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Robert Francis v. Anacomp


September 14, 2011


The opinion of the court was delivered by: Hon. Roger T. Benitez United States District Judge




Plaintiff Robert Francis moves for partial summary adjudication on two issues: (1) the application of California law; and (2) the standard of review to be applied to the underlying decision of the plan administrator. The Defendants oppose and move for cross-summary adjudication. This Court holds that: (1) California state law is preempted and federal common law will be applied; and (2) the standard of review to be applied to the denial of benefits decision is de novo review.


While Plaintiff was employed by Anacomp, Inc., Plaintiff's wife was covered by an accidental death insurance policy issued by Defendant Life Insurance Company of North America ("LICNA"). While the policy was in force, Plaintiff's wife passed away. The coroner found the death to be accidental. Plaintiff sought benefits under the policy. LICNA denied benefits. The main issue is whether Plaintiff's wife died of accidental causes, as that is defined by the policy. Because the insurance coverage was based on Plaintiff's employment, this action is governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. ("ERISA") and this Court has jurisdiction.


A. Application of State Law

In ERISA cases, federal courts are directed to develop a federal common law of rights and obligations for ERISA-regulated plans. Standard Ins. Co. v. Morrison, 584 F.3d 837, 841 (9th Cir. 2009), cert. denied, 130 S. Ct. 3275 (2010) (citations omitted). This is due to the "broad preemptive force" of ERISA. Id. Relevant to this case, ERISA § 502(a) "'set[s] forth a comprehensive civil enforcement scheme'" that completely preempts state-law "'causes of action within the scope of th[es]e civil enforcement provisions . . . .'" Aetna Health Inc. v. Davila, 542 U.S. 200, 208--09 (quoting Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 66 (1987); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987)); see also Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 945 (9th Cir. 2009).

Preemption under ERISA § 514 is also governed by a two-prong test. Under § 514(a), ERISA broadly preempts "any and all State laws insofar as they may now or hereafter relate to any [covered] employee benefit plan . . . ." 29 U.S.C. § 1144(a). But this broad preemption provision is tempered by a savings clause in § 514(b), which spares "any law of any State which regulates insurance, banking, or securities." Id. § 1144(b)(2)(A). "To fall under the savings clause, a regulation must satisfy a two-part test laid out in Kentucky Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003)." Morrison, 584 F.3d at 842. "'First, the state law must be specifically directed toward entities engaged in insurance.'" Id. (quoting Ky. Ass'n of Health Plans,538 U.S. at 342). Second, "it 'must substantially affect the risk pooling arrangement between the insurer and the insured.'" Id. (quoting Ky. Ass'n of Health Plans, 538 U.S. at 342).

B. Standard for Reviewing the Decision of the Plan Administrator

When a court reviews an ERISA denial of benefits, the "denial of benefits . . . is to be reviewed under a de novo standard" where the administrator is not granted discretionary authority by the plan. Conkright v. Frommert, 130 S. Ct. 1640, 1646 (2010) (citations omitted). As a result, "the standard of review depends on whether the plan explicitly grants the administrator discretion to interpret the plan's terms." Harlick v. Blue Shield of California, ___ F.3d ___, 2011 WL 3796177 *4 (9th Cir. Aug. 26, 2011) (citation omitted). When discretion is granted, courts review benefit decisions for an abuse of discretion. Id. Where the plan administrator has a conflict of interest, such as when an insurer decides benefits under its own insurance policy, the court's review is the abuse of discretion standard "tempered by skepticism." Id. at *5.


A. California Law

Plaintiff moves for a ruling that California state law interpreting accidental death clauses in insurance policies constitutes a state law regulating insurance which is saved from ERISA preemption and should apply to this case. By cross motion, Defendants seek the opposite ruling, i.e., that California state law is preempted.

The California state law to which Plaintiff refers is described in Slobojan v. Western Travelers Life Ins. Co., 450 P.2d 271 (1969) (in bank). In Slobojan, the California Supreme Court considered an accidental death benefit provision that has similarities to the insurance policy provisions at issue in this action. The Slobojan policy stated in part that, "the death of the insured must have 'resulted directly and independently of all other causes from bodily injuries caused by accident and must not have resulted from 'disease' or 'bodily or mental infirmity.'" Id. at 277. The Supreme Court held: the correct rule is that the presence of pre-existing disease or infirmity will not relieve the insurer from liability if the accident is the proximate cause of death; and that recovery may be had even though a diseased or infirm condition appears to actually contribute to cause the death if the accident sets in progress the chain of events leading directly to death, or if it is the prime or moving cause.

Id. at 278. The Slobojan rule, also known as the proximate cause test, would apply to this case if it is not preempted by ERISA.

In McClure v. Life Insurance Company of North America, 84 F.3d 1129, 1135 (9th Cir. 1996), the Ninth Circuit concluded that state law does not apply. Instead, McClure held that federal common law applies when determining whether the existence of a pre-existing medical condition bars recovery under an ERISA insurance policy. McClure held that if pre-existing condition exclusionary language in an ERISA insurance policy is conspicuous, it will bar recovery if a pre-existing condition substantially contributed to the loss. Id. at 1136. On the other hand, where pre-existing medical condition exclusionary language is inconspicuous, "a policy holder reasonably would expect coverage if the accident were the predominant or proximate cause of the disability." Id.

Plaintiff argues that McClure should no longer apply and that the Slobojan rule should be saved from preemption under the more recent Supreme Court test from Kentucky Association of Health Plans. It may be that the Ninth Circuit will hold differently in the future if it reconsiders the preemption question. But currently, McClure is controlling. See e.g., Weis v. Accidental Death & Dismemberment Benefit Plan of Kaiser Found. Health Plan Inc., 442 F. Supp. 2d 850, 855 (N.D. Cal. 2006) ("Because California's proximate cause standard has been adopted in the Ninth Circuit as part of the federal common law, the Court accordingly need not reach the parties' remaining arguments regarding . . . the ERISA savings clause."); contra Anderson v. Cont'l Cas. Co., 258 F. Supp. 2d 1127,1130 (E.D. Cal. 2003) (abandoning the McClure approach in favor of the Ky. Ass'n of Health Plans test to decide whether California's "process of nature" rule is preempted by ERISA).

Therefore, according to McClure, federal common law is to be applied in this case, rather than the Slobojan rule as saved from preemption, to determine whether benefits are due under the policy. Accordingly, Plaintiff's motion on this point is denied and Defendants' motion is granted. Whether the policy language at issue in this case is conspicuous or inconspicuous (the question on which McClure turned) is not squarely presented or decided by these cross motions. If inconspicuous, the federal common law to apply would still be the Slobojan rule. If conspicuous, the Plaintiff might not be due accidental death benefits if a pre-existing medical condition substantially contributed to the death of Plaintiff's spouse. The parties may wish to file cross-motions on this question.

B. Standard of Review Applied to the Plan Administrator's Decision

The second issue to be decided is the standard of review with which this Court is to consider the decision denying benefits. Plaintiff's insurance policy was issued by LICNA and it was LICNA that made the determination that Plaintiff was not entitled to benefits. Thus, the issue is whether this Court applies a de novo standard or an abuse of discretion/tempered by skepticism standard.

As mentioned earlier, a denial of benefits is to be reviewed under a de novo standard where the plan administrator is not granted discretionary authority by the plan. Conkright, 130 S. Ct. at 1646. Plaintiff argues that there has been no grant of discretionary authority while Defendants argue that LICNA has been granted authority. The policy of insurance does not contain a grant of discretionary authority, and Defendants make no claim that it does. See Notice of Filing of Administrative Record at LINA 4--24 (i.e., the insurance policy).

Defendants rely instead on a document titled, "Employee Welfare Benefit Plan Appointment of Fiduciary" purporting to appoint LICNA as "the designated fiduciary for the review of claims for benefits under the Plan." See Amendment to Notice of Filing Administrative Record, at LINA 473. The Appointment of Fiduciary document is dated January 1, 2004. The insurance policy contains one amendment dated January 1, 2004, but it does not mention an appointment of fiduciary. See Notice of Filing Administrative Record, at LINA 24. Instead, it relates to a change in an exclusion for felony assault and a change in the definition of the loss of a hand. Id.

Defendants do not identify where the appointment of fiduciary is described in a summary plan document. The record contains an insurance certificate which is similar to the insurance policy, but it likewise does not contain or describe a grant of discretionary authority. See Second Amendment to Notice of Filing Administrative Record, at LINA 474--500 (i.e., Group Accidental Death & Dismemberment Insurance Certificate).

Defendants argue that it is enough if the Appointment of Fiduciary is a plan document, whether or not it is contained in the insurance policy or described in a summary plan document, citing Raybourne v. CIGNA Life Ins. Co. of N. Y. (576 F.3d 444 (7th Cir. 2009)). Raybourne involved a similar fiduciary appointment document. However, in that case the ERISA summary plan document "refer[red] to the Claims Fiduciary Appointment and explain[ed] the discretion that it confer[red]." Id. at 449. No similar reference is found in the LICNA policy or summary plan documents identified in this case. Indeed, apparently Plaintiff found out about the existence of the Appointment of Fiduciary document only after undertaking discovery in this case.

The application of a de novo standard of review is required in this case. Grosz-Solomon v. Paul Revere Life Ins. Co., 237 F.3d 1154 (9th Cir. 2001). Grosz-Solomon held that a district court erred in applying an abuse of discretion rather than de novo standard of review where the plan insurance policy had an integration clause and contained no conferral of discretionary authority. When a benefit summary was later revised to include language purporting to confer discretionary authority on the insurer as claims administrator, the Ninth Circuit held that the revision was ineffective. Id. at 1162. Grosz-Solomon explained, "[b]ecause the actual policy purports to be fully integrated, and because even if it were not fully integrated, the Benefit Summary language Paul Revere added is null and void, the district court should have evaluated Paul Revere's decision to deny Grosz-Solomon benefits using de novo review." Id.

As in the Grosz-Solomon case, the LICNA policy purports to be fully integrated. See Notice of Filing of Administrative Record, at LINA 16 ("This Policy, including the endorsements, amendments and any attached papers constitutes the entire contract of insurance."). Moreover, changes to the policy must, according to its terms, be endorsed or attached to the policy. Id. ("No change in this Policy will be valid until approved by one of Our executive officers and endorsed on or attached to this Policy."). As noted earlier, the Appointment of Claim Fiduciary form is neither attached to nor endorsed on the policy. Therefore, as in Grosz-Solomon, because the actual policy purports to be fully integrated, and even if not fully integrated, the Appointment of Claim Fiduciary did not properly amend the policy and is not described in a summary plan document, the de novo standard of review shall be applied. Id.; see also Heim v. Life Insurance Company of North America, slip op., Case No. Civ.A. 10-1567, 2010 WL 5300537 (E.D. Pa. 2010) (applying de novo standard where LICNA's Claim Fiduciary Form was not attached to the insurance policy or described in the summary plan document). Accordingly, Plaintiff's motion on this point is granted and Defendants' motion is denied. The de novo standard of review shall be applied.


Both motions for partial summary adjudication are granted in part and denied in part, as described above. Within three days of this Order, the parties shall notify the Magistrate Judge to schedule further proceedings.



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