You know that many states ban discretionary language in ERISA plans. This issue tees up litigation over what state law will apply –the choice of law issue.

This new case is a good read because it provides helpful analysis when litigating choice of law issues: the structure of the plan may help win choice of law issues.

Choice of law decisions may be more favorable when the employer’s plan is part of a trust with a Master Policy covering participating members over many states.

Earle v. UNUM Life Ins. Co. of America, CV 19-2903-JFW (C.D. CA. July 23, 2020)(Employer was member of trust with thousands of employer/members over 39 states — California resident sought California law to apply; court applied Maine law to make sure decisions (over 39 states) were made uniformly — abuse of discretion standard applied).

Kudos to Nicole Blohm and her team at Meserve for a nice win…

FACTS: In March 2017, Earle, an operating room nurse residing in California, fell and claimed at the time only that she had “cut her finger on the rail.” Earle later claimed, but did not report until August 2017, that she experienced vision impairment after her fall. Five months after her fall she consulted with doctors who concluded she had cataracts, and macular holes in her eye which impaired her vision. The physician opined the macular hole was caused when her “head violently jerked backwards” during her fall months earlier. There also were complications during her subsequent retinal surgery. Earle made an Accidental Bodily Injury claim under the ERISA-governed plan.

UNUM denied her accidental bodily injury claim because: (1) “macular holes can occur spontaneously without any apparent cause”; (2) there was no evidence claimant’s head jerked violently in her fall; (3) it is “very unlikely” one would experience a macular hole from violent head jerking anyway; and (4) Earle’s current impaired vision likely was a result of pre-existing conditions and complications during her retinal surgery.

Earle did not see it that way…. and brought suit, arguing that California’s ban on discretionary language required de novo review. UNUM argued Maine law should apply because (at the time) Maine had no ban on discretionary language in plans.

DISTRICT COURT HELD: Applying Maine law and discretionary review: UNUM correctly denied the accidental bodily injury claim.

  1. Choice of Law—Applying Discretionary Review Standard.
    • “Where a choice of law is made by an ERISA contract, it should be followed, if not ‘unreasonable or fundamentally unfair.” Op. at 12.
    • The Court applied Maine’s law (which at the time did not ban discretionary language in ERISA plans). The court did not apply California law which banned discretionary language. “[T]he Court concludes that it would not be ‘unreasonable or unfair’ to enforce the Maine choice of law provision in the Summary of Benefits.” Op. at 13.
    • The employer subscribed to the Trust, which conferred discretion with Unum. “The purpose of the trust’s structure is to support consistent life and ADD coverage for hundreds of thousands of employees who are employed by tens of thousands of employers across thirty-nine states and Washington D.C….[A]pplying the laws of one governing jurisdiction, Maine, Unum ensures that the… benefits insured by the Master Policy are uniformly administered….” Op. at 13.
  1. Interpreting ERISA policies in the Ninth Circuit.
    • In the Ninth Circuit, when interpreting ERISA policies, the “doctrine of reasonable expectations” applies. Op. at 14.
    • In assessing pre-existing conditions, if the language in the policy is conspicuous, then the “substantially caused” standard applies. Op. at 15.
    • That means the pre-existing condition “‘must be more than merely a contributing factor’ and that a relationship of ‘undetermined degree is not enough.’” Op. at 15.
    • The terms and provisions regarding coverage were conspicuous. (The Court cites helpful cases and provides insightful analysis on this issue.)

3. Unum did not abuse its discretion when it concluded that Earle’s loss of sight in her right eye was not “substantially caused by her” fall. Op. at 17.

4. Even if Earle’s fall contributed to her vision loss, Unum did not abuse its discretion when it concluded that Earle’s preexisting condition and retinal surgery substantially contributed to her loss of sight. Op. at 18.