You already know about the big trend in states to ban discretionary clauses in insurance policies that fund ERISA benefits.

Chalk up another circuit deciding to enforce the ban.

Here’s the case of Fontaine v. Met Life, __ F.3d __ (7th Circuit, September 4, 2015) (PDF).

FACTS: Fontaine, a lawyer at Mayer Brown, sought ERISA governed long-term disability benefits for a vision impairment. The “disability plan provides that MetLife’s benefit determination ‘shall be given full force and effect’ unless they are shown to be ‘arbitrary and capricious,’ thus calling for discretionary review.” Met Life denied the claim and Fontaine brought suit claiming the de novo standard of review should apply because an Illinois state regulation bans discretionary clauses.

ISSUE: Does ERISA preempt a state law banning discretionary clauses?

7th Circuit HELD: No.

  1. Met Life argued that the ban on discretionary clauses is preempted by ERISA because the discretionary clause here was contained in the ERISA plan, not an insurance policy. The court concluded, however: “Whether a provision for discretionary interpretation is placed in an insurance policy or in a different document…should make no legal difference.” Op. at 7.
  2. “We join the Ninth and Sixth Circuits in concluding that a state law prohibiting discretionary clauses squarely satisfies [the requirement of proof that the state law substantially affect risk pooling].” Op. at 9-10.
  3. The state law here “does not duplicate, supplement, or supplant the ERISA civil enforcement remedy. All it does is restore in Illinois ERISA’s own default rule of de novo review in court cases challenging denials of health and disability benefits.” Op. at 10.