Employee Benefits Law Blog : Colorado ERISA Lawyer & Attorney : Vicki Johnson : Davis Graham & Stubbs Law Firm : Serving Denver, Boulder, Colorado Springs, Fort Collins

In Hancock v. Metropolitan Life Ins. Co., 590 F.3d 1141 (10th Cir. 2009), the Tenth Circuit Court of Appeals held that ERISA preempts a Utah regulation governing the format of clauses in insurance policies that give an employee benefit plan administrator discretion when interpreting the plan terms and awarding benefits. The Utah regulation imposed a ban on such "reservation-of-discretion clauses" in insurance policies with an exception for employee benefit plans governed by ERISA.  The regulation provided that ERISA employee benefit plans must contain certain language and be in at least 12 point bold font.  

The Tenth Circuit held that ERISA preempted the Utah regulation because it did not meet the second part of the Miller test for determining whether a state law regulates insurance.  See Kentucky Ass'n of Health Plans v. Miller, 538 U.S. 329, 342.  If both parts of the Miller test are met, the rule falls within ERISA's savings clause, 29 U.S.C. § 1142(b)(2)(A), exempting from ERISA preemption states laws relating to employee benefit plans that regulate insurance, banking or securities.  The second part of the Miller test requires a state law to substantially affect the risk pooling arrangement between the insurer and the insured in order for the state law to be found to regulate insurance.  The court in Hancock held that the Utah regulation did not substantially affect the risk pooling arrangement because it related more to the form, not the substance of the discretionary clause.  The Utah rule did not remove the option of insurer discretion and thus did not affect who gets the risk pool or prescribe conditions under which insurers must pay for assumed risks. As a result, the court held that the Utah rule was preempted by ERISA.  The Court noted that if the Utah rule had imposed a blanket prohibition on the use of discretion-granting clauses, this would be a different case.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Colorado Revised Statute Section 10-3-1116, which governs regulation of insurance companies, prohibits an insurance policy, insurance contract or plan that is "issued" in Colorado and that offers health and disability benefits from containing a provision that reserves discretion to the insurer, plan administrator, or claim administrator to interpret the terms of the plan or determine eligibility for benefits.

Based on federal case law, it appears that this statute is not preempted by ERISA and falls within ERISA's savings clause.  29 U.S.C. § 1144(b)(2)(A).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The United States Supreme Court declined to review a decision from the Ninth Circuit Court of Appeals, Standard Ins. Co. v. Morrison, 584 F.3d 837 (9th Cir. 2009), holding that a state's practice (though its insurance commissioner) of disapproving insurance policies that give insurers discretion to determine benefits and construct the terms of an employee benefit plan is not preempted by ERISA. 

Several states have laws that prevent an insurer from adding such a discretionary clause to an policy governing employee benefits.  As a result of the Supreme Court's decision not to review the Standard Ins. Co. case, courts faced with the question whether these state laws are preempted by ERISA may be inclined to hold that they are not  thereby legislating a de novo  standard of review when insurers companies may employee benefit decisions.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In Hardt v. Reliance Standard Ins. Co., No. 09-448, the United States Supreme Court held that a person does not have to be a "prevailing party" in order for attorneys' fees to be awarded under 29 U.S.C. § 1132(g)(1) of ERISA.  Attorneys' fees may be awarded to either party if the fee claimant shows that he or she has achieved "some degree of success on the merits."  The Court noted that the standard under Section 1132(g)(1) for awarding attorneys' fees is different from the standard under Section 1132(g)(2). Section 1132(g)(2) governs awards of attorneys' fees in actions to recover delinquent employer contributions to a multiemployer plan, and requires a judgment in favor of the plan in order for attorneys' fees to be awarded. The Court stated in a footnote that its decision does not foreclose a court, after a fee applicant has met his or her burden, from applying the five-factor test for awarding attorneys' fees used in the Fourth Circuit Court of Appeals, which test also is used in other circuits, including the Tenth Circuit Court of Appeals.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The United States Supreme Court held in Conkright v. Frommert, No. 08-810 (Apr. 21, 2010), that a plan administrator who is given discretionary authority in the plan documents to interpret the plan is entitled to deference when making a second attempt at interpreting the plan terms after a court concludes that the plan administrator violated ERISA when initially interpreting the plan and remands for a second interpretation.  At issue in Conkright was the plan administrator's interpretation of a retirement plan as allowing a certain method of calculating retirement benefits when employees who left the company and received a lump sum distribution of retirement benefits are rehired.  After an appellate court concluded that the plan administrator erred in interpreting the plan and remanded for consideration of other interpretations, the district court declined to apply a deferential standard of review to the plan administrator's second attempt at interpreting the plan.  On appeal to the Supreme Court, the Court held that the plan administrator's second attempt at interpreting the plan was entitled to a deferential standard of review.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

ERISA's anti-cutback rule is found in 29 U.S.C. § 1054(g).  It provides,with certain exceptions, that once an individual's benefit is vested, it cannot be decreased or elimnated through a plan amendment.  A parallel rule is found in Internal Revenue Code Section 411(d)(6).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In general, ERISA does not preempt state laws regulating insurance, see 29 U.S.C. § 1144(b).  A state law regulates insurance if it is: (1) specifically directed toward entities engaged in insurance and (2) substantially affects the risk pooling arrangement between the insurer and the insured.  See Kentucky Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 242 (2003).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

With some exceptions, ERISA preempts state laws that "now or hereafter relate to any employee benefit plan."  29 U.S.C. § 1144(a). The exceptions are set forth in 29 U.S.C. § 1144(b).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Section 502(a)(1) permits civil lawsuits to be brought by participants or beneficiaries of an employee benefits plan.  The Tenth Circuit Court of Appeals held in Chastain v. AT&T, 558 F.3d 1177 (10th Cir. 2009), that retired employees and beneficiaries of an AT&T employee benefit plan did not have standing to sue AT&T under Section 502(a)(1) for benefits under the plan after AT&T transferred the employee benefit plan to a spin-off entity.  The court found that since the retired employees were no longer participants or benefits any employee benefits plan of AT&T as a result of the transfer of the plan to the spin-off entity, the employees did not have standing to sue AT&T under Section 502(a)(1).

The court articulated the rule that when a business entity creates a spin-off and transfers its employee benefit plans to that spin-off, employees covered under the spin-off plan cannot sue the original business entity under Section 502(a)(1)(B).

• Email This
• Print
• Comments
• Trackbacks
• Share Link