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.
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's
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:
(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:
(Dkt. 23, Ex. C, p. 140.) In a section entitled "Other Important Information," the Summary Plan Document provides:
(Id. at 155.)
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.
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:
Id. The purpose of the DOI Regulation is to:
29 Ill. Reg. 10172 (July 15, 2005).
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 the regulation cannot apply to Plan documents would be "both contrary to the plain language of the regulation and the clear import of the language.... The regulation's bar on insurer interpretive discretion would be meaningless... if it could be avoided by the expedient of entering into a separate agreement, outside the insurance policy, that provides the same discretion that § 2001.3 takes away"); Difatta v. Baxter Int'l, Inc., No. 12 C 5023, 2013 WL 157952, at *3 (N.D.Ill. Jan. 15, 2013) (section 2001.3 barred a grant of discretion to the LTD insurer despite the fact that the discretionary language appeared in the master plan document and not the insurance policy); Ehas v. Life Ins. Co. of N. Am., No. 12 C 3537, 2012 WL 5989215, at *5-7 (N.D.Ill. Nov. 29, 2012) (section 2001.3 applied despite the fact that the insurance policy contained no language granting discretion to LINA because another plan document — the appointment of claims review fiduciary — did contain a clause stating that LINA would have discretion to interpret the insurance policy).
In Ehas, for example, the court relied upon the Illinois Department of Financial and Professional Regulation's interpretation of § 2001.3 stating that it aims to (1) strip LTD insurers of discretion when making decisions on LTD benefits claims, and (2) prevent an "arbitrary and capricious" standard of review in such cases. 2012 WL 5989215, at *6 (citing 29 Ill. Reg. 10172 (July 15, 2005)). Addressing the absence of discretionary language in the policy itself, the court found that the plain language of the regulation makes it applicable to more than just insurance policies because "[t]he regulation sweeps broadly, including not only an insurance `policy,' but a `contract, certificate, endorsement, rider application or agreement.'" Id. The court reasoned that allowing disability insurers to circumvent the Illinois regulation by placing the discretionary clause in a plan document rather than in the insurance policy would "elevate form over substance." Id. (quoting Curtis v. Hartford Life & Acc. Ins. Co., No. 11 C 2448, 2012 WL 138608, at *7 (N.D.Ill. Jan. 18, 2012)). The Court finds this reasoning persuasive and holds that the DOI Regulation applies to the discretionary clauses contained in the Plan document and Summary Plan Description.
Defendants next argue that even if the: DOI Regulation applies to the Plan document, it is preempted by ERISA. ERISA's preemption provision states that ERISA "supercede[s] any and all State laws so far as they may now or hereafter
However, ERISA's savings clause protects from preemption "any law of any State which regulates insurance, banking, or securities." 29 U.S.C. § 1144(b)(2)(A). Thus, "a State law regulating insurance is saved from ERISA's preemption provision thereby preserving State regulation of the substantive terms of insurance policies, even those policies that fall within ERISA's purview." Zaccone v. Standard Life Ins. Co., No. 10 C 00033, 2013 WL 1849515 (N.D.Ill. May 1, 2013) (citing Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002), Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985), and UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 363, 119 S.Ct. 1380, 143 L.Ed.2d 462 (1999)).
In Kentucky Ass'n of Health Plans v. Miller, 538 U.S. 329, 123 S.Ct. 1471, 155 L.Ed.2d 468 (2003), the Supreme Court set forth two requirements a state insurance regulation must satisfy in order to be saved from ERISA's preemption clause. First, the state law "must be specifically directed toward entities engaged in insurance." Id. at 342, 123 S.Ct. 1471 ("[L]aws of general application that have some bearing on insurers do not qualify."). In this case, the Defendants argue that the DOI Regulation fails to satisfy the first requirement because it is directed toward plan sponsors and trust instruments, not entities engaged in insurance.
The fact that entities other than insurance companies may be affected by a state regulation does not take that regulation outside the scope of the ERISA savings clause. The Miller Court explained:
The DOI Regulation, by prohibiting insurers from granting fiduciaries discretionary authority to interpret plan terms, is clearly directed toward "entities engaged in insurance." See Standard Ins. Co. v. Morrison, 584 F.3d 837 (9th Cir.2009) ("It is well-established that a law which regulates what terms insurance companies can place in their policies regulates insurance companies."). The fact that the regulation also imposes limitations on Plan fiduciaries does not change the outcome of the analysis.
The second requirement under Miller is that the state law "substantially affect the risk pooling arrangement between the insurer and the insured." 538 U.S. at 338, 123 S.Ct. 1471. The Miller Court explained the its rationale for imposing this requirement:
Id.
Defendants maintain that § 2001.3 affects the substance of the relationship between the plan sponsor and the insurerfiduciary, not the risk pooling arrangement between the insurer and insured participants. Indeed the petitioners in Miller raised a near-identical argument, asserting that the state laws at issue in that case failed to satisfy the second requirement because "they [did] not alter or affect the terms of insurance policies, but concern only the relationship between insureds and third-party providers." 538 U.S. at 338, 123 S.Ct. 1471. The Miller Court disagreed:
Id. 338-39, 123 S.Ct. 1471.
In this case, the DOI Regulation effectively changes the standard of review federal courts will apply when reviewing claim determinations from arbitrary and capricious to de novo. Under de novo review, district courts will be permitted to make "independent decisions" regarding benefit claims and will no longer be limited to overturning only those decisions that they find "downright unreasonable." The likely result is that district courts will overturn more claims denials, ultimately leading to more claims paid than under the arbitrary and capricious standard. Thus, the DOI Regulation substantially affects the risk pooling arrangement between insurers and insureds. See, e.g., Ehas, 2012 WL 5989215, at *9 (section 2001.3 "satisfies Miller's second requirement.... By preventing an insurer from having discretion in interpreting terms, Section 2001.3 may give insureds greater leeway to bargain over the substance of those terms. The regulation may also compel insurers to offer different terms up front, since they can no longer dictate their interpretation"); Zuckerman v. United of Omaha Life Ins. Co., No. 09 C 4819, 2012 WL 3903780, at *7 (N.D.Ill.
Accordingly, because the DOI Regulation satisfies both requirements set forth in Miller, the regulation is saved from preemption.
While the Seventh Circuit has not yet opined on whether § 1144(b)(2)(A) saves § 2001.3 from preemption, two other Courts of Appeals, in reviewing nearly identical state laws banning discretionary clauses, have held that ERISA does not preempt such laws. See, e.g., Am. Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir.2009) (Michigan regulation "prohibiting insurers from issuing ... insurance contracts or policies that contain discretionary clauses" saved from preemption under ERISA); Morrison, 584 F.3d 837 (9th Cir. 2009) (practice of disapproving insurance contracts with discretionary clauses saved from preemption under ERISA); cf. Hancock v. Metro. Life Ins. Co., 590 F.3d 1141 (10th Cir.2009) (finding that a Utah regulation establishing safe-harbor language and dictating font requirements for discretionary clauses was preempted by ERISA because it did not meet the second prong of the Miller test, but adding that the case would have been different if the regulation "imposed a blanket prohibition on the use of discretion-granting clauses") (citing Morrison and Ross ). Relying upon Ross and Morrison, district courts in the Northern District of Illinois have uniformly held that ERISA does not preempt § 2001.3. See Zaccone, 2013 WL 1849515, at *3; Ehas, 2012 WL 5989215, at *10; Zuckerman, 2012 WL 3903780, at *7; Barrett v. Life Ins. Co. of N. Am., 868 F.Supp.2d 779, 781 (N.D.Ill.2012); Curtis, 2012 WL 138608, at *10; Ball, 2011 WL 759952, at *4; see also Borich, 2013 WL 1788478, at *4 (reaching the same conclusion without explicitly relying upon Ross or Morrison).
Defendants submit that Morrison and Ross — and by extension the district court decisions relying on those cases — are wrongly decided because they fail to account for the important role judicial deference plays in ERISA's statutory scheme.
In so holding, the Conkright Court discussed the tension between "ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans." Id. at 1649. The Court explained that in drafting ERISA, Congress attempted to create a system that was not so complex "that administrative costs, or litigation expenses, unduly discourage employers from offering plans in the first place." Id. Instead, the goal of ERISA was to induce "employers to offer benefits by assuring a predictable set of liabilities." Id. Judicial deference, the Court stated, protects this careful balance "by permitting an employer to grant primary interpretive authority over an ERISA plan to the plan administrator." Id. Such deference "promotes efficiency by encouraging resolution of benefits disputes through internal administrative proceedings" and "promotes predictability" because an employer can rely on the expertise of a claims administrator rather than "worry about unexpected and inaccurate plan interpretations that might result from de novo judicial review." Id.
Despite its language emphasizing the importance of judicial deference in federal ERISA proceedings, Conkright does not control the issue presented in this case. Conkright did not address, discuss, or mention, much less overturn, the Sixth and Ninth Circuit's decisions in Morrison and Ross. Indeed the issue of preemption was not even in play. At issue in Conkright was whether a federal court may strip an administrator of its discretionary authority on an "ad-hoc basis," not whether state regulatory bodies are precluded from regulating insurance by promulgating rules restricting deference-conferring clauses that otherwise clearly fall within the ambit of ERISA's savings clause. Therefore the Court declines the Defendants' invitation to take Conkright — a case that had nothing to do with preemption, insurance regulation, or ERISA's savings clause — and stretch its holding to effectively preclude any state law restricting the grant of discretionary authority to an administrator. See, e.g., Zaccone, 2013 WL 1849515, at *5 ("Conkright does not alter the analyses in Ross and Morrison or require the conclusion that Section 2001.3 is outside ERISA's savings clause and has been preempted by ERISA.").
The remaining cases Defendants cite are also unpersuasive. Defendants cite: Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 10S S.Ct. 2890, 77 L.Ed.2d 490 (1983), where the Supreme Court held that ERISA preempted a New York law requiring
Accordingly, because the Court finds that the DOI Regulation strips Discover Financial Services Welfare Benefits Plan's ability to grant LINA discretionary authority to construe Plan terms and determine eligibility for benefits and is not preempted by ERISA, the Court will apply de novo review and make an independent decision as to whether Novak was under the Plan's terms.
Nevertheless, even under the de novo standard of review, Novak is not permitted to engage in additional discovery beyond the administrative record at this time. In Estate of Blanco v. Prudential Ins. Co. of Am., 606 F.3d 399 (7th Cir.2010), the Seventh Circuit set forth the approach for determining the scope of discovery in an ERISA proceeding where the district court applies a de novo standard of review. Under de novo review, district courts have "discretion to limit the evidence to the record before the plan administrator, or to permit the introduction of additional evidence necessary to enable it to make an informed and independent judgment." Id. at 402 (quoting Pattern v. MFS/Sun Life Fin. Distributors, Inc., 480 F.3d 478, 490-91 (7th Cir.2007)). The Blanco court stated four factors courts must consider in determining whether extra-record discovery should be allowed: (1) whether "the new evidence is necessary to make an informed and independent judgment"; (2) whether the parties had an opportunity to present evidence at the administrative level; (3) whether the extra-record discovery relates to the plan terms or historical facts concerning the claimant; (4) whether the administrator faces a conflict of interest. Id. at 402; Patton, 480 F.3d at 491. "The most important factor... is whether the new evidence is necessary to make an informed judgment." Blanco, 606 F.3d at 402. As a general matter, however, "the district court should restrict itself to the evidence before the plan administrator" and "review evidence beyond that which was before the plan administrator only when circumstances clearly establish that additional evidence is necessary." Casey v. Uddeholm Corp., 32 F.3d 1094, 1099 (7th Cir.1994) (citing Quesinberry v. Life Ins. Co. of North America, 987 F.2d 1017, 1025 (4th Cir.1993)).
In this case, Novak argues that extra-record discovery should be allowed because allowing the Defendants to determine what constitutes the administrative
Nor does Novak explain why additional discovery is necessary for the Court to make an informed and independent judgment regarding her condition. Additional discovery is not granted as a matter of course. See Patton, 480 F.3d at 492 ("A court should not automatically admit new evidence whenever it would help to reach an accurate decision .... The record calls for additional evidence only where the benefits of increased accuracy exceed the costs."). In Krolnik, for example, the Seventh Circuit determined that the district court should have permitted extra-record discovery where there was conflicting evidence in the administrative record. Krolnik v. Prudential Ins. Co. of Am., 570 F.3d 841, 843 (7th Cir.2009). In Patton, the court permitted extra-record discovery solely to clarify an unexplained contradiction between two statements a treating physician made about the claimant's capacities. 480 F.3d at 492-93. On the other hand, in Blanco, the court denied extra-record discovery where the medical records on file were more than sufficient and left no "serious dispute" that the plaintiff suffered from a pre-existing condition. 606 F.3d at 402-03. Similarly, in Ehas, the court found that the plaintiff had not established a basis for extra-record discovery because he "failed to sufficiently allege facts supporting the grant of discovery as to either the issues of disability or conflict of interest." 2012 WL 5989215, at *11. In Ball, the court, after determining that the de novo standard of review applied, denied a motion to compel depositions based on its finding that the experts' reports and the claimant's medical records, which were already part of the administrative record, were sufficient to enable the court to make an informed and independent judgment. Ball v. Standard Ins. Co., 2011 WL 2708366, at *2 (N.D.Ill. July 23, 2011).
Here, Novak alleges that LINA's medical reviewers refused to acknowledge her muscle testing results, ignored the results of her electromyogram ("EMG"), failed to acknowledge the results of her functional capacity evaluation ("FCE"), and never explained why the above-results should be discounted or disregarded. These allegations, if true, may establish that LINA's decision was incorrect (or even unreasonable). That, however, is a determination the Court will be able to make based on its own independent review of the administrative record. Aside from alleging that LINA made the wrong call, Novak offers no specific basis for allowing additional discovery at this time. Novak asserts that the Court may find helpful the affidavit of one of her pain specialists, Dr. Jay Joshi, but fails to articulate why Dr. Joshi's opinion is necessary for the court to form an independent and informed conclusion regarding her alleged disability. Unlike the plaintiffs in Patton and Krolnik, Novak points to no contradiction in the administrative
Lastly, to the extent Novak seeks to take discovery regarding whether the Plan administrator's decision was influenced by a structural conflict of interest, such conflict is irrelevant because the Court, proceeding under de novo review, will make an independent determination as to whether Novak was disabled under the Plan. As the Seventh Circuit explained in Diaz v. Prudential Ins. Co. of America, 499 F.3d 640 (7th Cir.2007):
Id. at 643 (citations omitted); see, e.g., Borich, 2013 WL 1788478, at *5 ("Because the Court will not rely in any way on LINA's denial of benefits, whether LINA's decision was influenced by a conflict of interest has no probative value whatsoever."); Walsh v. Long Term Disability Coverage for All Emps. Located in the U.S. of DeVry, Inc., 601 F.Supp.2d 1035, 1043 (N.D.Ill.2009) (finding any violations the plan administrator might have committed in denying an LTD claim irrelevant to the question of whether a claimant is eligible for benefits).
Accordingly, the Court finds that extra-record discovery unwarranted at this time.
For the reasons stated, the Court will make an independent determination of whether Novak was disabled under the terms of the Plan. Novak's request to engage in extra-record discovery is denied at this time.
