ERISA-Ninth Circuit Holds That Abuse of Discretion Standard Applies to District Court’s Review Of The Termination Of Short-Term Disability Benefits

In Williby v. Aetna Life Insurance Co., No. 15-56394, (9th Cir. 2017), a panel of the Ninth Circuit Court of Appeals (the “Panel”) vacated the district court’s judgment in favor of the plaintiff in an action under ERISA, challenging the termination of short-term disability benefits. The plan administrator had terminated the benefits, finding that the plaintiff was not disabled.

The Panel held that the district court erred by reviewing the denial by the plan administrator of the plaintiff’s benefits claim de novo, rather than for an abuse of discretion. The short-term disability plan included a discretionary clause, and thus by its terms called for abuse of discretion review. The Panel held that California Insurance § 10110.6, which invalidates such discretionary clauses in insurance plans, applied even though the disability plan was self-funded. ERISA, however, preempted § 10110.6 insofar as it applied. The Panel remanded for the district court to review the benefits denial under the correct (abuse of discretion) standard.