_________________________________ 

_______________________________ 

 

________________________________ 

 

________________________________ 

 

________________________________ 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

No. 14-1984 and 14-2302 

UNITED STATES COURT OF APPEALS 

FOR THE SEVENTH CIRCUIT 

MARY C. FONTAINE 

Plaintiff-Appellee, 

v. 

METROPOLITAN LIFE INSURANCE COMPANY, 

Defendant-Appellant. 

On Appeal from the United States District Court
 

For the Northern District of Illinois (Gottschall, J.)
 

Civil Action No. 1:12-CV-08738
 

Brief of the Secretary of Labor, Thomas J. Perez, 

as Amicus Curiae in Support of Plaintiff-Appellee 

M. PATRICIA SMITH	 ELIZABETH HOPKINS 

Solicitor of Labor	 Counsel for Appellate and 

Special Litigation 

G. WILLIAM SCOTT 

Associate Solicitor for ROBIN SPRINGBERG PARRY 

Plan Benefits Security Division Senior Trial Attorney 

TAMARA Y. HOFLEJZER 

Trial Attorney 

U.S. Department of Labor 

200 Constitution Ave., N.W. 

Room N-4611 

Washington, D.C. 20210 

(202) 693-5614 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

TABLE OF CONTENTS
 

TABLE OF AUTHORITIES .................................................................................... ii
 

STATEMENT OF THE ISSUE.................................................................................1
 

STATEMENT OF INTEREST, IDENTITY AND AUTHORITY TO FILE...........1
 

STATEMENT OF THE CASE..................................................................................2
 

I. Factual Background...............................................................................2 

II. Applicable Provisions of the Plan and Illinois Law..............................3 

III. Procedural History.................................................................................5 

SUMMARY OF THE ARGUMENT ........................................................................7 

ARGUMENT ...........................................................................................................10 

THE DISTRICT COURT CORRECTLY HELD THAT THE ILLINOIS 

INSURANCE REGULATION IS SAVED FROM PREEMPTION............10 

A.	 The Regulation Satisfies the Supreme Court's Two-Part Test for 

Saved State Insurance Laws ................................................................10 

B.	 The Regulation is not Preempted Under ERISA's "Deemer Clause" .18 

C.	 The Regulation is Consistent with ERISA's Exclusive Enforcement 

and Remedial Scheme .........................................................................19 

Conclusion ...............................................................................................................24
 

Certificate of Service
 

Certificate of Compliance with Rule 32(a) 

ii 
 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

TABLE OF AUTHORITIES
 

Federal Cases: 

Am. Council of Life Insurers v. Watters,
 

536 F. Supp. 2d 811 (W.D. Mich. 2008) ..............................................................17
 

Am. Council of Life Insurers v. Ross,
 

558 F.3d 600 (6th Cir. 2009) ............................................................. 13, 16, 17, 18
 

Borich v. Life Ins. Co. of N. Am.,
 

2013 WL 1788478 (N.D. Ill. 2013) ............................................................... 12, 16
 

Conkright v. Frommert,
 

559 U.S. 506 (2010)........................................................................... 10, 21, 22, 23
 

Ehas v. Life Ins. Co. of N. Am.,
 

2012 WL 5989215 (N.D. Ill. 2012) ............................................................... 12, 17
 

FMC Corp. v. Holliday,
 

498 U.S. 52 (1990)................................................................................................19
 

Hancock v. Metro. Life Ins. Co., 

590 F.3d 1141 (10th Cir. 2009) ..................................................................... 13 n.5 

Ky. Ass'n of Health Plans, Inc. v. Miller, 

538 U.S. 329 (2003)............................................................................. 11 & passim 

Metro. Life Ins. Co. v. Massachusetts, 

471 U.S. 724 (1985)............................................................................. 12 & passim 

N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,
 

514 U.S. 645 (1995)..............................................................................................10
 

Novak v. Life Ins. Co. of N. Am.,
 

956 F. Supp. 2d 900 (N.D. Ill. 2013)....................................................... 12, 17, 23
 

Pilot Life Ins. Co. v. Dedeaux,
 

481 U.S. 41 (1987)......................................................................................... 19, 22
 

iii
 
 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

Federal Cases-(continued): 

Plumb v. Fluid Pump Serv., Inc.,
 

124 F.3d 849 (7th Cir. 1997) ................................................................................21
 

Rush Prudential HMO, Inc. v. Moran, 

536 U.S. 355 (2002)............................................................................... 9 & passim 

Schlattman v. United of Omaha Life Ins. Co.,
 

2013 WL 3147368 (N.D. Ill. June 19, 2013)....................................................6, 12
 

Standard Ins. Co. v. Morrison,
 

584 F.3d 837 (9th Cir. 2009) ............................................................. 13, 16, 17, 18
 

Stone v. Disability Mgmt. Servs., Inc.,,
 

288 F. Supp. 2d 685 (M.D. Pa. 2003)...................................................................11
 

UNUM Life Ins. Co. v. Ward, 

526 U.S. 358 (1999)............................................................................. 12 & passim 

Zaccone v. Standard Life Ins. Co.,
 

2013 WL 1849515 (N.D. Ill. May 1, 2013)......................................... 7, 12, 14, 23
 

Zuckerman v. United of Omaha Life Ins. Co.,
 

2012 WL 3903780 (N.D. Ill. Sept. 6, 2012).............................................. 6, 12, 14
 

Federal Regulations: 

McCarran-Ferguson Act:
 

15 U.S.C. § 1012(a) .................................................................................................11
 

Employee Retirement Income Security Act of 1974,
 

as amended, 29 U.S.C. 1001 et seq:
 

Section 502(a), 29 U.S.C. § 1132(a).............................................................. 19, 20
 

Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B).................................................20
 

Section 503, 29 U.S.C. § 1133................................................................................1
 

iv
 
 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

Federal Regulations-(continued): 

Section 505, 29 U.S.C. § 1135................................................................................1
 

Section 514, 29 U.S.C. § 1144................................................................... 9, 18 n.6
 

Section 514(a), 29 U.S.C. § 1144(a).................................................................1, 10
 

Section 514(b), 29 U.S.C. § 1144(b) ..................................................... 1, 6, 10 n.3
 

Section 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A)....................................... 1, 6, 10
 

Section 514(b)(2)(B), 29 U.S.C. § 1144(b)(2)(B) ................................... 18, 18 n.6
 

Section 514(d), 29 U.S.C. § 1144(d) ............................................................. 11 n.4
 

State Regulations:
 

215 Ill. Comp. Stat. § 5/143 (2014) .......................................................... 4, 5, 14, 23
 

50 Ill. Adm. Code § 2001.3 (2010) .......................................................... 5 & passim
 

29 Ill. Reg. 10172 (effective July 1, 2005) ................................................................5
 

Miscellaneous: 

Fed. R. App. P. 29(a) .................................................................................................2
 

Fed. R. Civ. P. 52.......................................................................................................5
 

v 
 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

STATEMENT OF THE ISSUE
 

Section 514 of the Employee Retirement Income Security Act of 1974 

("ERISA") generally preempts all state laws that "relate to" an employee benefit 

plan, but expressly saves from preemption any state law "which regulates 

insurance." 29 U.S.C. 1144(a), (b). The question presented is: 

Whether ERISA saves from preemption an Illinois law that regulates 

insurance by proscribing discretionary clauses in policies and other agreements 

issued or offered in Illinois by insurer carriers to cover the costs of health care 

services. 

STATEMENT OF INTEREST, IDENTITY AND AUTHORITY TO FILE 

In order to ensure a uniform regulatory regime, ERISA section 514(a) 

preempts state laws that "relate to" ERISA plans. 29 U.S.C. § 1144(a). Under 

ERISA section 514(b)(2)(A), state insurance laws are expressly saved from ERISA 

preemption. 29 U.S.C. § 1144(b)(2)(A). This provision evinces a congressional 

intent to allow states to continue their historic role regulating insurance despite 

ERISA's broadly preemptive effect. The Secretary of Labor has primary authority 

for enforcing and administering the provisions of Title I of ERISA, as amended, 

including authority to regulate claims procedures, 29 U.S.C. §§ 1133-35, and 

therefore has an interest in ensuring that courts give effect to ERISA's carefully 

delineated exceptions to its preemptive scope, particularly as they apply to benefit 
 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

claims. The Secretary files this brief as of right under Federal Rule of Appellate 

Procedure 29(a). 

STATEMENT OF THE CASE 

I. Factual Background 

Plaintiff-Appellee Mary Fontaine, a partner for thirty years in the structured 

finance group of the law firm Mayer Brown LLP, participated in the firm's longterm disability plan (the "Plan").1 Met. A2.2 The Plan was insured and 

administered by Defendant-Appellant Metropolitan Life Insurance Company 

("MetLife"), which also served as the claims fiduciary. Id.; Fontaine A71-72. 

In 1997, Fontaine was diagnosed with myopic retinal degeneration of both 

eyes. Met. A6-7. Because of the progressive nature of this condition, her vision 

deteriorated over time. Id. Fontaine returned to her doctors many times over the 

years suffering from difficulty focusing, migraines, floaters, flashes, blind spots, 

blurred and double vision, and bursting blood vessels. Met. A23. In 2011, her 

vision was so impaired that she determined she could not continue performing the 

extensive reading required by her job. Met. A4-5. 

1 Fontaine also participated in a separate disability Plan sponsored by Mayer 

Brown and insured and administered by MetLife. Her claim for benefits under that 

Plan was also denied. The district court ruled that Fontaine is entitled to benefits 

under that Plan, Met. A27, and MetLife has not appealed that ruling. 

2 MetLife and Fontaine filed separate appendices in this appeal, which are cited 

"Met. A" and "Fontaine A" respectively. 

2
 
 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

In May 2011, Fontaine filed a claim for disability benefits under the Plan. 

Met. A4. In support of her claim, Fontaine provided her medical records, a list of 

her treating physicians, and a statement explaining why her condition prevented 

her from working. Id. In November 2011, relying on the views of medical 

consultants who reviewed Fontaine's medical records, but who had not themselves 

examined Fontaine, MetLife denied Fontaine's claim. See Met. A8-10, 12. In 

November 2012, MetLife upheld the benefit denial. Met. A18. 

II. Applicable Provisions of the Plan and Illinois Law 

MetLife issued a group insurance policy to Mayer Brown as the policyholder 

and certificates of insurance to individual insureds such as Fontaine. Fontaine A1, 

15. The certificate of insurance, an expressly incorporated part of the Group 

Policy, "includes the terms and provisions of the Group Policy that describe" the 

participant's benefits. Fontaine A15. As described in the certificate, Fontaine was 

entitled to monthly benefit payments if she became disabled, which the certificate 

defines as follows: 

Disabled or Disability means that, due to Sickness or as a direct result
 

of accidental injury:
 

 You are receiving Appropriate Care and Treatment and complying
 

with the requirements of such treatment; and
 

 You are unable to earn:
 

•	 More than 80% of Your Predisability Earnings at Your Own 

Occupation from any employer in Your Local Economy; and 

•	 Unable to perform each of the material duties of Your Own 

Occupation. 

3
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

Met. A3. The certificate defines "Own Occupation" for attorneys as "the specialty 

in the practice of law in which You were practicing just prior to the date Disability 

started." Id. A section entitled "ERISA Information" following "the end of the 

Certificate," lists MetLife as the party that "insured the benefits" and is "liable for 

any benefits." Fontaine A71. This section also describes the processing of claims 

by MetLife and contains a clause that states: 

[T]he Plan administrator and other Plan fiduciaries shall have 

discretionary authority to interpret the terms of the Plan and to 

determine eligibility for and entitlement to Plan benefits in accordance 

with the terms of the Plan. 

Met. A20. 

In Illinois, the Director of Insurance ("Director") has rulemaking authority, 

as well as the authority to approve all policies, certificates of insurance, or 

evidence of coverage, issued by companies transacting the kind of business listed 

in section 4 of the insurance code. 215 Ill. Comp. Stat. § 5/143 (2014). Section 4 

is entitled "Classes of Insurance" and lays out how insurance and insurance 

businesses will be classified under the Code. Moreover, under the Illinois 

insurance law, the Director is charged with the duty 

to withhold approval of any such policy, certificate, endorsement, rider, 

bylaw or other matter incorporated by reference or application blank filed 

with him if it contains provisions which encourage misrepresentation or are 

unjust, unfair, inequitable, ambiguous, misleading, inconsistent, deceptive, 

contrary to law or to the public policy of this State, or contains exceptions 

and conditions that unreasonably or deceptively affect the risk purported to 

be assumed in the general coverage of the policy. 

4
 
 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

Id. Pursuant to this duty and authority, the Director promulgated section 2001.3 of 

the Illinois Administrative Code, which provides: 

No policy, contract, certificate, endorsement, rider application or 

agreement offered or issued in this State, by a health carrier, to 

provide, deliver, arrange for, pay for or reimburse any of the costs of 

health care services or of a disability may contain a provision 

purporting to reserve discretion to the health carrier to interpret the 

terms of the contract, or to provide standards of interpretation or 

review that are inconsistent with the laws of this State. 

50 Ill. Adm. Code § 2001.3 (2010); 29 Ill. Reg. 10172 (effective July 1, 2005). 

III. Procedural History 

After exhausting her Plan remedies, Fontaine filed suit against MetLife in 

the United States District Court for the Northern District of Illinois. Met. A2. She 

challenged MetLife's denial of benefits on the grounds that the extensive medical 

and vocational evidence in fact established that she was disabled under the policy. 

See Met. A2-3. Fontaine and MetLife filed cross-motions for entry of judgment 

and requested a trial on the papers under Federal Rule of Civil Procedure 52. Met. 

A3. On March 27, 2014, the court granted Fontaine's motion and denied 

MetLife's. Met. A1. 

The parties disputed the standard of review that applied to its review of the 

claims denial. Fontaine argued that the proper standard of review was de novo, 

because section 2001.3 of the Illinois Administrative Code, quoted above, was 

saved from ERISA preemption and rendered the Plan's discretionary language 

5
 
 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

void. See Met. A21. MetLife, however, argued that the court should apply 

arbitrary and capricious review to its denial of benefits because ERISA preempted 

the Illinois law and thus the Plan's discretionary clause was effective. Met. A20-

22. MetLife advanced three arguments in support of its position. First, MetLife 

asserted that the Director lacked the authority to enact a statewide ban on 

discretionary clauses in ERISA plans. Met. A20. The court rejected this argument 

and concluded that, "under state law, the Director's adoption of Section 2001.3 was 

a valid exercise of discretion to adopt regulations barring insurance policies that 

are unfair, inequitable, or contrary to public policy." Met. A20-21 (citing 

Schlattman v. United of Omaha Life Ins. Co., 2013 WL 3147368, *5 (N.D. Ill. 

June 19, 2013); Zuckerman v. United of Omaha Life Ins. Co., 2012 WL 3903780, 

*6 (N.D. Ill. Sept. 6, 2012)). 

Second, MetLife argued that ERISA section 514 preempts section 2001.3 

because it usurped the power from the federal judiciary to develop standards of 

judicial review and attempted to regulate the scope of fiduciary authority that a 

plan can grant a fiduciary. Met. A21. Fontaine, on the other hand, argued that 

section 2001.3 falls under section 514(b), which "saves" from preemption "any law 

of any State which regulates insurance, banking, or securities." 29 U.S.C. § 

1144(b)(2)(A). The court rejected MetLife's argument and agreed with cases from 

the Northern District of Illinois that "have consistently held that the Illinois law 

6
 
 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

falls within ERISA's savings clause, is not preempted, and requires de novo 

review." Met. A21 (quoting Zaccone v. Standard Life Ins. Co., 2013 WL 1849515, 

*4 (N.D. Ill. May 1, 2013)). 

Lastly, MetLife argued section 2001.3 precludes insurers only from 

reserving discretionary authority to "interpret the terms of the contract," but does 

not prohibit plan administrators from reserving discretionary authority to make 

benefit determinations. Met. A21. The court also rejected this argument. Met. 

A21-22. Relying on cases from the Northern District of Illinois that "carefully 

considered the text" of section 2001.3, the court concluded that the regulation was 

intended to prohibit any clause granting discretion to an insurer in an Illinois 

insurance policy or plan funded by such policy. Id. (citing Zaccone, 2013 WL 

1849515, *7-11). 

The court thus conducted a de novo review of Fontaine's claims. Applying 

this standard, the court found that Fontaine had established by a preponderance of 

the evidence that her disability left her unable to perform her material job duties. 

Met. A22, 27. 

SUMMARY OF THE ARGUMENT 

Although ERISA preempts state laws relating to employee benefit plans, it 

expressly exempts state laws regulating insurance. Under this "savings clause," 

which protects the historical sovereignty of states in regulating insurance, the 

7
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

Illinois regulation is beyond ERISA's preemptive scope, and was properly given 

effect in this case. 

1. State laws regulate insurance under the "savings clause" when they 

are specifically directed towards entities engaged in insurance and substantially 

affect the risk pooling arrangement between the insurer and insured. District 

courts in Illinois have uniformly and correctly held that the Illinois law at issue in 

this case is saved from preemption under this test. Likewise, the Sixth and Ninth 

Circuits have applied this test to similar state regulations prohibiting discretionary 

clauses in insurance contracts and have concluded that these laws are saved from 

ERISA preemption. 

State laws satisfy the first prong of the test when they impose obligations on 

parties engaged in the business of insurance. The Illinois regulation here meets 

that test, as it was intended to prevent insurers from deciding claims under 

agreements that contain discretionary clauses. Under Supreme Court precedent, 

the fact that such laws will also prevent non-insurance entities like plan sponsors 

from entering into such agreements with insurers does not change the fact that the 

law is aimed at insurers. 

State laws satisfy the second prong of the test when the laws are directed not 

just at insurers but at their insurance practices by substantially affecting the risk 

pooling arrangement between insurers and insureds. Like the independent review 

8
 
 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

law that the Supreme Court concluded was a saved insurance regulation in Rush 

Prudential HMO, Inc. v. Moran, 536 U.S. 355, 383-84 (2002), the Illinois 

regulation, by eliminating the possibility of deferential review of claims denials, 

alters the scope of permissible bargains between insurers and insureds and thus 

affects risk pooling in the relevant sense. 

2. Contrary to MetLife's contention, the Illinois insurance regulation is 

not preempted by virtue of section 514's "deemer clause." Although the deemer 

clause forbids state insurance regulation of uninsured or self-funded plans, it does 

not, as MetLife contends, mean that ERISA preempts state insurance laws, such as 

the Illinois laws at issue here, which indirectly regulate employee benefit plans 

through the regulation of their insurers. 

Nor is the Illinois regulation preempted, as MetLife asserts, by virtue of 

ERISA's exclusive enforcement scheme. The Illinois discretionary clause ban 

provides plan participants and beneficiaries no new cause of action or remedy 

under state law, but instead is enforced in an ERISA benefit claim by reading the 

offending clause out of the governing documents. Likewise, the Supreme Court in 

Rush Prudential made it clear that nothing in ERISA entitles a claims administrator 

to deferential review and, accordingly, a state law eliminating the possibility of 

such review in no way conflicts with ERISA. MetLife's argument to the contrary 

9
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

based on the Supreme Court's decision in Conkright v. Frommert, 559 U.S. 506 

(2010), which did not even address ERISA preemption, is meritless. 

ARGUMENT 

THE DISTRICT COURT CORRECTLY HELD THAT THE ILLINOIS 

INSURANCE REGULATION IS SAVED FROM PREEMPTION 

A. The Regulation Satisfies the Supreme Court's Two-Part Test for 

Saved State Insurance Laws 

Subject to a number of exemptions, including one for state insurance 

regulation that is at issue in this case, ERISA preempts "any and all State laws 

insofar as they may now or hereafter relate to any employee benefit plan." 29 

U.S.C. § 1144(a). A law "relate[s] to" an employee benefit plan within the 

meaning of section 514(a) "if it has a connection with or reference to such a plan." 

N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 

514 U.S. 645, 656 (1995). 

However, ERISA section 514(b)(2)(A) expressly preserves the states' 

traditional right to regulate insurance. As relevant here, this section provides that 

"nothing in this title shall be construed to exempt or relieve any person from any 

law of any State which regulates insurance." 29 U.S.C. § 1144(b)(2)(A).3 This 

3 This section also saves state banking and securities laws from ERISA's 

preemptive scope. 29 U.S.C. § 1144(b). 

10
 
 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

insurance savings clause "reclaims a substantial amount of ground" from 

preemption. Rush Prudential, 536 U.S. at 364. 

Insurance regulation is quintessentially within the historic police powers of 

the States, as reflected in the McCarran-Ferguson Act, a federal statute which 

generally leaves the regulation of the insurance industry to the states. See 15 

U.S.C. § 1012(a) ("The business of insurance, and every person engaged therein, 

shall be subject to the laws of the several States which relate to the regulation or 

taxation of such business.").4 "The fundamental purpose behind ERISA's savings 

clause is to respect state sovereignty in insurance regulation." Stone v. Disability 

Mgmt. Servs., Inc., 288 F. Supp. 2d 685, 695-96 (M.D. Pa. 2003). 

Under the Supreme Court's two-part test, a state law regulates insurance 

within the meaning of this "savings clause" and therefore is saved from preemption 

if it (1) is "specifically directed toward entities engaged in insurance" and (2) will 

"substantially affect the risk pooling arrangement between the insurer and the 

insured." Ky. Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003) 

(simplifying former test of insurance regulation to 2-part test). Because of the 

savings clause, states retain the authority to enforce a wide range of standards with 

respect to insurance companies, agents, and brokers, including solvency, licensing, 

4 ERISA section 514(d) provides that ERISA does not supersede other federal 

laws such as the McCarran-Ferguson Act. 29 U.S.C. § 1144(d). 

11
 
 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

sales practices, and other standards. Metro. Life Ins. Co. v. Massachusetts, 471 

U.S. 724, 728 n.2, 742-43 (1985). Further, states may, without being subject to 

ERISA preemption, regulate insurance by requiring that policies contain or omit 

certain terms and provisions. Rush Prudential, 536 U.S. at 373-87 (upholding state 

external review procedure for insurance policies purchased as ERISA plans); 

UNUM Life Ins. Co. v. Ward, 526 U.S. 358, 375-77 (1999) (rejecting insurer's 

argument that ERISA preempts state insurance laws "altering the . . . provisions of 

the insurance contract"); Metro. Life Ins. Co., 471 U.S. at 739-47 (upholding state 

insurance law mandating mental health coverage). 

Under these Supreme Court decisions, the Illinois law, which certainly 

"relates to" an employee benefit plan in this case, nevertheless is saved from 

preemption as a state insurance regulation, as multiple district courts in Illinois 

have correctly concluded. See Schlattmann, 2013 WL 3147368 (N.D. Ill. 2013); 

Zaccone, 2013 WL 1849515 (N.D. Ill. 2013); Zuckerman v. United of Omaha Life 

Ins. Co., 2012 WL 3903780 (N.D. Ill. 2012); Novak v. Life Ins. Co. of N. Am., 

956 F. Supp. 2d 900, 908 (N.D. Ill. 2013); Borich v. Life Ins. Co. of N. Am., 2013 

WL 1788478 (N.D. Ill. 2013); Ehas v. Life Ins. Co. of N. Am., 2012 WL 5989215 

(N.D. Ill. 2012). 

Two circuits have reviewed similar laws from other states that prohibit 

discretionary clauses, and determined that the laws are saved from preemption. 

12
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

Am. Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009) (ERISA does 

not preempt nearly identical Michigan law that prohibits clauses granting 

discretion to insurers in deciding claims); Standard Ins. Co. v. Morrison, 584 F.3d 

837, 849 (9th Cir. 2009) (ERISA does not preempt practice of Montana insurance 

commissioner in disapproving insurance contracts with discretionary clauses).5 

They held that state laws forbidding discretionary clauses are specific to the 

insurance industry. Ross, 558 F.3d at 605-06 (though fiduciaries may feel effect of 

discretionary clause ban, it is directed towards insurers); Morrison, 584 F.3d at 

843-44 (state practice based on policy concerns specific to insurance industry such 

as ensuring fair treatment of claims by insurers). Both circuits also held that the 

state laws substantially affect the risk-pooling arrangement by forcing insurers to 

change the terms of insurance contracts. Ross, 558 F.3d at 606-07; Morrison, 584 

F.3d at 844-45. 

A state law is directed towards entities engaged in the business of insurance, 

and thus satisfies the first prong of the Supreme Court's test, if it imposes 

5 The only other circuit to address a similar provision held that a Utah law 

forbidding the use of discretionary clauses that failed to conform to the state's font 

requirement was not saved from preemption because, in that court's view, the law 

addressed form and not substance and therefore had no substantial impact on riskpooling. Hancock v. Metro. Life Ins. Co., 590 F.3d 1141, 1149 (10th Cir. 2009). 

In reaching this conclusion, however, the court specifically noted that had the state 

law "imposed a blanket prohibition on the use of discretion-granting clauses, we 

would have a different case." Id. 

13
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

obligations on parties engaged in the business of insurance with respect to their 

insurance practices. See Ky. Ass'n, 538 U.S. at 334-35 (Kentucky's "any willing 

provider law" sufficiently directed towards insurers even though it had impact on 

other entities because it imposed conditions on right to engage in insurance 

business). The Supreme Court has held that a law grounded in a policy concern 

specific to the insurance industry is directed towards entities engaged in the 

business of insurance. UNUM, 526 U.S. at 372. 

Like the Michigan and Montana laws, the Illinois law at issue here is clearly 

directed at entities engaged in the business of insurance and thus meets the first 

prong of the two-part test set forth in Kentucky Association. The regulation was 

intended to strip insurance policies and related agreements in Illinois of all 

discretionary clauses, Zaccone, 2013 WL 1849515, at *7, and to guarantee that 

decisions made by insurers under such policies be subject to court scrutiny under a 

non-deferential standard. The Director's power to issue the regulation comes from 

§ 5/143, which gives the Director the authority to approve all policies, certificates 

of insurance or evidence of coverage, issued by companies engaged in the business 

of insurance. See also Zuckerman, 2012 WL 3903780, at *3. 

MetLife argues (Br. at 26) that, as applied in this case, section 2001.3 is not 

specifically directed to entities engaged in insurance, but rather is specifically 

directed at plan sponsors and plan administrators like Mayer Brown, which are 

14
 
 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

effectively prohibited from delegating discretionary authority to insurers. The 

same argument could be made regarding any insurance regulation that directly 

affects the contract between an insurer and a policyholder. But that type of 

regulation is precisely at the heart of what the insurance savings clause saves. 

Thus, in UNUM, the Supreme Court rejected a similar argument that a state 

insurance law could not be given effect if it was contrary to anything in the plan. 

Under such a rule, "States would be powerless to alter the terms of insurance 

relationships in ERISA plans" and "insurers could displace any state regulation 

simply by inserting a contrary term in plan documents." 526 U.S. at 376. But the 

Supreme Court held that such a rule "makes scant sense," id. at 375, and "would 

virtually read the savings clause out of ERISA." Id. at 376. Similarly, the 

Supreme Court rejected the same argument that MetLife is making here in 

Kentucky Association when it held that the state "any willing provider" laws were 

"specifically directed at" insurers, despite the fact that "they equally prevent 

providers from entering into limited network contracts with insurers, just as they 

prevent insurers from creating exclusive networks in the first place." 538 U.S. at 

334 (emphasis in original). "Regulations 'directed toward' certain entities will 

almost always disable other entities from doing, with the regulated entities, what 

the regulations forbid; this does not suffice to place such regulation outside the 

scope of ERISA's savings clause." Id. at 335-36. Likewise, section 2001.3 

15
 
 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

prohibits the grant of discretionary authority in any "agreement," including a plan 

document, under which the insurer of such a plan operates. See Ross, 558 F.3d at 

605-06; Morrison, 584 F.3d at 842. 

Accordingly, the fact that the regulation also prevents the plan sponsor from 

granting such authority in an ERISA plan document is as inevitable as it is 

irrelevant to the preemption analysis. See Rush Prudential, 536 U.S. at 359 

(concluding that Illinois independent medical review law, "as applied to health 

benefits provided by a health maintenance organization under contract with an 

employee welfare benefit plan" that did not require such external review was saved 

from preemption as a state insurance regulation); UNUM, 526 U.S. at 375-77 

(rejecting insurer's argument that ERISA preempts state insurance laws "altering 

the . . . provisions of the insurance contract"); Metro. Life, 471 U.S. at 734, 740 

(state law mandating mental health benefits in state-issued insurance contracts was 

saved from preemption and applied to insurance policies issued to ERISA plans 

that did not provide such coverage). See also Borich, 2013 WL 1788478, at *3 

("The regulation is written broadly to eliminate deference to an insurer's 

interpretation of policy language. The regulation's bar on insurer interpretive 

discretion would be meaningless, however, 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."). 

16
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

A state law satisfies the second prong of the test if it "substantially affect[s] 

the risk pooling arrangement between the insurer and insured." Ky. Ass'n, 538 

U.S. at 338. This prong ensures that a state insurance law is not simply directed at 

insurers but is also directed at insurance practices. Id. The Supreme Court does 

not require that the state law actually spread the risk, only that it substantially 

affect the risk pooling, as by "dictat[ing] to the insurance company the conditions 

under which it must pay for the risk it has assumed." Id. at 339 n.3. 

Here, by eliminating discretionary clauses, section 2001.3 substantially 

affects the risk pooling arrangement by changing the standard of review federal 

courts will apply from abuse of discretion to de novo, with the likely result of 

courts overturning more claims denials, and therefore requiring more claims to be 

paid. See Novak, 956 F. Supp. 2d at 908 (citing Ehas, 2012 WL 5989215, at *9); 

Am. Council of Life Insurers v. Watters, 536 F. Supp. 2d 811, 823 (W.D. Mich. 

2008); Morrison, 584 F.3d at 844-45. It also alters the scope of permissible 

bargains between insurers and insureds, and dictates to the insurance company the 

conditions under which it must pay for the risk assumed. See Ross, 558 F.3d at 

606-07. 

MetLife claims (Br. at 34) that section 2001.3 lacks the features of state laws 

the Supreme Court has found to be saved because it does not establish terms or 

conditions that determine whether a class of risks is covered or require plans to 

17
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

insure against an additional class of risks. However, the Supreme Court's decision 

in Rush Prudential involved a state law which, like section 2001.3, eliminated 

deferential review of benefit claims, in that case by requiring an independent 

medical review. 536 U.S. at 384-85. See also Morrison, 584 F.3d at 844-5; Ross, 

558 F.3d at 606-07. 

B. The Regulation is not Preempted Under ERISA's "Deemer Clause" 

MetLife argues (Br. at 33) that even if the Illinois law would otherwise be 

saved, the state law is still preempted by virtue of section 514(b)(2)(B), 29 U.S.C. 

§ 1144(b)(2)(B), which states that a plan itself may not be "deemed" to be an 

insurance company or engaged in the business of insurance and thereby provides 

an exception to the saving clause for state laws that purport to regulate self-funded 

plans as insurers.6 See Rush Prudential, 536 U.S. at 372 n.6. As applied to insured 

plans, this argument is just another formulation of MetLife's argument, directly 

contrary to Kentucky Association and UNUM, that ERISA does not save state 

insurance regulations that limit the choices of policyholders through requirements 

imposed on insurance contracts. The savings clause does not mean, as MetLife 

6 This part of ERISA section 514, often referred to as the "deemer clause," 

provides: "Neither an employee benefit plan . . . nor any trust established under 

such a plan, shall be deemed to be an insurance company or other insurer . . . or to 

be engaged in the business of insurance or banking for purposes of any law of any 

State purporting to regulate insurance companies, insurance contracts, banks, trust 

companies, or investment companies." 29 U.S.C. §1144(b)(2)(B). 

18
 
 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

argues, that state laws are preempted if they regulate the terms of an employee 

benefit plan. Br. at 25-26, 28, 33. After all, that is exactly the effect of the laws 

that the Supreme Court held saved in Metropolitan Life, 471 U.S. at 741, and 

UNUM, 526 U.S. at 376, which, by requiring plans to include certain provisions in 

their insurance contracts, effectively mandated the terms of those plans that could 

then be enforced in a claim for benefits under ERISA. See UNUM, 526 U.S. at 

377 (California's "notice-prejudice rule supplied the relevant rule of decision for 

this § 502(a) suit"). 

Instead, the deemer clause only forbids state insurance regulation of 

uninsured (i.e., self-funded) plans. FMC Corp. v. Holliday, 498 U.S. 52, 62-65 

(1990). Under the deemer clause, "if a plan is insured, a State may regulate it 

indirectly through regulation of its insurer and its insurer's insurance contracts; if 

the plan is uninsured, the State may not regulate it." Id. Because the Plan at issue 

here is insured by MetLife, and the State seeks to regulate how MetLife operates as 

an insurer (i.e., without the benefit of deferential review), the deemer clause is 

irrelevant. 

C. The Regulation is Consistent with ERISA's Exclusive Enforcement 

and Remedial Scheme 

MetLife next argues (Br. at 35-36) that section 2001.3 is preempted because 

it substantively conflicts with ERISA. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 

41, 57 (1987) (even if a state law is otherwise saved as a law regulating insurance, 

19
 
 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

it may still be preempted if it "conflict[s] with a substantive provision of ERISA"). 

While state insurance laws that create "alternate remedies" or enforcement 

mechanisms for ERISA violations are preempted (despite being saved as 

regulating insurance), Rush Prudential, 536 U.S. at 377-78, the law here does not 

create any additional remedies and is being enforced in this case in the normal 

manner in a suit for benefits under ERISA section 502(a)(1)(B), 29 U.S.C. § 

1132(a)(1)(B). Rush Prudential, 536 U.S. at 379-80 (state regulatory schedule that 

required independent review of claims "provides no new cause of action under 

state law and authorizes no new form of ultimate relief" and thus did not conflict 

with ERISA); UNUM, 526 U.S. at 374-77 (rejecting insurer's argument that 

ERISA preempts state insurance laws "altering the . . . provisions of the insurance 

contract"); Metro. Life, 471 U.S. at 739-47 (giving effect to state law mandating 

mental health coverage which was otherwise not required). 

As the government argued in its brief in the Supreme Court in Rush 

Prudential, the "state mandated benefit laws saved under Metropolitan Life do not 

conflict with Section 502(a) of ERISA because the mandated benefit is 

incorporated into the insurance policy purchased by the ERISA plan (and therefore 

into the plan itself)" and the "requirement can then be enforced in a suit by the 

participant or beneficiary under Section 502(a)(1)(B) 'to recover benefits due under 

the terms of the plan' or to 'enforce his rights under the terms of the plan.'" Brief of 

20
 
 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

the United States as Amicus Curiae, 2001 WL 1480556, at *20 (filed Nov. 7, 

2001); see also Plumb v. Fluid Pump Serv., Inc., 124 F.3d 849, 861 (7th Cir. 1997) 

(Illinois insurance law limiting the scope of pre-existing condition clauses in 

insurance contracts superseded contrary provisions in the insurance contract and 

was incorporated in the plan as a matter of law). The same is true of the Illinois 

law here, which simply reads the grant of discretion out of the governing 

agreement and allows normal ERISA enforcement of the plan stripped of the 

impermissible grant of discretionary authority. Thus, as in UNUM, the state law 

"complements rather than contradicts ERISA." UNUM, 526 U.S. at 377. 

MetLife further contends (Br. at 31) that Conkright v. Frommert, 559 U.S. 

506 (2010), establishes a substantive rule requiring that any grant of fiduciary 

discretion in an ERISA plan be given effect. This assertion is specious. Conkright 

has nothing to do with preemption, and did not covertly overrule existing Supreme 

Court precedent bearing directly on the savings clause, such as Rush Prudential. 

In that case, the Supreme Court rejected a similar argument that a state 

independent review law conflicted with ERISA by eliminating the deferential 

standard of review of a benefit decision made under a grant of discretion. Rush 

Prudential, 536 U.S. at 385. The Supreme Court saw no conflict between that state 

law and ERISA's text, which "provides nothing about the standard" of review. Id. 

The Court thus read ERISA "to require a uniform judicial regime of categories of 

21
 
 

 

 

 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

relief and standards of primary conduct, not a uniformly lenient regime of 

reviewing benefits determinations." Id. (citing Pilot Life, 481 U.S. at 56). 

Moreover, the Court in Rush Prudential pointed out that "[n]ot only is there 

no ERISA provision directly providing a lenient standard for judicial review of 

benefit denials, but there is no requirement necessarily entailing such an effect 

even indirectly." 536 U.S. at 385. Although the Court recognized that "the default 

rule of de novo review could be replaced by deferential review if the ERISA plan 

itself" so provided, it noted that "[n]othing in ERISA, however, requires that [plan 

benefit decisions] be so discretionary in the first place." Id. Thus, the Court found 

no conflict with ERISA in a law constraining an insurer's ability to contract for 

deferential review, concluding that although a state law imposing independent 

review of claims "undeniably eliminates whatever may have remained of a plan 

sponsor's option to minimize scrutiny of benefit denials, this effect of eliminating 

an insurer's autonomy to guarantee terms congenial to its own interests is the stuff 

of garden variety insurance regulation through the imposition of standard policy 

terms." Rush Prudential, 536 U.S. at 387. 

Nothing in Conkright is to the contrary. Conkright dealt not with 

preemption or the ability of states to regulate insurance, but with the effect of a 

valid plan provision granting discretion on the review of a second interpretation by 

a plan fiduciary. 559 U.S. at 512-13. For this reason, the decision neither cited 

22
 
 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

Rush Prudential nor purported to overrule or limit the holding of that case, or other 

cases addressing ERISA's insurance savings clause. The Conkright decision 

simply cannot plausibly be read to control whether a state insurance law restricting 

discretion-conferring clauses is saved from ERISA preemption. See Zaccone, 

2013 WL 1849515, at *4-5 (Conkright inapplicable to saving clause analysis); 

Novak, 956 F. Supp. 2d at 910 (same). 

States such as Illinois, in their roles as insurance regulators, have decided to 

protect citizens of their state from discretionary clauses in insurance documents 

that the states find "encourage misrepresentation" or "unreasonably or deceptively 

affect the risk purported to be assumed in the general coverage of the policy." 215 

Ill. Comp. Stat. § 5/143. Illinois has made a policy decision that discretionary 

clauses harm its citizens' ability to get the full health insurance protection for 

which they contracted. Rather than preempt this policy decision, ERISA's 

insurance savings clause expressly preserves the sovereignty of states in their 

traditional role as insurance regulators. 

23
 
 

 

 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

CONCLUSION
 

For the foregoing reasons, the Secretary requests that the Court affirm the 

district court’s ruling that the Illinois regulation is saved from preemption. 

Respectfully submitted, 

M. PATRICIA SMITH 

Solicitor of Labor 

G. WILLIAM SCOTT 

Associate Solicitor 

ELIZABETH HOPKINS 

Counsel for Appellate Litigation 

/s/ Robin Springberg Parry 

ROBIN SPRINGBERG PARRY 

Senior Trial Attorney 

TAMARA Y. HOFLEJZER 

Trial Attorney 

U.S. Department of Labor 

Plan Benefit Security Division 

200 Constitution Ave., N.W. 

Room N-4611 

Washington, DC 20210 

(202) 693-5614 

24
 
 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

CERTIFICATE OF SERVICE 

I, Robin Springberg Parry, attorney for amicus Secretary of Labor, hereby 

certify that on October 15, I electronically filed the foregoing with the Clerk of the 

Court for the United States Court of Appeals for the Seventh Circuit by using the 

CM/ECF system. I certify that all participants in the case are registered CM/ECF 

users and that service will be accomplished by the CM/ECF system. 

/s/ Robin Springberg Parry 

Robin Springberg Parry 

Attorney for Amicus 

Secretary of Labor 
 

 

 

 

 

 

 

 

Case: 14-1984 Document: 47 Filed: 10/15/2014 Pages: 31 

CERTIFICATE OF COMPLIANCE WITH RULE 32(a)
 

Certificate of Compliance with Type-Volume Limitation,
 

Typeface Requirements and Type Style Requirements
 

FOR CASE NO. 14-1984 and 14-3021
 

1.	 This brief complies with the type-volume limitation of Fed. R. App. P. 

32(a)(7)(B) because: 

This brief contains 5,532 words, excluding the parts of the brief exempted 

by Fed. R. App. P. 32(a)(7)(B)(iii). 

2.	 This brief complies with the typeface requirements of Fed. R. App. P. 

32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because: 

This brief has been prepared in a proportionally spaced typeface using 

Microsoft Word 2010, Times New Roman, 14 point font. 

/s/ Robin Springberg Parry 

Senior Attorney for U.S. Department of Labor, Office of the Solicitor 

Dated: October 15, 2014