Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_16-cv-01268/USCOURTS-cand-5_16-cv-01268-1/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

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

LISA GALLEGOS,

Plaintiff,

v.

THE PRUDENTIAL INSURANCE 

COMPANY OF AMERICA,

Defendant.

Case No. 16-cv-01268-BLF 

ORDER GRANTING MOTION FOR 

PARTIAL SUMMARY JUDGMENT

[Re: ECF 28]

Before the Court is Plaintiff Lisa Gallegos’ motion for partial summary judgment 

requesting a ruling that the applicable standard of review is “de novo,” and not “abuse of 

discretion.” Mot., ECF 28. For reasons stated below, the Court GRANTS Plaintiff’s motion.

I. BACKGROUND

From the parties’ briefing and submitted evidence, the following facts relevant to the 

pending motion are undisputed unless otherwise noted. When Plaintiff was employed by Jazz 

Pharmaceuticals (“Jazz”), Plaintiff participated in a long-term disability (“LTD”) plan sponsored 

by Jazz and insured by Defendant The Prudential Insurance Company of America (“Prudential”). 

Mot. 1. Prudential insured the LTD benefits pursuant to the terms and conditions of a group 

contract. Ex. 2 to Lawson Decl. Prudential also issued a group disability insurance certificate to 

Jazz and provided a “Summary Plan Description” (“SPD”), describing the terms and conditions of 

the plans and the claims and appeal procedures. Exs. A and B to Quirk Decl.; Ex. 1 to Freund 

Decl. The SPD states that “[t]he ‘Claim Administrator’ is the named fiduciary that serves as the 

final review committee and, in its sole discretion, has the authority to interpret Plan provisions as 

well as facts and other information related to claims and appeals.” Ex. 1 at PRU-004989 to 

Freund Decl.; see also id. at PRU-004972 (stating that the “Plan Administrator” has discretionary 

Case 5:16-cv-01268-BLF Document 35 Filed 01/03/17 Page 1 of 8
2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

authority). 

Plaintiff seeks to recover LTD benefits based on the claim that she is disabled by Systemic 

Lupus Erythematosus. Mot. 1; Opp’n 1. Although Prudential approved Plaintiff’s benefits for the 

period of March 15, 2015 through April 12, 2015, it terminated her benefits on April 14, 2015, and 

also later denied an appeal of that termination. Mot. 1; Answer ¶¶ 15-16, ECF 8. Plaintiff filed 

the instant action on March 15, 2016, to recover her disability benefits. Compl.

Plaintiff, by this motion for partial summary judgment, is not seeking a ruling on her 

entitlement to benefits. Mot. 1. Rather, the parties seek a determination of the standard of review 

the Court should apply when reviewing Prudential’s denial of Plaintiff’s benefits and request this 

Court to first rule on the proper standard of review. Id. at 1-2; Opp’n 2.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 56 governs motions for summary judgment. Summary 

judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions 

on file, together with the affidavits, if any, show that there is no genuine issue as to any material 

fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. 

Catrett, 477 U.S. 317, 322 (1986). “Partial summary judgment that falls short of a final 

determination, even of a single claim, is authorized by Rule 56 in order to limit the issues to be 

tried.” State Farm Fire & Cas. Co. v. Geary, 699 F. Supp. 756, 759 (N.D. Cal. 1987).

The moving party “bears the burden of showing there is no material factual dispute,” Hill 

v. R+L Carriers, Inc., 690 F. Supp. 2d 1001, 1004 (N.D. Cal. 2010), by “identifying for the court 

the portions of the materials on file that it believes demonstrate the absence of any genuine issue 

of material fact.” T.W. Elec. Serv. Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th 

Cir. 1987). In judging evidence at the summary judgment stage, “the Court does not make 

credibility determinations or weigh conflicting evidence, and is required to draw all inferences in a 

light most favorable to the nonmoving party.” First Pac. Networks, Inc. v. Atl. Mut. Ins. Co., 891 

F. Supp. 510, 513-14 (N.D. Cal. 1995). For a court to find that a genuine dispute of material fact 

exists, “there must be enough doubt for a reasonable trier of fact to find for the [non-moving 

party].” Corales v. Bennett, 567 F.3d 554, 562 (9th Cir. 2009).

Case 5:16-cv-01268-BLF Document 35 Filed 01/03/17 Page 2 of 8
3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

III. DISCUSSION

Plaintiff contends that the denial of her benefits must be reviewed de novo because (1) the 

grant of discretionary authority in the SPD is insufficient, and (2) California Insurance Code 

section 10110.6 voids any discretionary clauses contained in the plans. Mot. 2, 4. Prudential 

argues that neither warrants a ruling that the Court should review the denial of benefits under the 

de novo standard. The Court evaluates each of these grounds in turn.

A. SPD’s grant of discretionary authority

Plaintiff contends that the denial must be reviewed de novo because the grant of 

discretionary authority in the SPD is insufficient. Mot. 2. Specifically, Plaintiff asserts that any 

language vesting the administrator with discretionary authority is found only in the SPD and 

nowhere in the actual insurance policy or certificate. Mot. 2-3. Because the SPD is not an actual 

insurance document, Plaintiff argues that the discretion-granting language therein carries no force. 

Mot. 3 (citing CIGNA Corp. v. Amara, 563 U.S. 421, 438 (2011)). Prudential does not dispute 

that the language is only found in the SPD but that other courts have found the presence of 

discretion-granting language in the SPD sufficient. Opp’n 4-5 (citing Shaw v. Prudential Ins. Co. 

of Am., 566 F. App’x 536, 539 (8th Cir. 2014) and Johnson v. Prudential Ins. Co. of Am., No. 11-

664, 2012 WL 5378313, at *3 (S.D. Ohio Oct. 31, 2012)).

The standard of review for a denial of ERISA benefits depends upon the terms of the 

benefit plan. A denial of benefits challenged under 29 U.S.C. § 1132(a)(1)(B) “is to be reviewed 

under a de novo standard 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, 115 (1989). The Ninth Circuit has also interpreted this to 

mean that by default “the administrator has no discretion, and the administrator has to show that 

the plan gives it discretionary authority in order to get any judicial deference to its decision.”

Kearney v. Standard Ins. Co., 175 F.3d 1084, 1089 (9th Cir. 1999). If “the benefit plan expressly 

gives the plan administrator or fiduciary discretionary authority to determine eligibility for 

benefits or to construe the Plan’s terms,” an abuse of discretion standard applies. Firestone, 489 

Case 5:16-cv-01268-BLF Document 35 Filed 01/03/17 Page 3 of 8
4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

U.S. at 102.

The Court finds that Prudential has failed to show that the plan provides it discretionary 

authority. Specifically, the Court finds Amara persuasive in that language in the SPD cannot form

an enforceable provision of an ERISA plan. In determining whether the lower court had authority 

to alter the terms of an ERISA pension plan, the Supreme Court rejected an argument that the 

enforceable terms included the “summary plan descriptions.” Amara, 563 U.S. at 436. Taking 

into account the provision of ERISA on “summary plan descriptions” that obligates plan 

administrators to advise participants of their rights and obligations “under the plan,” the Supreme 

Court noted that the information about the plan provided by those disclosures is not itself part of 

the plan. Id. (emphasis in original) (citing 29 U.S.C. § 1022(a)) (obligating plan administrators to 

provide a summary plan description). Accordingly, the Supreme Court concluded that the plan 

terms of statutorily required plan summaries (or summaries of plan modifications) are not

enforced (under § 502(a)(1)(B)) as the terms of the plan itself. Amara, 563 U.S. at 436. See also

Sullivan v. Prudential Ins. Co. of Am., No. 12-01173, 2013 WL 1281861, at *2 (E.D. Cal. Mar. 25, 

2013) (noting that “Defendants do not point to any language in the plan documents imbuing the 

administrator with discretion, other than the SPD,” and concluding that “Defendants have not 

sustained their burden of showing ‘the benefit plan gives the administrator . . . discretionary 

authority to determine eligibility for benefits’”).

The two out-of-circuit cases cited by Prudential are not persuasive. The Eighth Circuit in 

an unpublished opinion found that the language in a global document titled “Health and Income 

Protection Program” sufficient in granting the plan administrator discretionary authority. Shaw, 

566 F. App’x at 539. However, Shaw did not hold that language in the SPD alone would be 

sufficient to imbue the administrator with discretionary authority, and neither did it discuss or 

acknowledge the Supreme Court holding in Amara in relation to the unenforceability of terms in 

the SPD. Johnson is equally unpersuasive because the court there found a separate document, 

referred to as “the wrap plan,” as part of the “written instrument” that establishes the ERISA plan, 

so concluded that the wrap plan granted the defendant discretionary authority. 2012 WL 5378313, 

at *4. Notably, the court mentioned in a footnote that the defendant’s alternative argument for 

Case 5:16-cv-01268-BLF Document 35 Filed 01/03/17 Page 4 of 8
5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

discretionary authority based on the summary plan description would be unavailing. Id. at *4 n.2 

(citing Amara, 563 U.S. at 436).

Accordingly, without identifying terms granting discretionary authority in the insurance 

certificate or other documents other than the SPD, Prudential has failed to show that this Court 

should review its denial of Plaintiff’s benefits under the abuse of discretion standard.

B. California Insurance Code Section 10110.6

Plaintiff also argues that California Insurance Code section 10110.6 prohibits discretionary 

clauses contained in disability plans. Mot. 4. As such, regardless of whether the Court finds the 

language of SPD enforceable, Plaintiff contends that the de novo standard would govern. Id. at 4-

5 (citing Nagy v. Grp. Long Term Disability Plan for Employees of Oracle Am., Inc., 183 F. Supp. 

3d 1015, 2016 WL 1611040 at *9 (N.D. Cal. 2016); Lin v. Metro. Life Ins. Co., No. 15-2126, 2016 

WL 4373859, at *5 (N.D. Cal. Aug. 16, 2016)); Reply 3. In opposition, Prudential argues that 

California Insurance Code governs only insurance contracts, where “indemnity” or “shifting of

risk” is the principle object and purpose. Opp’n 6 (citing Title Ins. Co. v. State Bd. of 

Equalization, 4 Cal. 4th 715, 725-26 (1992)). Prudential then asserts that the plan at issue here is 

a service by Jazz to its employees and not insurance, so it is not subject the state insurance code. 

Opp’n 6-7 (citing Powell v. Chesapeake & Potomac Tel. Co. of Va., 780 F.2d 419, 423 (4th Cir. 

1985) and 29 U.S.C. § 1144(b)(2)(B)). Prudential also argues that ERISA preempts California 

Insurance Code section 10110.6 and is not exempted by the ERISA “savings clause.” Opp’n 10-

11.

California Insurance Code section 10110.6 provides, in relevant part:

(a) If a policy, contract, certificate, or agreement offered, issued, 

delivered, or renewed, whether or not in California, that provides 

or funds life insurance or disability insurance coverage for any 

California resident contains a provision that reserves discretionary 

authority to the insurer, or an agent of the insurer, to determine 

eligibility for benefits or coverage, to interpret the terms of the 

policy, contract, certificate, or agreement, or to provide standards 

of interpretation or review that are inconsistent with the laws of 

this state, that provision is void and unenforceable.

Because the weight of authority is contrary to Prudential’s arguments, the Court finds that 

California Insurance Code section 10110.6 applies to the plan here and voids any grant of 

Case 5:16-cv-01268-BLF Document 35 Filed 01/03/17 Page 5 of 8
6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

discretionary authority. Defendant’s argument that California Insurance Code section 10110.6 is 

not directed to ERISA plans such as the one here has been rejected in numerous other cases. The 

court in Nagy adopted the de novo standard in reviewing a denial of LTD benefits under an 

insurance policy issued by an insurance company to an employer. 2016 WL 1611040 at *1. In 

reaching that determination, the court found that section 10110.6 applies and if it did not, section 

10110.6 would be rendered “practically meaningless.” Id. at *10 (citing Rapolla v. Waste Mgmt. 

Employee Benefits Plan, No. 13-02860-JST, 2014 WL 2918863, at *6 (N.D. Cal. June 25, 2014)); 

see, e.g., Gonda v. The Permanente Med. Grp., Inc., 10 F. Supp. 3d 1091, 1095 (N.D. Cal. 2014)

(finding that section 10110.6 voids the grant and delegation of discretionary authority); Polnicky v. 

Liberty Life Assurance Co. of Boston, 999 F. Supp. 2d 1144, 1149 (N.D. Cal. 2013).

Prudential attempts to distinguish Nagy by arguing that Nagy concerned discretionary 

language in a document incorporated by reference into the policy. However, the holdings in Nagy

and other cases in this District on whether section 10110.6 voids discretionary clauses did not 

hinge on whether the discretionary language resided in a document outside the policy. There is no 

reason why the result here should differ when a state law is directed toward a discretionary clause 

contained in the agreement or another document relating to the administration of an insurance 

policy. E.g., Lin, 2016 WL 4373859, at *5 (rejecting as unpersuasive the defendant’s argument 

that grant of discretion was in an “integral part of the ERISA welfare benefit plan’s plan 

document, not part of an insurance policy or certificate,” and finding that section 10110.6 voids 

the discretionary clause).

Other cases cited by Prudential are inapposite to the facts of this case. Title Insurance

concerned whether insurance taxes should be imposed on premiums retained by the title 

companies and whether claims paid by title companies were taxable income to title insurers. Title 

Ins., 4 Cal. 4th at 720-25. In concluding that the insurance taxes should not be imposed, the court 

found that the underwriting contracts were not insurance contracts because their main function 

was to require the “underwritten title company to perform a title search” and indemnification was

secondary to this function. Id. at 726. Since the facts of Title Insurance are unrelated to the case 

at hand and to California Insurance Code section 10110.6, it has limited application here. 

Case 5:16-cv-01268-BLF Document 35 Filed 01/03/17 Page 6 of 8
7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Prudential also relies on Powell for the proposition that employer “cannot be deemed to be an 

insurer” by virtue of its sponsorship of the plan pursuant to 29 U.S.C. section 1144(b)(2)(B). 780 

F.2d at 423. However, Plaintiff here is not suing her employer. Powell thus contains no reasoning 

relevant to whether a state insurance statute, such as California Insurance Code section 10110.6, 

can void discretionary clauses in ERISA plans.

As to whether ERISA preempts California Insurance Code section 10110.6, the Court finds 

Prudential’s arguments contrary to Ninth Circuit law. The Ninth Circuit in Standard Insurance 

Company v. Morrison found that Montana’s practice of disapproving discretionary clauses is not 

preempted under 29 U.S.C. section 1144(a) because it falls under the savings clause in section 

1144(b). 584 F.3d 837, 845 (9th Cir. 2009). The Ninth Circuit first noted that although ERISA 

has broad preemptive force, its “saving clause then reclaims a substantial amount of ground.” Id.

at 841. To fall under the savings clause, a regulation must satisfy a two-part test: (1) “the state law 

must be specifically directed toward entities engaged in insurance,” and (2) “it ‘must substantially 

affect the risk pooling arrangement between the insurer and the insured.’” Id. at 842 (citing Ky. 

Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003)). The Ninth Circuit then found 

that the practice of disapproving insurance forms which contain discretionary clauses was specific 

to the insurance industry. Morrison, 584 F.3d at 843. The court also noted that this practice was

grounded in policy concerns specific to the insurance industry to ensure “fair treatment of claims 

by insurers with potential conflicts of interest.” Id. at 844. As to the second prong, the Ninth 

Circuit reasoned that because Montana altered “the terms by which the presence or absence of the 

insured contingency is determined,” narrowing the “scope of permissible bargains between 

insurers and insureds,” the practice affected the risk-pooling arrangement. Id. at 844-45.

Here, California Insurance Code section 10110.6 bans provisions granting discretion in 

determining benefits under life insurance or disability insurance plans, not unlike the Montana 

statute at issue in Morrison. Prudential fails to discuss Morrison in its opposition, and fails to cite 

any cases after the Morrison decision. Based on Morrison, the Court finds that ERISA does not 

preempt California Insurance Code section 10110.6. E.g., Murphy v. Cal. Physicians Serv., No. 

14-02581-PJH, 2016 WL 5682567, at *8 (N.D. Cal. Oct. 3, 2016) (finding Morrison dispositive in 

Case 5:16-cv-01268-BLF Document 35 Filed 01/03/17 Page 7 of 8
8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

determining that ERISA does not preempt section 10110.6).

IV. ORDER

For the foregoing reasons, the court GRANTS Plaintiff’s motion for partial summary 

judgment. The standard of review shall be de novo.

Dated: January 3, 2017

 ______________________________________

BETH LABSON FREEMAN

United States District Judge

Case 5:16-cv-01268-BLF Document 35 Filed 01/03/17 Page 8 of 8