You already know that when a claimant brings suit alleging wrongful denial of ERISA-governed disability benefits, the first issue the court looks at is: what standard of review applies. If the plan or policy includes “discretionary review” language, then the court should affirm the claim decision absent an abuse of discretion.  If the plan or policy is silent on the issue, the court applies de novo review.

In recent years, many state insurance regulators have issued regulations or legislation banning discretionary review in ERISA-governed claims decisions. Here in Washington, for example, the Insurance Commissioner issued a regulation banning abuse of discretion language in disability policies.

But other states, like Minnesota, have no such regulation banning discretionary review.

Consider the choice-of-law argument when assessing whether the claim will be reviewed under an abuse of discretion standard.

Here’s the case of Brake v. Hutchinson Technology, Inc., __ F.3d__, 2014 WL 7345692 (8th Cir. December 29, 2014) (Choice of law provision allows abuse of discretion review despite regulation banning discretionary review).

FACTS: Brake, who works in South Dakota, made a claim for ERISA-governed disability benefits provided by her employer, Hutchinson.  Hutchinson is based in Minnesota and the long term disability policy was issued in Minnesota.  The policy contained language requiring discretionary review, and the plan contained a choice-of-law provision requiring application of Minnesota law. South Dakota has banned discretionary review.  Minnesota has no such regulation.

ISSUE:  What standard of review applies: South Dakota law and de novo review, or Minnesota law and abuse of discretion review?

8th Circuit Court of Appeals HELD:  Minnesota law and the abuse of discretion standard applies.

  1. “’Where a choice of law is made by an ERISA contract, it should be followed, if not unreasonable or fundamentally unfair.’”  Op. at 5.
  2. “We find nothing unreasonable or fundamentally unfair about enforcing the plan’s Minnesota choice-of-law provision.”  Op. at 5.  
  3. The South Dakota ban on discretionary review did not apply because Minnesota law controls.