Summary: Significant legal development in protecting ERISA plan benefit determinations.
A growing number of states are increasingly taking steps to eliminate grants of discretion to ERISA-governed health plan administrators to interpret plan provisions and grant benefits. But a recent Northern District of California case bucks that trend. The recent holding empowers employers and plan administrators to build more predictability into their ERISA-governed plans by choosing a law of a state whose regulatory framework is most compatible to the design of, and the employees' participation in, the plan. The caveat is that the chosen law is not unreasonable and not fundamentally unfair – i.e., bears some relation to the location of the employer and/or plan administrator and does not conflict with ERISA's provisions and policy goals or otherwise deprive the member of a fair opportunity to dispute the benefit determination.
Analysis:
In the recent case of Bain v. United Healthcare Inc., Greg Johnson, Elise Klein and Tim Nally of Lewis Brisbois successfully argued that the court should apply an abuse of discretion standard of review. The case involved the denial for lack of medical necessity of mental health benefits to a patient for a lengthy stay at a residential treatment facility. The plan documents gave the plan administrator discretion to decide if a particular service was medically necessary, and also contained a New York choice of law provision. The plan member and patient, however, were California residents. So they tried to invoke Cal. Ins. Code § 10110.6. This code voids any discretionary provision in any insurance contract that provides coverage for any California resident, whether the contract was entered into in California or not. If this code applied, the benefit determination would have been subject to a de novo review, likely creating a battle between retained experts with the court being free to choose either, without regard to the plan administrator's decision.
The plan member and patient also relied on other recent court decisions that summarily applied code section 10110.6 to defeat choice of law provisions in ERISA plans. The plan member argued that the code and interpretative cases required the court to review the claim denial on a de novo basis. However, the court concluded that, because the policy at issue contained a New York choice of law provision and the employer and plan administrator were both based in New York, New York law must be applied. And since New York law does not invalidate discretionary clauses, the benefits determination of the administrator would be viewed under an abuse of discretion standard, thus averting the expert battle. This case is the first of its kind to successfully avoid the application of section 10110.6 to supplant an administrator's benefits determination.
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