WHITESELL v. LIBERTY LIFE ASSURANCE COMPANY OF BOSTON (2022)

Order Granting Defendant's Motion for Abuse of Discretion Standard of Review; Adopting Abuse of Discretion Standard of Review

Dkt. No. 24

Currently pending before the Court is defendant Lincoln National Life Insurance Company's (“Lincoln”), formerly known as Liberty Life Assurance Company of Boston, motion to determine the standard of review in this action for Employee Retirement Income Security Act (“ERISA”) benefits (see Dkt. No. 24). Lincoln contends that an abuse of discretion standard of review should apply, while plaintiff contends that the standard of review should be de novo.

After carefully considering the papers submitted and the pleadings in this action, and for the reasons set forth below, the Court hereby Grants the motion and finds that an abuse of discretion standard of review shall apply in this case.¹

I. Background

The Court summarizes the case background relevant to the pending motion:

Plaintiff worked at Wells Fargo from July 2009 through approximately February 2019. (Dkt. No. 26-1, Declaration of Ryan Whitesell, (“Whitesell Decl.”), ¶ 4.) As an employee, plaintiff enrolled into Lincoln's long-term disability plan (the “plan”) (Dkt. No. 1, Complaint, (“Compl.”), ¶ 3). Lincoln funds the plan through a group insurance policy and is the claim administrator. (Id.) The plan was issued to Wells Fargo and became effective January 1, 2010. (Dkt. No. 24-1, Jenny H. Wang Declaration, (“Wang Decl.”) Ex. 1 (“Group Policy”), at 3.) The plan includes a discretionary clause that states, “Interpretation of the Policy ․ Liberty shall possess the authority to construe the terms of the policy and to determine benefit eligibility hereunder.” (Id. at 40) (emphasis in original). The plan also includes a choice of law provision that designates Minnesota law as the governing law. (Id. at 3.)

II. Legal Standard

Since ERISA does not specify a standard of review, the default standard is that a denial of benefits is reviewed de novo, “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). The plan language purporting to grant discretion must be clear and unambiguous in providing discretion to the administrator. Kearney v. Standard Ins. Co., 175 F.3d 1084, 1090 (9th Cir. 1999). If the plan unambiguously gives the plan administrator discretion to determine a plan participant's eligibility for benefits, then the standard of review shifts to abuse of discretion. Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 963 (9th Cir. 2006) (en banc).

Some states, including California, has enacted statutes that prohibit an insurance policy from assigning discretion to the insurer or administrator. Specifically, California Insurance Code Section 10110.6 bans discretionary clauses in disability insurance policies that govern California residents and reads:

If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed, whether or not in California, that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for benefits or coverage, to interpret the terms of the policy, contract, certificate, or agreement, or to provide standards of interpretation or review that are inconsistent with the laws of this state, that provision is void and unenforceable.

Cal. Ins. Code § 10110.6(a). “The statute ․ is ‘self-executing’; thus, if any discretionary provision is covered by the statute, ‘the courts shall treat that provision as void and unenforceable.’ ” Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, 856 F.3d 686, 692 (9th Cir. 2017). Thus, under California law, a de novo standard of review would apply.

III. Discussion

Lincoln seeks to have the Court apply an abuse of discretion standard because the plan confers discretion on Lincoln, as the insurer, to make claim determinations (“discretionary clause”). Plaintiff does not dispute that the plan includes a discretionary clause. Rather, plaintiff argues that a de novo standard should apply because the: (a) the discretionary clause is unenforceable under California law and the Minnesota choice-of-law clause in the plan is “unreasonable and fundamentally unfair” and (b) even if Minnesota law applied, the discretionary clause is void under Minnesota's discretionary clause ban. The Court considers each argument in turn.

A. Minnesota Choice-of-Law Clause

The Court starts with the threshold issue of choice of law. Lincoln argues, that as set forth in the plan's choice-of-law provision, Minnesota law governs.² Plaintiff argues that the Minnesota choice-of-law provision is unenforceable because it is “unreasonable and fundamentally unfair” because it would contravene a fundamental California public policy right codified in California Insurance Code Section 10110.6.

Suits filed regarding “ERISA-regulated plans [are to] be treated as federal questions.” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). In federal question cases, “the court should apply federal, not forum state, choice of law rules.” In re Lindsay, 59 F.3d 942, 948 (9th Cir. 1995). Applying federal choice of law rules, in Wang Labs., Inc. v. Kagan, 990 F.2d 1126, 1129–30 (9th Cir. 1993), the Ninth Circuit held that “as a matter of federal law,” where a contract provides that a certain state's law applies, that choice of law will be upheld unless it was “unreasonable or fundamentally unfair” “when viewed from the time when the contract was made.” Id. at 1128-29.

In Wang Laboratories, plaintiff filed suit in California for ERISA reimbursement. Id. at 1127. The plan contained a choice-of-law provision stating that Massachusetts law applied. Id. at 1128. The Ninth Circuit held that Massachusetts's statute of limitations rather than California's statute applied. Id. The Ninth Circuit explained that the Massachusetts choice-of-law provision would apply unless it was “unreasonable or fundamentally unfair.”

Because defendant and most of its employees were housed in Massachusetts, the Ninth Circuit found the application of Massachusetts law to be fair and reasonable. Id. at 1129. The court discussed the importance of enforcing parties' choice-of-law provision, including the fact that the plan's choice-of-law was reflected in “the plan's administrative costs and reserves for litigation expenses” which “would necessarily have to account for greater risk and uncertainty if the plan were subject to the choice of law doctrine of every state in which it might be sued, and whatever substantive law that doctrine might import.” Id. The court found that “the benefits of enforcing the contractual choice of law redound ultimately to the beneficiaries” and decided that enforcement of the clause was not unfair or unreasonable even though the plaintiff was a California resident who had been injured in California. Id. at 1129.

Lincoln contends that the Minnesota choice-of-law provision is fair and reasonable because plaintiff's former employer, Wells Fargo, has tens of thousands of employees and customers in Minnesota and conducts substantial business there. (Dkt. No. 24-3, Declaration of Barbara Orseno, (“Orseno Decl.”), ¶¶ 5-6.) Lincoln also explains that the plan covers over 190,000 employees covered across all 50 states, so it makes sense to apply the law of one state in accordance with the parties' bargained-for agreement. In addition, in 1998, Wells Fargo merged with Norwest Corporation (“Norwest”), which was based in Minnesota. (Id. at ¶ 2.) Following the merger, Norwest was the surviving entity. (Id. at ¶ 3.) Norwest decided to take Wells Fargo's name and moved to San Francisco, California. (Id.) However, Wells Fargo maintained strong connections with Minnesota, including the employment of approximately 38,000 Minnesota employees, approximately 3,100 Minnesota offices, and thousands of Minnesota customers. (Id. at ¶¶ 3-5.) Minnesota remains one of Wells Fargo's major markets. (Id. at ¶ 6.)

Plaintiff responds that the choice-of-law provision is unfair and unreasonable because enforcing it would contravene a fundamental California public policy right to a fair review of disability insurance claim denials. This argument does not ultimately persuade. Plaintiff reviews many cases but recognizes binding authority does not support the notion that application of a foreign law is inherently unreasonable where it varies from that afforded under the forum state's law.³ In fact, in Wang, the Ninth Circuit addressed a similar issue and found that even though there were differences between the forum state and foreign state statute of limitations law, the foreign state laws applied because the choice-of-law provision was bargained-for and the plan had a reasonable connection with the foreign state. Indeed, if the analysis turned on the existence of another applicable state law that is more beneficial to plaintiff, and on which plaintiff wants to rely, the exception would swallow the rule.

Next, plaintiff argues that application of Minnesota law would be unfair and unreasonable because neither Lincoln or Wells Fargo are incorporated or have their principal place of business in Minnesota. However, plaintiff cites no authority for the proposition that the place of incorporation and the principal place of business are dispositive on the fairness and reasonableness analysis. While Wang considered these factors as indications of the reasonableness and fairness inquiry, the Ninth Circuit did not suggest that these were the only factors to be considered. Indeed, Wang also considered the fact that many of defendant's employees lived in the foreign state.

Minnesota's choice-of-law provision, which covers over 190,000 employees across the county, including over 38,000 employees in Minnesota, and which was grounded with the historic entity which merged with Wells Fargo, is fair and reasonable. Minnesota is a major market for the plan sponsor and there are tens of thousands of employees and customers living in Minnesota. Approximately 20% of the plan sponsor's employees reside in Minnesota. These considerations are important and relevant, especially since the plan covers employees living in all fifty states throughout the United States. Application of bargained-for choice of law provisions is important to achieve uniformity, predictability, and efficiency under ERISA. See Heimeshoff v. Hartford Life & Accident Ins. Co., 571 U.S. 99, 108, 134 S.Ct. 604, 187 L.Ed.2d 529 (2013).

Accordingly, the Court finds that the plan's choice of Minnesota law applies. Thus, California's prohibition on discretionary clauses does not apply to this case.

B. Minnesota's Statutory Ban on Discretionary Clauses

Plaintiff also argues that, even if the Court were to find that Minnesota law applied, a de novo standard of review should apply because Minnesota law also bans discretionary clauses.

In 2015, the Minnesota Legislature enacted Minn. Stat. Section 60A.42 which prohibits insurers from granting themselves discretionary authority to interpret their policies and to reserve for themselves a more favorable standard of review. The statute provides:

No policy, contract, certificate, or agreement offered or issued in this state providing for disability income protection coverage may contain a provision purporting to reserve discretion to the insurer to interpret the terms of the contract or provide a standard of review that is inconsistent with the laws of this state, or less favorable to the enrollee when a claim is denied than a preponderance of the evidence standard.

Minn. Stat. § 60A.42. The statute became effective on January 1, 2016, “and applies to policies issued or renewed on or after that date.” 2015 Minn. Sess. Law Serv. Ch. 59 (S.F. 997).

Here, the plan was issued on January 1, 2010, six years before the effective date. Despite the plain statutory language and the plan's issue date, plaintiff argues that Minnesota's discretionary ban applies nonetheless because “[plaintiff] became disabled in 2017, after the Minnesota statute became effective.” (Dkt. No. 26, Opposition, at 24.) For this proposition, he relies on Hocheiser v. Liberty Mut. Ins. Co., 2021 WL 672660, at * 8 (D.N.J. Feb. 22, 2021), which purportedly interprets the same insurance policy at issue here, to argue that the Court in Hocheiser would have found, under the facts of this present case, that Minnesota's discretionary clause ban applied to this case.

Plaintiff mischaracterizes Hocheiser. There, the court explained that “the controlling policy is the one in effect either 1) when the employee has vested rights in benefits or 2) if the employee has no vested rights under the policy, when an ERISA cause of action accrues at the time that benefits are denied.” Id. The court found that the plan included vesting language which controlled, not plaintiff's date of disability. Id. Further, the court found that the policy was amended four times, three before January 1, 2016, and one time after January 1, 2016, and that the relevant amendment date controlled. Id. at n.4. The court then found that, because that amendment was made before January 1, 2016, the controlling plan fell outside Minnesota's discretionary clause ban. Id.

Here, unlike Hocheiser, plaintiff does not point to any relevant amendment, nor does plaintiff argue that there were in fact any amendments post January 1, 2016 that would cause his claim to fall within the discretionary ban. Rather, plaintiff relies on Hocheiser to advance the unsupported position that one's disability date is relevant to determining the policy's effective date under the policy. Hocheiser does not support this position.

Thus, applying the plain language of Minn. Stat. § 60A.42, and the undisputed facts of this case, the Court finds that the plan in this case does not fall within Minnesota's discretionary clause ban since the plan was issued before January 1, 2016.

IV. Conclusion

In light of the foregoing, the Court finds that Minnesota law applies given the parties' enforceable choice-of-law provision. Under Minnesota law, an abuse of discretion standard applies given the facts of this case.

This Order terminates docket number 24.

It Is So Ordered.

FOOTNOTES

1.   Pursuant to Federal Rule of Civil Procedure 78(b) and Civil Local Rule 7-1(b), the Court finds this motion appropriate for decision without oral argument. Accordingly, the Court Vacates the motion hearing set for October 25, 2022.

2.   The plan's choice-of-law provision states: “Governing Jurisdiction is Minnesota and subject to the laws of that state.” (Wang Decl., Ex. 1 at 3.)

3.   Both parties rely on various California district court cases to argue their respective positions. While none of the authority is binding, the Court finds plaintiff's cited authorities to be unpersuasive because they cannot be reconciled with the Ninth Circuit's decision in Wang and many of them fail to conduct the requisite choice of law analysis.

Yvonne Gonzalez Rogers, United States District Court Judge