Novak v. Life Ins. Co. of N. Am.

• Citation: 956 F.Supp.2d 900
• Decision Date: 09 July 2013
• Docket Number: No. 12 C 9434.,12 C 9434.
• Parties: Carol NOVAK, Plaintiff, v. LIFE INSURANCE COMPANY OF NORTH AMERICA and Discovery Financial Services Welfare Benefits Plan, Defendants.
• Court: U.S. District Court — Northern District of Illinois

956 F.Supp.2d 900

Carol NOVAK, Plaintiff,

v.LIFE INSURANCE COMPANY OF NORTH AMERICA and Discovery Financial Services Welfare Benefits Plan, Defendants.

No. 12 C 9434.

United States District Court,

N.D. Illinois,

Eastern Division.

July 9, 2013.

Michael Bartolic, The Law Offices of Michael Bartolic, LLC, Chicago, IL, for Plaintiff.

Daniel Keenan Ryan, Peter E. Pederson, Jr., Hinshaw & Culbertson, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

VIRGINIA M. KENDALL, District Judge.

On November 27, 2012, Plaintiff Carol Novak filed this suit under the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132(a)(1)(B), alleging that Defendant Life Insurance Company of North America (“LINA”) incorrectly denied her claim for long-term disability benefits under a benefit plan (the “Plan”) offered by her former employer, Discover Financial Services. Because the standard of review governing Novak's claims will determine the course of these proceedings, including discovery, the Court ordered that the issue be briefed and resolved at the threshold. With the benefit of the parties' briefs, the court concludes that the de novo standard of review governs Novak's long-term disability claim and that additional discovery beyond the administrative record is not appropriate at this time.

DISCUSSION

I. Standard of Review

ERISA does not set out the appropriate standard of review for actions under § 1332(a)(1)(B) challenging benefit eligibility determinations. To fill this gap, courts have held that a denial of insurance benefits is reviewed de novo under ERISA “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 114–15, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989); see also Conkright v. Frommert, 559 U.S. 506, 130 S.Ct. 1640, 176 L.Ed.2d 469 (2010); Black v. Long Term Disability Ins., 582 F.3d 738, 743 (7th Cir.2009); Perlman v. Swiss Bank Corp. Comprehensive Disability Protection Plan, 195 F.3d 975, 980 (7th Cir.1999). When the plan gives the administrator discretionary authority, the standard of review is deferential and court “will set aside an administrator'sdecision only if it is arbitrary and capricious.” Black, 582 F.3d at 743–44 (citing Herzberger v. Standard Ins. Co., 205 F.3d 327, 332 (7th Cir.2000); Aschermann v. Aetna Life Ins. Co., 689 F.3d 726, 728 (7th Cir.2012); Hess v. Reg–Ellen Mach. Tool Corp. Employee Stock Ownership Plan, 502 F.3d 725, 727 (7th Cir.2007)). In order for a plan to be grant discretionary authority to the fiduciary, “[t]he reservation of discretion must be communicated clearly in the language of the plan, but the plan need not use any particular magic words.” Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614, 619 (7th Cir.2008); Semien v. Life Ins. Co. of N. Am., 436 F.3d 805, 810 (7th Cir.2006) (plan should “clearly and unequivocally state that it grants discretionary authority”).

A. The Plan Terms

The Plan designates LINA as the “Claims Administrator” and fiduciary of the LTD program and delegates to LINA “full discretionary authority to determine claims and appeals under such Participating Program.” Specifically, § 2.9(a) of the Plan document, entitled “Claims Administrator,” provides:

“Claims Administrator” means, with respect to any Participating Program, the person(s) or entity(ies) appointed by the Plan Administrator to decide, in its sole discretion, claims for benefits, or the person(s) or entity(ies) appointed by the Plan Administrator to decide, in its sole discretion, appeals of denied claims for benefits.... The Claims Administrator will be a fiduciary (with respect to the authority delegated to the Claims Administrator) of the Plan.

(a) Fully Insured Participating Programs. The Claims Administrator for the insured Participating Programs will be the insurance company issuing the insurance policy or contract. Each Claims Administrator under an insured Participating Program will have full discretionary authority to determine claims and appeals under such Participating Program, subject to the terms of the insurance policy contract under which benefits are provided.

(Dkt. 23–1, p. 12.) In this case, LINA is the “Claims Administrator” and fiduciary for the LTD program under § 2.9(a) because it issued the insurance policy that provides the LTD benefits. Additionally, in a section entitled “Claims and Appeals Process Under the Discover Benefits Plan,” the Summary Plan Description states:

What else should I know about how the reviewers make decisions?

The administrators and fiduciaries of Discover's benefits plans, including the Reviewers, have discretionary authority to interpret the plans and make determinations under the plans. Any decision made pursuant to this authority is given full force and effect unless arbitrary and capricious.

(Dkt. 23, Ex. C, p. 140.) In a section entitled “Other Important Information,” the Summary Plan Document provides:

Discretionary Authority of Plan Administrator and Other Plan Fiduciaries

In carrying out their respective responsibilities under the Plan, the Plan Administrator and other Plan fiduciaries shall have the exclusive right and discretionary authority to make any findings necessary or appropriate for any purpose under the plan, including to interpret the terms of the Plan and to determine eligibility for and entitlement to Plan benefits. Any interpretation or determination made pursuant to such discretionary authority shall be given full force and effect, unless it can be shown that the interpretation or determination was arbitrary and capricious.

( Id. at 155.)

B. The Discretionary Language in the Plan Document does Not Conflict with the Insurance Policy

Section 1.3(b) of the Plan, which governs conflicts, provides that “[i]f a Participating Program is insured and there is a conflict between the specific terms of the Program Document and the terms of the Plan, the Program Document will control.” (Dkt. 23–1, p. 9.) Novak argues that based on a conflict between the Plan document and the insurance policy, the Plan document cannot be read to grant discretionary authority to LINA with respect to the LTD component program of the Plan. Specifically, Novak points to the fact that the Plan document contains a broad conferral of discretion from the Plan Administrator to any claims review fiduciary while the insurance policy contains no discretionary clause.

The Court finds that the Plan document's discretionary language does not conflict with any term contained in the insurance policy. Instead, it contains an additional term conferring discretionary authority to a fiduciary. Novak does not dispute that the Plan document's conferral of jurisdiction refers to all components of the plan and that the Plan specifically incorporates by reference the insurance policy. Taking the plan documents as a whole, the Plan language unequivocally grants discretionary authority to LINA. See Marantz v. Permanente Med. Grp., Inc. Long Term Disability Plan, 687 F.3d 320, 327 (7th Cir.2012) (“A district court conducts de novo review of a denial of benefits under an ERISA plan unless the plan documents grant the claim fiduciary discretionary authority to construe the policy terms to decide eligibility benefits ....”) (emphasis added); see, e.g., Borich v. Life Ins. Co. of N. Am., No. 12 C 734, 2013 WL 1788478, at *2 (N.D.Ill. Apr. 25, 2013) (“[discretionary language] is not rendered ineffective merely because it appears in plan documents other than the policy.”). Accordingly, the Court rejects Novak's argument that the discretionary clause contained in the Plan document does not apply to the Plan's LTD component simply because the clause is not reiterated in the insurance policy.

C. Illinois Law Invalidates the Plan's Grant of Discretionary Authority to LINA

Novak next argues that even if the Plan documents grant LINA discretionary authority with respect to the LTD component of the Plan, any such grant is invalid pursuant to a regulation promulgated by the Illinois Department of Insurance, 50 Ill. Adm.Code tit. § 2001.3 (“the DOI Regulation”). The DOI Regulation provides:

No policy, contract, certificate, endorsement, rider, application or agreement offered or issued in this State, by a health carrier, to provide, deliver, arrange for, pay for or reimburse any of the costs of health care services or of disability may contain a provision purporting to reserve discretion to the health carrier to interpret the terms of the contract, or to provide standards of interpretation or review that are consistent with the laws of this State.

Id. The purpose of the DOI Regulation is to:

prohibit all such policies from containing language reserving sole discretion to interpret policy provisions with the insurer. The legal effect of discretionary clauses is to change the standard for judicial review of benefit determinations from one of reasonableness to arbitrary and capricious. By prohibiting such clauses, the amendments aid the consumer by ensuring that benefit determinations are made under the reasonableness standard.

29 Ill. Reg. 10172 (July 15, 2005).

1. The DOI Regulation Applies Notwithstanding that it Appears in the Plan Document Instead of the Insurance Policy

Defendants maintain that the DOI Regulation does not invalidate the clause granting LINA discretionary authority because the clause appears in the Plan document, not in the insurance policy. The Plan document, according to Defendants, is not “a policy [or] contract to provide, deliver, arrange for, pay for, or reimburse any of the costs of health care services or of a disability.”

Courts in this district have rejected the argument that § 2001.3 does not apply by virtue of the fact that the language conferring discretion appears only in the plan document and not in the insurance policy itself. See, e.g., Borich, 2013 WL 1788478, at *4 (to hold that...