Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_13-cv-00188/USCOURTS-casd-3_13-cv-00188-0/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1132 E.R.I.S.A.-Employee Benefits

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

MARIANA NELSON, on behalf of

himself and all others similarly

situated,

Plaintiff,

CASE NO. 13cv188-WQH-MDD

ORDER

vs.

STANDARD INSURANCE

COMPANY, an Oregon company;

COUNTRYWIDE FINANCIAL

CORPORATION GROUP LONG

TERM DISABILITY PLAN;

COUNTRYWIDE FINANAICAL

CORP., and DOES 1-50, inclusive,

Defendants.

HAYES, Judge:

The matter before the Court is the Motion to Dismiss Plaintiff’s Complaint

(“Motion to Dismiss”), filed by all Defendants. (ECF No. 16).

I. Background

On January 23, 2013, Plaintiff Mariana Nelson initiated this action by filing a

Complaint in this Court. (ECF No. 1).

A. Allegations of the Complaint

Beginning in January 2004, Plaintiff was employed as a loan officer with

Defendant Countrywide Financial Corp. Id. ¶¶ 1, 5. Plaintiff received long term

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disability coverage under the Countrywide Financial Corporation Group Long Term

Disability Plan, policy number 643382 (“Group Policy”), issued by Defendant Standard

Insurance Corporation (“Standard”). Id. ¶¶ 1, 6. The Group Policy provides:

DISABILITIES SUBJECT TO LIMITED PAY PERIODS

A. Mental Disorders, Substance Abuse, and Other Limited Conditions.

Payment of [long term disability (‘LTD’)] Benefits is limited to 24 months during your entire lifetime for a Disability caused or contributed

to by any one or more of the following, or medical or surgical treatment of one or more of the following:

1. Mental Disorders;

2. Substance Abuse; or

3. Other Limited Conditions. ...

Mental Disorder means any mental, emotional, behavioral, psychological, personality, cognitive, mood, or stress-related abnormality,

disorder, disturbance, dysfunction or syndrome, regardless of cause (including any biological or biochemical disorder or imbalance of the

brain) or the presence of physical symptoms. Mental Disorder includes, but is not limited to, bipolar affective disorder, organic brain syndrome,

schizophrenia, psychotic illness, manic depressive illness, depression and depressive disorders, anxiety and anxiety disorders. ...

Other Limited Conditions means chronic fatigue conditions..., any allergy or sensitivity to chemicals or the environment..., chronic pain conditions..., carpal tunnel or repetitive motion syndrome, temporomandibular joint disorder, or craniomandibular joint disorder.

Id. ¶ 8.

In April 2007, Plaintiff ceased working due to disability. Id. ¶ 9. Standard does

not dispute Plaintiff’s disability under the Group Policy. Id. On May 30, 2008,

Plaintiff submitted a claim seeking long term disability benefits going back to April

2007. Id. ¶ 10. On July 10, 2008, Standard accepted the claim and paid Plaintiff

disability benefits. Id. ¶ 11. 

In January 2010, Standard informed Plaintiff that “LTD benefits have been

terminated as of December 31, 2009 because [Plaintiff] no longer satisfies the

Definition of Disability as stated in the Group Coverage.” Id. ¶ 12. Plaintiff requested

that Standard review the termination of benefits. Id. ¶ 14. On November 18, 2010,

Plaintiff sent Standard a letter informing Standard that “she disagreed that her inability

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to work stemmed from mental illness, but even if it did, Standard’s practice of limiting

her coverage to two years due to mental illness was discriminatory and contrary to

California law.” Id. ¶ 17. 

On October 10, 2011, Standard issued its final decision, denying Plaintiff’s long

term disability claim after its administrative review unit evaluated the December 31,

2009 decision to close the claim. Id. ¶ 32. The basis of Standard’s final denial was

solely because “[t]he group policy limits the payment of LTD benefits to a maximum

of 24 months, during your entire lifetime, for certain conditions...” and “[Plaintiff]’s

diagnosis of Major Depression is considered to be a Mental Disorder and is subject to

the 24 month maximum benefit period limitation.” Id. Standard concluded,

“[t]herefore, after 24 months we cannot consider [Plaintiff’s] Major Depression or

another mental disorder or another limited condition when determining whether

[Plaintiff] is disabled, even if her Major Depression or other limited condition is still

disabling.” Id.

Plaintiff asserts the following causes of action: (1) Claim for Benefits pursuant

to 29 U.S.C. § 1132(a)(1)(B); (2) Claim for Equitable Relief pursuant to 29 U.S.C. §

1132(a)(3); (3) Breach of Fiduciary Duty pursuant to 29 U.S.C. §§ 1104(a)(1),

1132(a)(3); and (4) Declaratory Relief. Each of Plaintiff’s claims arise from her

contention that the Group Policy’s provision entitled, “Disabilities Subject to Limited

Pay Periods,” is unenforceable because Standard has not complied with California

Insurance Code section 10144.1

 See ECF No. 1 ¶¶ 53, 59, 67, 73. Plaintiff brings the

action on behalf of herself and a putative class consisting of all California residents who

are participants in a group plan administered by Standard which contains the same

1

 Section 10144 provides:

No insurer issuing, providing, or administering any contract of individual or group insurance providing ... disability benefits ... shall refuse to insure,

or refuse to continue to insure, or limit the amount, extent, or kind of

coverage available to an individual, or charge a different rate for the same

coverage solely because of a physical or mental impairment, except where the refusal, limitation or rate differential is based on sound actuarial

principles or is related to actual and reasonably anticipated experience. Cal. Ins. Code § 10144.

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“Disabilities Subject to Limited Pay Periods” provision as the one in the Group Policy. 

Id. ¶ 33. Plaintiff requests declaratory, injunctive and equitable relief, as well as

statutory damages, attorneys’ fees and costs.

B. Motion to Dismiss

On April 15, 2013, all Defendants filed the Motion to Dismiss. (ECF No. 16). 

Defendants request dismissal of the Complaint with prejudice pursuant to Federal Rule

of Civil Procedure 12(b)(6), and an award of costs and reasonable attorneys’ fees

incurred pursuant to 29 U.S.C. § 1132(g). Defendants assert that “[a]ll full-time

employees [of Defendant Countrywide Financial Corp.] receive exactly the same

disability coverage under the Group Policy on completely equal terms. The Group

Policy authorizes payment of disability benefits up to age 65, but caps benefits at 24

months for disabilities caused by ‘Mental Disorders, Substance Abuse, and Other

Limited Conditions.’” (ECF No. 16-1 at 5 (quoting ECF No. 1 ¶ 8)). Defendants

contend that the “entire Complaint rests on the false premise that Standard’s

enforcement of contractual benefit caps for Mental Disorders violates §10144. But

[Plaintiff]’s discrimination theory is incompatible with the statutory language of §10144

and well established law defining the parameters of unlawful discrimination. Two

California federal courts recently rejected Nelson’s same discrimination theory as a

matter of law....” Id. at 6. Defendants contend:

Section 10144 does not mandate that disability insurance policies provide the same coverage for all types of disabilities. And §10144 does not

regulate the content of disability insurance policies offered on equal terms to all employees. Standard did not single out [Plaintiff] for unequal

treatment because of her mental impairment. [Plaintiff] obtained the same coverage under the Group Policy provided to all employees of Countrywide, and she obtained her coverage before she became mentally impaired. Standard simply enforced the non-discriminatory terms of the Group Policy, and paid benefits to [Plaintiff] for 24 months as required by the Group Policy.

Id. at 7.

On April 6, 2013, Plaintiff filed an opposition to the Motion to Dismiss. (ECF

No. 18). Plaintiff contends: 

Section 10144 is a broad statute ... equally protecting those with physical

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and mental impairments. It does not compare treatment of physical impairments to mental impairments. Rather, any exclusion – whether addressing physical or mental conditions – limiting the amount, extent or

kind of coverage available must be supported with objective, actuarial support (or actual and reasonable experience). Insurance companies must

have objective, fair reasons for placing individuals in a certain risk class

– whether based on physical or mental characteristics.

Id. at 14. Plaintiff contends: 

Countrywide and Standard arbitrarily limit disability coverage to two years for a broadly defined class of individuals with a wide array of impairments from allergies to Schizophrenia – solely due to the impairment. The result is discrimination against consumers like [Plaintiff]

who have limited disability insurance available to them because of mental

impairment without any scientific, actuarial basis. This arbitrary, discriminatory policy violates California Insurance Code Section 10144

... and must be invalidated.

Id. at 5. Plaintiff also contends that a motion to dismiss “is not the proper vehicle for

seeking a ruling on the merits – especially questions regarding interpretation of a

California insurance regulation requiring facts outside the complaint.” Id. at 10. 

Plaintiff requests leave to amend the Complaint if the Court grants the Motion to

Dismiss.

On June 4, 2013, Defendants filed a reply in support of the Motion to Dismiss. 

(ECF No. 21). On June 28, 2013, the Court heard oral argument on the Motion to

Dismiss.

II. Standard of Review

Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state

a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Federal Rule of

Civil Procedure 8(a) provides that “[a] pleading that states a claim for relief must

contain ... a short and plain statement of the claim showing that the pleader is entitled

to relief.” Fed. R. Civ. P. 8(a)(2). Dismissal under Rule 12(b)(6) is appropriate where

the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable

legal theory. See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

A plaintiff’s “grounds” to relief must contain “more than labels and conclusions,

and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). When

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considering a motion to dismiss, a court must accept as true all “well-pleaded factual

allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, a court is not

“required to accept as true allegations that are merely conclusory, unwarranted

deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266

F.3d 979, 988 (9th Cir. 2001). “In sum, for a complaint to survive a motion to dismiss,

the non-conclusory factual content, and reasonable inferences from that content, must

be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret

Service, 572 F.3d 962, 969 (9th Cir. 2009) (quotations omitted).

III. Discussion

California Insurance Code § 10144 provides:

No insurer issuing, providing, or administering any contract of individual or group insurance providing ... disability benefits ... shall refuse to insure,

or refuse to continue to insure, or limit the amount, extent, or kind of

coverage available to an individual, or charge a different rate for the same

coverage solely because of a physical or mental impairment, except where the refusal, limitation or rate differential is based on sound actuarial

principles or is related to actual and reasonably anticipated experience.

Cal. Ins. Code § 10144. 

Plaintiff contends that the provision in the Group Policy limiting disability

benefits for mental disorders to 24 months violates section 10144 and is therefore

unenforceable. Plaintiff contends that “any exclusion – whether addressing physical or

mental conditions – limiting the amount, extent or kind of coverage available must be

supported with objective, actuarial support (or actual and reasonable experience)” in

order to comply with section 10144. (ECF No. 18 at 14). Plaintiff contends that she

has “limited disability insurance available to [her] because of mental impairment

without any scientific, actuarial basis,” and “[t]his arbitrary, discriminatory policy

violates California Insurance Code Section 10144 ... and must be invalidated.” Id. at

5.

In Monterastelli v. Standard Insurance Co., No. CV 12-01669 (AGRx) (C.D.

Cal. June 12, 2012), the court considered the same contention in the same factual

situation. See Monterastelli, Slip Op. at 3, ECF No. 16-2 (“Plaintiff alleges that section

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10144 ‘permits insurance companies ... to limit benefits under disability policies for

mental or physical disabilities IF the limitations are supported by sound actuarial

principles or are related to actual and reasonably anticipated experience.’ Plaintiff

contends that Defendant’s 24-month limitation of benefits [for mental disabilities and

other conditions] does not meet this threshold requirement. Thus, Plaintiff concludes

that the limitation is unenforceable under section 10144.”). The court examined the text

of section 10144 and stated:

On its face, section 10144 only addresses access to or charges for

disability insurance. It does so by proscribing four types of conduct by an insurer: (1) refusal to insure; (2) refusal to continue to insure; (3) limitation on coverage; and (4) charging of a different rate for similar coverage. However, by its terms, the provision does not dictate or even address the content of insurance that insurers must provide the insureds. It leaves open the possibility that an insurer may provide unequal coverage for mental and physical disabilities. Therefore, if an insurer chooses to

allocate more resources to physical disabilities than to mental disabilities,

this decision does not run afoul of section 10144. The California

Legislature did not seek to create parity of coverage for mental and

physical disabilities when it enacted section 10144.

Id. at 4. The court concluded that “the California Supreme Court would interpret

section 10144 as only ensuring that a given insurance plan affords disabled individuals

equal access to and eligibility for the same benefits as non-disabled individuals.” Id.

at 5. The court stated that the plaintiff’s complaint “converts a provision that only

concerns the right to access insurance on equal terms into a legislative mandate for

equal coverage.” Id. The court stated, “Plaintiff received exactly what section 10144

promises: access to insurance. Defendant’s 24-month cap goes to the content of the

benefits under the policy, and, on the question of content, section 10144 is silent.” Id. 

The court stated that, “so long as every employee is offered the same plan regardless

of that employee’s contemporary or future disability status, no violation of section

10144 has occurred.” Id. at 5-6 (citing Equal Emp’t Opportunity Comm’n v. CNA Ins.

Cos., 96 F.3d 1039,1044 (7th Cir. 1996) (observing that a 24-month limit for mental

disability benefits “may or may not be an enlightened way to do things but it is not

discriminatory in the usual sense of the term”)). The court granted defendant’s motion

to dismiss. 

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In Townsend v. Thomson Reuters Group Disability Income Insurance Plan, 867

F. Supp. 2d 1085 (C.D. Cal. 2012), the court considered the same contention in the

same factual situation. See id. at 1086 (“The Complaint asserts that Defendant ...

terminated Plaintiff’s LTD benefits pursuant to a provision in the Plan that limits the

payment of LTD benefits originating from a mental impairment to a period of 24

months.... [T]he Complaint alleges that Defendants’ termination of these benefits was

in violation of California Insurance Code § 10144, asserting that Section 10144 required

Defendants to base any termination of her LTD benefits on actuarial data or evidence.”). 

The court granted defendants’ motion for summary judgment, holding that “Section

10144 does not apply to Plaintiff’s claim.” Id. The court stated: “Plaintiff was not

singled out individually for a coverage limitation, nor was her coverage limited because

of her mental condition. She was offered the same coverage as all other employees of

Thomson Reuters. Her coverage was not limited because of her mental condition.”). 

Id.

Both Monterastelli and Townsend distinguished Chabner v. United of Omaha

Life Ins. Co., 994 F. Supp. 1185 (N.D. Cal. 1998), affirmed, 225 F.3d 1042 (9th Cir.

2000). In Chabner, an insured who suffered from a rare form of muscular dystrophy

brought an action against an insurer to recover for disability discrimination because his

life insurance “premium was 96.5% greater than standard” despite the fact that his

condition “had only a small effect on mortality.” Chabner, 225 F.3d at 1046. Finding

that defendant violated section 10144’s prohibition against “charging different

premiums for arbitrary reasons,” the district court entered summary judgment for the

plaintiff and the Court of Appeals affirmed. Id. at 1049. In Monterastelli, the court

distinguished Chabner as follows: “[C]harging a different rate for individuals with

certain disabilities is one of the specific acts section 10144 prohibits (absent sound

actuarial principles to support the differential rate). In the instant case, Plaintiff does

not allege that Defendant charged her a different rate; rather, Plaintiff alleges that

Defendant enforced a 24-month cap on her disability payments for her mental disorder,

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which is not one of the four insurance practices forbidden by section 10144.” 

Monterastelli, Slip Op. at 7 n.4, ECF No. 16-2. Similarly, the court in Townsend stated:

“Every case cited by both Plaintiff and Defendants has applied Section 10144 in

situations where an individual has been discriminated against and denied coverage or

charged higher rates for coverage compared to other individuals because of a mental or

physical limitation. No court has held that Section 10144 requires insurers to offer

equal benefits for both mental and physical disabilities.” Townsend, 867 F. Supp. 2d

at 1086 (citing Chabner, 994 F. Supp. 1185).

The Court finds the reasoning of Monterastelli and Townsend to be persuasive. 

As the Court of Appeals for the Ninth Circuit stated in the context of a challenge to a

similar disability policy provision under the Americans with Disabilities Act,

“[i]nsurers have historically and consistently made distinctions between mental and

physical illness in offering health and disability coverage.” Weyer v. Twentieth Century

Fox Film Corp., 198 F.3d 1104, 1116 (9th Cir. 2000) (quotation omitted). “[H]ad

Congress intended to control which coverages had to be offered by employers, it would

have spoken more plainly because of the well-established marketing process to the

contrary.” Id. Accepting all facts alleged in the Complaint as true, the Group Policy’s

provision entitled, “Disabilities Subject to Limited Pay Periods,” does not violate

California Insurance Code § 10144. The Court finds that Plaintiff has failed to state a

claim upon which relief may be granted because the Complaint “lack[s] a cognizable

legal theory.” Balistreri, 901 F.2d at 699 (citation omitted).

In a footnote in her brief, Plaintiff states: “Even if the [section] 10144 claim is

not viable, plaintiff has other bases for her ERISA claims, including a claim for benefits

owed under the physical, sleep disability, and breach of fiduciary duty for concurrent

application of the Mental Disorder limitation to disability caused by a physical

impairment.” (ECF No. 18 at 11 n.1). In the initial, “Factual Background” section of

the Complaint, Plaintiff alleges that Plaintiff told Standard that she had been diagnosed

with sleep disorders, “so the disability claim should not be limited to mental disorders.” 

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(ECF No. 1 ¶ 11). After the “Factual Background” section, the Complaint alleges four

Counts. Each Count references Plaintiff’s theory that the Group Policy violates

California Insurance Code § 10144. Id. ¶¶ 53-55, 59, 61, 67, 70, 73. No Count

references any other basis for liability, such as that Defendants failed to recognize that

Plaintiff’s disability was caused by a physical impairment. To the extent Plaintiff

contends that the Complaint alleges a basis for her claims other than her section 10144

theory, the Court finds that those other claims have not been adequately alleged.

Defendants request attorney’s fees pursuant to 29 U.S.C. § 1132(g). Section

1132(g) provides that a “court in its discretion may allow a reasonable attorney’s fee

and costs of action to either party.” 29 U.S.C. § 1132(g)(1). “In general, a court

considering whether to award attorney’s fees and costs under ERISA must consider five

factors: (1) the degree of the opposing party’s culpability or bad faith; (2) the ability of

the opposing party to satisfy an award of fees; (3) whether an award of fees would deter

others from breaching duties under similar circumstances; (4) whether the party

requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or

to resolve a significant legal question regarding ERISA; and (5) the relative merits of

the parties’ positions.” Cal. Ironworkers Field Pension Trust v. Loomis Sayles & Co.,

259 F.3d 1036, 1048 (9th Cir. 2001) (citations omitted). After considering the relevant

factors, the Court declines to award attorney’s fees to Defendants.

//

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IV. Conclusion

IT IS HEREBY ORDERED that the Motion to Dismiss is GRANTED. (ECF No.

16). The Complaint is dismissed without prejudice. No later than thirty (30) days from

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the date this Order is filed, Plaintiff may file a motion for leave to amend the

Complaint, accompanied by a proposed first amended complaint. If no motion for leave

to amend the Complaint is filed within thirty days, the Court will order the Clerk of the

Court to close this case.

DATED: July 17, 2013

WILLIAM Q. HAYES

United States District Judge

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