ERISA-Ninth Circuit Rules That A California Insurance Code Provision Mandates De Novo Review Of A Decision To Terminate LTD Benefits

In Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, No. 14-55919 (9th Cir. 2017), a panel of the Ninth Circuit Court of Appeals (the “Panel”) reversed the district court’s judgment, after a bench trial, in favor of the defendants in an ERISA action challenging a decision by the plan administrator to terminate the plaintiff’s long-term disability benefits.

The district court reviewed the benefits decision to terminate the benefits for an abuse of discretion because the ERISA plan gave defendants discretionary authority. The Panel held that de novo review was required under California Insurance Code § 10110.6. That provision voided the discretionary clause contained in the plan, which would normally entitle a plan administrator’s benefit denial a deferential review. The Panel held that § 10110.6 is not preempted by ERISA because it falls within the savings clause set forth in 29 U.S.C. § 1144(b)(2)(A). Agreeing with the Seventh Circuit, the Panel concluded that § 10110.6 is directed toward entities engaged in insurance, and it substantially affects the risk-pooling arrangement between the insurer and the insured. The Panel held that § 10110.6 applied to the plaintiff’s claim because the relevant insurance policy renewed after the statute’s effective date.

As such, the Panel ruled that the district court should have voided the discretionary clause in the plan and reviewed Orzechowski’s claim de novo. On de novo review, the district court should give appropriate consideration to Orzechowski’s  fibromyalgia and chronic fatigue syndrome diagnoses, which were ignored by the plan administrator  in its denial of benefits based on file reviews. The plan administrator  demanded that Orzechowski produce objective evidence showing that her disability was caused by a non-psychological condition. But as the Ninth Circuit previously acknowledged, fibromyalgia and chronic fatigue syndrome are not established through objective tests or evidence.  Accordingly, the Panel remanded the case back to the district court for review in accordance with it’s opinion.

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