Owens v. Liberty Life Assurance Company of Boston
184 F.Supp.3d 580
W.D. Ky.2016Background
- Paulette Owens, a former Wal‑Mart employee, received long‑term disability (LTD) benefits under a Wal‑Mart ERISA Wrap Plan funded by a Liberty Life group disability policy effective Jan. 1, 2013.
- Liberty Life approved benefits in Nov. 2013, terminated them effective Nov. 1, 2014, and upheld termination on appeal in Apr. 2015.
- Liberty Life is both the insurer under the Policy and the plan claims administrator; the Policy contains a discretionary clause granting Liberty Life sole authority to construe the plan and determine eligibility.
- Arkansas adopted Rule 101 (Dec. 19, 2012), banning discretionary clauses in disability income policies issued or renewed on or after Mar. 1, 2013; plaintiff argued Rule 101 voids the Policy’s discretionary clause.
- Dispute: whether (1) Rule 101 applies to the Policy (i.e., whether the Policy renewed on/after Mar. 1, 2013) and (2) whether Liberty Life (not contract personnel paid by Liberty Mutual) actually exercised discretionary authority—determining the standard of judicial review (de novo v. arbitrary and capricious).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Arkansas Rule 101 bans the Policy’s discretionary clause | Rule 101 prohibits discretionary clauses in policies continued/renewed after Mar. 1, 2013, so the clause is ineffective | Policy became effective Jan. 1, 2013 and did not "renew" after Mar. 1, 2013, so Rule 101 does not apply | Court: Policy did not renew on/after Mar. 1, 2013; Rule 101 does not apply |
| Whether the Policy grants "express" discretionary authority under ERISA | Discretionary clause invalid if state law bans it | Policy expressly vests Liberty Life with sole discretionary authority to construe terms/determine eligibility | Court: Policy contains an express discretionary grant; valid under circumstances here |
| Whether the administrator actually exercised discretion (i.e., who made the decision) | Claim decision made by Liberty Mutual contract employees lacking delegated discretion | Liberty Mutual personnel acted as agents under a service agreement; Liberty Life supervised and controlled claims decisions | Court: Liberty Life made the ultimate determination (via its agents); discretion was exercised by Liberty Life |
| Applicable standard of review | De novo because discretionary clause is invalid or not exercised | Arbitrary and capricious because Policy grants and Liberty Life exercised discretion | Court: Arbitrary and capricious standard applies |
Key Cases Cited
- Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (ERISA denial-of-benefits standard; de novo unless plan grants discretionary authority)
- Wells v. U.S. Steel & Carnegie Pension Fund, Inc., 950 F.2d 1244 (6th Cir. standard for applying deferential review when discretion granted)
- Yeager v. Reliance Standard Life Ins. Co., 88 F.3d 376 (6th Cir. requirement that discretionary grant be express)
- Sanford v. Harvard Indus., Inc., 262 F.3d 590 (6th Cir. requires administrator itself actually make decision for deferential review)
- American Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. upholding state insurance regulations restricting discretionary clauses)
- Standard Ins. Co. v. Morrison, 584 F.3d 837 (9th Cir. holding state practice disallowing discretionary clauses not preempted)
- Fontaine v. Metro Life Ins. Co., 800 F.3d 883 (7th Cir. upholding state prohibition on discretionary clauses)