226 F. Supp. 3d 1162
W.D. Wash.2016Background
- Plaintiff Anthony R. Flaaen, a Washington resident and McLane employee, sued Principal Life under ERISA for wrongful denial of long-term disability benefits. McLane was dismissed from the case.
- The governing Group Policy (Plan) issued by Principal contains a Policy Interpretation clause granting Principal discretionary authority to construe the policy and determine benefits.
- Principal also issued a separate Booklet-Certificate (delivered to employees) that describes benefits, states it may serve as an ERISA summary plan description, and declares the insurance is subject to Texas law.
- The Plan explicitly states individual certificates (Booklet-Certificates) "will not be considered a part of this Group Policy," and that members’ rights are determined by the Group Policy.
- Washington regulation (WAC § 284-96-012) prohibits discretionary clauses in insurance contracts; parties disputed whether that prohibition applies to this Plan given delivery/issuance in Texas and the Booklet’s Texas choice-of-law language.
- The court decided two issues: (1) the Booklet-Certificate is not a governing plan document, and (2) Washington’s ban on discretionary clauses applies such that the Plan’s discretionary clause is unenforceable in this case; the court will review benefits de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Booklet-Certificate is a governing plan document under ERISA | Booklet may serve as SPD and govern participant rights | Plan’s express language states Booklet-Certificates are not part of the Group Policy | Booklet-Certificate is not a plan document; Plan controls |
| Whether Washington’s ban on discretionary clauses applies to this Plan | Washington law governs policies affecting Washington residents; enforcement would violate WA public policy | Texas law should apply because master policy was issued/delivered in Texas, so discretionary clause is enforceable | Washington’s prohibition applies; discretionary clause unenforceable; de novo review required |
| Whether choice-of-law/Booklet language (Texas law) can override Plan language and WA policy | Booklet’s Texas choice-of-law should govern insureds’ rights | Plan language excludes Booklet from the Plan; ambiguities construed against drafter (insurer) | Choice-of-law in Booklet cannot override Plan’s express terms or WA public policy |
| Whether enforcing discretionary clause is barred by public policy | Enforcing clause conflicts with Washington’s fundamental policy banning such clauses | National uniformity and Texas’ historical allowance of clauses support enforcement | Court finds strong WA public policy; declines to enforce discretionary clause |
Key Cases Cited
- Becker v. Williams, 777 F.3d 1035 (9th Cir.) (identifies which documents constitute governing plan instruments under ERISA)
- Quadrant Corp. v. American States Ins. Co., 154 Wash.2d 165 (Wash.) (ambiguities in insurance contracts construed against drafter)
- Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857 (Tex.) (contract ambiguities construed against drafter)
- Erickson v. Sentry Life Ins. Co., 43 Wash.App. 651 (Wash. Ct. App.) (rights under group policy generally governed by law of state where master policy was delivered)
- Boseman v. Connecticut General Life Ins. Co., 301 U.S. 196 (U.S.) (uniformity rationale for applying law of state where master policy delivered)
- Ito Int'l Corp. v. Prescott, Inc., 83 Wash.App. 282 (Wash. Ct. App.) (forum may refuse to enforce choice-of-law provision that conflicts with fundamental public policy)