In Curtis v. Hartford Life and Accident Insurance Company, No. 11 C 24489 (N.D. Illinois, Eastern Division, January 18, 2012), the plaintiff, Cindy Curtis (“Curtis”), had brought suit under ERISA to recover long-term disability (“LTD”) benefits. She had been a participant in her employer’s Long-Term Disability Benefits Plan (the “Plan”), which is administered by the defendant, Hartford Life and Accident Insurance Company (“Hartford”). Curtis had become disabled, and began to receive LTD benefits from the Plan. However, Hartford later determined that Curtis was not disabled, and terminated the benefits. This suit ensued.
The issue before the Court is the standard of review applicable to Hartford’s decision to terminate Curtis’s LTD benefits. Curtis argued that Hartford’s decision to cut-off her benefits is subject to de novo review under ERISA and, consequently, that she is entitled to take wide-ranging discovery concerning whether Hartford’s decision is correct. Hartford contends, on the other hand, that its decision is subject to review under the more limited arbitrary and capricious standard, so that Curtis only is entitled to narrow discovery concerning Hartford’s decision.
In analyzing this issue, the Court said that the standard of review depends on whether the Plan grants Hartford, the plan administrator, discretionary authority to make decisions, and that the standard is the arbitrary and capricious standard if the Plan makes such a grant, and de novo otherwise. In this case, the Plan specifically provides that Hartford has “full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the [Plan].” This provision is normally sufficient to result in the use of the arbitrary and capricious standard. However, Curtis challenges this conclusion, based on a regulation promulgated by the Illinois Department of Insurance which bans discretionary clauses in insurance contracts offered or issued in Illinois (the “Illinois Regulation”). Does the Illinois Regulation nullify the Plan provision granting discretion, so that de novo standard of review applies? The Court looked at the particular language of the Illinois Regulation, concluding that it applies to the Plan. The Court also determined that the Illinois Regulation is not displaced by a Delaware choice of law provision. Finally, the Court determined that the Illinois Regulation is not preempted by ERISA, since the Illinois Regulation purports to regulate insurance, and, under its “Savings Clause”, ERISA does not preempt insurance regulation. As such, the Court concluded that the Illinois Regulation nullifies the Plan’s grant of discretion to Hartford, so that the de novo standard of review applies.