Source: https://www.erisapundit.com/page/2/
Timestamp: 2019-04-23 20:06:28+00:00

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The Pundit appreciates dissent. Sometimes the best dissents arrive dressed as concurrences, as in Price v Board of Trustees of the Indiana Laborer’s Pension Fund (6th Cir. Jan 2011), written by a district court judge sitting by designation on the Court of Appeals.
The issue in Price is fairly straightforward: whether the old Plan or the newly amended Plan governs the plaintiff’s ongoing eligibility for disability benefits. The old Plan—in force when benefits initially were approved—provided benefits until retirement age. The amended Plan capped benefits after two years. The plaintiff argued that his benefits “vested” under the old Plan when his disability claim was approved. But vesting isn’t the correct terminology. The plaintiff never had a vested right to disability benefits. Vested benefits cannot be taken away, yet any number of events could have terminated the plaintiff’s benefit eligibility prior to retirement age, the most obvious being medical improvement or death. Upon the initial determination of eligibility, the plaintiff did not acquire a vested right to future benefits. Whether the old Plan or the amended Plan governs is a matter of contract interpretation, and because the trustees have discretionary authority, the trustees’ reasonable interpretation is controlling. After clearing away the underbrush created by the misnomer of “vesting,” the Sixth Circuit panel remanded the case to the district court to review the trustees’ Plan interpretation under the arbitrary and capricious standard.
Why the concurring opinion’s IOU theory is “salutary” is unknown. Even the interests of disabled employees continue to be represented by their unions, so disabled participants’ interests were not completely unrepresented when the revised Plan was adopted through collective bargaining. There may be compelling reasons to revise the terms of an ERISA plan prospectively. Actuarially the Plan may require revision to ensure funding for future claims, so the Plan can remain a viable safety net for all employees rather than a defunct memory. Requiring benefits to be paid according to the old Plan for the group of disabled employees may undermine the financial integrity of the Plan, which is precisely what the union sought to avert in agreeing to adopt a revised Plan. The concurring opinion’s approach impedes flexibility, which in turn jeopardizes the Plan’s ability to provide coverage to all employees. There is nothing “salutary” in that result.
The concurring opinion fixates on enforcing the coverage expectations of the plaintiff, but at the expense of all Plan participants. There is no reason why working employees (with the same seniority as the plaintiff) should have to pay higher dues to prop-up an old disability benefit package for disabled employees when working employees are receiving a smaller disability benefit package, or that an employer should be saddled with these costs indefinitely, which unduly discourage employers from offering these voluntary benefit programs.
The concurrence expresses concern that Plans could be amended to exclude or limit benefits after occurrence of the initial qualifying event, whereas the IOU approach “is consistent with both the agreed general rules governing ERISA welfare benefits, and the reasonable contractual expectations of the parties.” The IOU approach isn’t consistent with ERISA at all. While employers may agree to establish unmalleable benefit programs, employers are not required to do so. See Marrs v. Motorola, Inc., 577 F.3d 783 (7th Cir. 2009) (plan amendments prospectively apply to a participant’s future benefit eligibility unless the plan provides otherwise); Owens v. Storehouse, Inc., 984 F.2d 394 (11th Cir. 1993) (employer did not have a “vested” right to $1 million in lifetime health benefits, thus employer could reduce the benefit to $25,000 for AIDS and other health conditions even after the plaintiff contracted AIDS).
Although the district court judge, sitting by designation, disagrees with the majority panel’s reasoning and states that a remand is unnecessary, the judge “does not object” to the unnecessary remand. So a dissent transforms into a concurrence. With profuse respect and repeated genuflect, The Pundit dissents concurs in the result.
Insurance Commissioners Swipe the Judiciary’s Authority to Establish Federal Standards of Review—and Courts Like It!
A number of state insurance commissioners, goaded by their non-governmental lobbying group NAIC, have passed insurance regulations that prohibit discretionary clauses in life, health, or disability policies or certificates issued within their states. These regulations have enormous political appeal for state officials seeking higher office (or a renewal of their current term), for the regulations are promoted as championing the rights of employees against the interests of insurance companies. The goal of these regulations is to mandate de novo judicial review, without any deference to the administrator’s interpretation. De novo review is perceived as increasing the employee’s chances of winning benefits in court, though it is difficult to reliably test the truth of that perception.
Two federal courts of appeal have upheld state insurance prohibitions on discretionary clauses against ERISA preemption challenges: the Sixth in American Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009) (addressing Michigan’s regulation banning discretionary clauses in disability insurance policies) and the Ninth in Standard Ins. Co. v. Morrison, 584 F.3d 837 (9th Cir. 2009), cert. denied, 130 S. Ct. 3275 (2010) (addressing the Montana insurance commissioner’s practice of refusing to approve disability insurance policies containing discretionary clauses).
But Congress intended for the federal judiciary to develop review standards governing ERISA claims. The Supreme Court stated that Congress delegated to the courts the authority to develop federal standards of review governing ERISA claims. Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 116 (2008) (“Had Congress intended such a system of [de novo] review, we believe it would not have left to the courts the development of review standards….”).
By prohibiting discretionary clauses, state insurance commissioners are displacing the congressionally sanctioned role of the federal judiciary to establish federal standards of review governing ERISA claims, in violation of Congress’s intent. These discretion-banning insurance regulations are not laws that “regulate insurance,” which are exempt from preemption under ERISA’s savings clause, 29 U.S.C. §1144(b)(2)(A). They are laws that regulate the power of the federal judiciary to establish standards of judicial review. By attempting to dictate de novo review of ERISA claims, state insurance commissioners have usurped a power granted by Congress to the Judicial Branch. And the Ninth and Sixth Circuits gave their blessing. Has the federal judiciary fallen asleep, not noticing that state regulators have diminished a federal judicial power under the guise of regulating insurance?
Ross and Morrison are not the final word on this issue. Courts continue to evaluate the enforceability of insurance regulations that ban discretionary clauses. So in future blogs, the Pundit will continue to address why these state regulations are preempted and must be struck down.
There are many reasons to blog. Education, marketing, name recognition, establishing credentials, are just a few. Many blogs provide summaries about important cases, with a tincture of commentary. The Pundit blogs to express personal opinions and stir debate. I write critically about legal positions and judicial decisions but without any ill will. I hope my voice is not lost in the voluminous mediocrity of the internet, and that any offense taken will be forgiven. Whether we represent participants and beneficiaries, or plans and their administrators, we share common goals—ensuring that ERISA plans provide a viable safety net for employees and their families, many of whom could not afford to purchase individual coverage, and that employers can afford and choose to offer these voluntary ERISA plans in the first place. But we vehemently disagree how those common goals are best achieved. Giving abundant disclaimers and all rights reserved, The Pundit now enters the blogosphere with feisty hope and mild trepidation.

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