In Polnicky v. Liberty Life Assur. Co. of Boston, decided Nov. 18, the U.S. District Court for the Northern District of California not only interpreted California Insurance Code § 10110.6 with regard to a group disability income policy but also explained which plan is controlling.
The policy, issued by Liberty Life to Wells Fargo & Co., has an effective date of Jan. 1, 2010, and its anniversaries occur each Jan. 1, beginning in 2011. On March 30, 2011, the plaintiff submitted a claim for disability benefits pursuant to the short-term disability plan with a disability date of March 30, 2011, which Liberty Life approved. On Aug. 12, 2011, Liberty Life started an investigation into the plaintiff’s claim for long-term disability benefits, which it denied on June 1, 2012. The plaintiff appealed the denial but Liberty Life upheld it on Feb. 19, 2013.
Quoting the U.S. Supreme Court’s 1989 opinion in Firestone Tire & Rubber Co. v. Bruch, the district court explained in Polnicky that a denial of benefits is to be reviewed under a de novo standard of review unless the benefit plan grants the administrator “discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” To alter the review to an “abuse of discretion, the Plan must unambiguously provide discretion to the administrator,” the court noted, quoting the Ninth U.S. Circuit Court of Appeals’ decision in Abatie v. Alta Health & Life Ins. Co. (2006).
In Polnicky, the defendants argued that the abuse of discretion standard applied given that there was an express grant of discretionary authority to Liberty Life. The plaintiff, however, argued that any grant of discretion was rendered void and unenforceable by California Insurance Code § 10110.6. Section 10110.6 provides in pertinent part:
(a) 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.
(b) For purposes of this section, "renewed" means continued in force on or after the policy's anniversary date.
The district court explained that given that the policy stated the anniversaries “shall occur each January 1st beginning in 2011," under Insurance Code § 10110.6, when the policy was continued after its Jan. 1, 2012, anniversary date, any provision in the policy attempting to confer discretionary authority was rendered void and unenforceable. The court cited the Ninth Circuit’s 2012 case of Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917 (9th Cir. 2012), which held, "Under California law, 'insurance policies are governed by the statutory and decisional law in force at the time the policy is issued…’ This principle governs not only new policies but also renewals: Each renewal incorporates any changes in the law that occurred prior to the renewal."
California Insurance Code § 10110.6 expressly applies to renewals, including policies "continued in force on or after the policy's anniversary date," the district court noted, quoting § 10110.6(a) and (b). Therefore, the policy’s discretionary authority provision was altered on the policy's Jan. 1, 2012, anniversary date, prior to the denial of the plaintiff's claim.
In addition, in Polnicky the parties disputed whether the controlling plan was the one that existed at the time the plaintiff first became disabled in 2011 or the plan as it existed in 2013, when the final denial letter was issued. The court explained that the Ninth Circuit addressed this issue in Grosz-Salomon v. Paul Revere Life Ins. Co., where it held that the amended plan was the controlling plan. In Grosz-Salomon, the court explained that since an employee's rights do not automatically vest under an ERISA welfare benefit plan, the controlling plan was the plan that existed when the plaintiff's ERISA cause of action accrued – at the time his benefits were denied.
The plaintiff’s claim was for nonvested employee welfare benefits, so the controlling plan was the one that existed at the time the plaintiff’s ERISA cause of action accrued – when the plaintiff’s benefits were denied in 2013. Therefore, the court in Polnicky held that the controlling plan will be the plan in effect at the time the plaintiff’s cause of action accrues.
Click here for the opinion.
The opinion in Polnicky v. Liberty Life Assur. Co. of Boston, 2013 U.S. Dist. LEXIS 163915, is not final. This decision may be cited now as persuasive nonprecedential authority. The decision may be modified by further proceedings in the district court or on appeal.