Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, Plan Number 625, 2017 U.S. App. LEXIS 8348

Background

Plaintiff Talana Orzechowski worked for Boeing and received long‑term disability (LTD) benefits administered and funded by Aetna under Boeing’s ERISA-governed Master Welfare Plan and an Aetna policy/certificate.
The Master Plan and Aetna policy contained discretionary clauses delegating claim‑deciding authority to Aetna and stating Aetna’s decisions would be reviewed for abuse of discretion.
Aetna approved LTD benefits under an "own‑occupation" standard through July 28, 2011, then reviewed continued eligibility under the stricter "any reasonable occupation" standard and, after paper file reviews by physicians, terminated benefits in July 2011 by classifying Orzechowski’s impairment as a mental condition subject to a 24‑month limitation.
Orzechowski administratively appealed; Aetna upheld the termination. She sued under ERISA § 502(a)(1)(B). The district court applied abuse of discretion review and affirmed Aetna, holding California Insurance Code § 10110.6 did not apply retroactively to void the discretionary clause.
The Ninth Circuit held § 10110.6 is saved from ERISA preemption, applies to Boeing’s Master Plan/policy (because the policy renewed after Jan 1, 2012), and therefore the discretionary clauses are void — requiring de novo review on remand; the court instructed the district court to give appropriate weight to fibromyalgia and chronic fatigue diagnoses on de novo review.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether California Ins. Code § 10110.6 is preempted by ERISA	§10110.6 regulates insurance and is saved from preemption; it targets insurance practices	ERISA preempts state law that "relates to" employee benefit plans	§10110.6 is saved from ERISA preemption under the Miller test and thus not preempted
Whether § 10110.6 is "directed toward entities engaged in insurance"	The statute regulates insurance arrangements even when issued by non‑insurers (e.g., ERISA plans)	Boeing: plan sponsor is not an insurer; statute shouldn’t apply to Master Plan documents	The statute regulates "insurance, not insurers" and applies to ERISA plan documents that provide/fund insurance
Whether § 10110.6 "substantially affects the risk‑pooling arrangement"	Voiding discretionary clauses alters the insurer‑insured bargain and likely increases paid claims — affecting risk pooling	Boeing argued limited or no effect on insurance risk pooling	Court: voiding discretionary clauses does substantially affect risk pooling and bargaining scope
Whether § 10110.6 applies to Boeing’s Master Plan/policy and thus the standard of review	Orzechowski: Aetna’s discretionary clauses are void because the Aetna policy continued in force past Jan 1, 2012	Boeing/district court: Master Plan dated Jan 1, 2011 so statute doesn’t apply retroactively; abuse of discretion standard governs	The Aetna policy renewed on Jan 1, 2012; §10110.6 applies to the policy and incorporated plan documents, so de novo review required

Key Cases Cited

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (recognizing discretionary clauses lead to abuse‑of‑discretion review)
Kentucky Ass'n of Health Plans v. Miller, 538 U.S. 329 (two‑part test for insurance saving clause under ERISA preemption)
Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (discussing the saving clause reclaiming ground from ERISA preemption)
UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358 (insurance regulation must be grounded in insurance policy concerns)
Pannebecker v. Liberty Life Assurance Co. of Bos., 542 F.3d 1213 (standard of review determination is reviewed de novo)
Standard Ins. Co. v. Morrison, 584 F.3d 837 (state ban on discretionary clauses applied to ERISA plans)
Fontaine v. Metropolitan Life Ins. Co., 800 F.3d 883 (Seventh Circuit holding similar statute saved from preemption)
Am. Council of Life Insurers v. Ross, 558 F.3d 600 (state prohibition on discretionary clauses saved from preemption)
Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917 (policy renewal date governs which law applies)
Harlick v. Blue Shield of California, 686 F.3d 699 (ERISA plan is a contract)
Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666 (fibromyalgia and chronic fatigue often lack objective diagnostic tests)
Jordan v. Northrop Grumman Corp. Welfare Benefit Plan, 370 F.3d 869 (recognizing objective testing limitations for certain conditions)
Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955 (en banc) (clarifying ERISA remedial standards)