difficult to secure a judgment in your favor. With such a clause, a court would not determine whether you are disabled, but whether the insurer’s review was “arbitrary and capricious.” Not surprisingly, insurers love discretionary clauses, and go to great lengths to try and evade state bans on those clauses. You can find the Illinois ban, 50 Ill. Adm. Code § 2001.3 here.
Many state regulations recognize some employers have kept the same insurance coverage in force for a long time, even since before the state banned the discretionary clauses. So many states issued guidance explaining that renewals of those policies triggers the regulatory ban. I once handled a case where Aetna contended it did not renew its policy issued to Southwest Airlines because it renewed the rate, not the policy. But I presented the court with documents showing discussions between Aetna and Southwest referring to the annual transactions as a renewal 88 times. Ferrin v. Aetna Life Insurance Co., 336 F. Supp. 3d 910 (N.D. Ill. 2018). For background on how some policies still contain discretionary clauses, see this past article I wrote.
Recently, in Kaminski v. Unum Life Insurance Co. of America, No. 19-cv-1997, 2021 WL 411438 (D. Minn. Feb. 5, 2021), Unum tried to evade a discretionary clause ban, too. After Kaminski sued for his benefits under ERISA § 502(a), Unum contended it amended and replaced policies, rather than “renewing” them, arguing that does not trigger the ban. Like many other courts, that court looked at the substance of the transaction instead of how Unum labeled it. The court held the discretionary clause in the policy was void because of the Minnesota state regulation.
Whether or not a discretionary clause is enforceable in a long term disability policy can be a function of where you live, where your employer is headquartered, and those states’ laws. It’s never a black and white issue. If you have a long term disability claim and you are curious about whether your policy might have a valid discretionary clause, call a knowledgeable ERISA long term disability lawyer.
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