Opinion ID: 808364
Heading Depth: 3
Heading Rank: 2

Heading: California Settlement Agreement

Text: [1] The CSA requires Unum to discontinue use of a[ny] provision that has the effect of conferring unlimited discretion on [Unum] or other plan administrator to interpret policy language, 2 Unum, as well as another affected insurer, eventually reached agreements with the State of California, and therefore the opinion and its underlying orders were subsequently vacated. 11090 STEPHAN v. UNUM LIFE INSURANCE or requires an “abuse of discretion” standard of review if a lawsuit ensues . . . in any California Contract sold after the date set forth in Section V. The Agreement defines “California Contract” as “a policy of disability income insurance . . . which is subject to the jurisdiction of and approved by the Department [of Insurance].” Section V of the CSA provides that [a]ny language having the effect of a “discretionary authority provision” . . . shall not be applied to any California Contract sold after the CSA Effective Date [November 1, 2005]. A “discretionary authority provision” shall not be included in any new policies issued as California Contracts or included in Summary Plan Descriptions (SPDs) in ERISA-related Plans generated or issued by the Company, after the CSA Effective Date so long as its omission from the policy form or SPD is consistent with what is per- mitted by applicable California statutory and case law. Discretionary authority provisions in existing California Contracts that were issued prior to the date of the Order of the Commissioner are not affected by the CSA. Whereas the CSA provisions relating to discretionary authority apply to “policies sold after the CSA Effective Date,” the CSA requires that other changes, such as, for example, exclusions for pre-existing conditions, “be made in all new policies” as well as all “in-force policies upon renewal after the CSA Effective Date.” Thus, by its terms, the CSA distinguishes between changes, like the prohibition on discretionary authority provisions, that apply only to “new policies,” and those that apply to both “new policies” and “policies upon renewal.” Both parties interpret the CSA as providing that policies already extant on the CSA effective date and renewals of such policies are not subject to the Agreement’s prohibition on discretionary authority proviSTEPHAN v. UNUM LIFE INSURANCE 11091 sions, whereas new policies sold after the CSA Effective Date are subject to the prohibition.3 Stephan argues that the policy under which he was insured was a new policy, issued after the CSA Effective Date, and that therefore its discretionary authority provision is void. We disagree.
[2] Unum first issued the relevant disability insurance policy to TWP in 1999, years before the effective date of the CSA. TWP renewed the policy annually. Between 1999 and 2007, the Plan was amended six times. The 2007 amendment stated that it “form[ed] a part of Group Policy No. 537429 001,” the policy originally issued to TWP in 1999. It also stated that “[t]he entire policy is replaced by the policy attached to this amendment.” The attached policy was the same as the previous version, issued in 2006, with the exception of a few changes to provisions that insurance companies are explicitly permitted to amend upon renewal without seeking permission of the Commissioner.4 While the effective date of the amendment was listed as January 1, 2007, the policy as a whole retained its original effective date, June 11, 1999. [3] Stephan contends that because the 2007 amendment stated that it “replaced” the previous policy, the 2007 contract cannot be understood as a renewal but must be viewed as an entirely new policy. Unum responds that the language does not indicate an intent to create a new policy, but rather was 3 Although the CSA is not entirely clear on this point, we accept the parties’ interpretation for purposes of this appeal. 4 While the district court characterized the 2007 contract as containing “a few amendments,” Unum states that there was only a single change to the policy between 2006 and 2007. The record is unclear as to whether there was a single change or a few changes, but the difference is unimportant. The changes were minimal and permitted under the California Insurance Code. 11092 STEPHAN v. UNUM LIFE INSURANCE included simply to avoid confusion: Rather than requiring policyholders to read both the policy and any amendments, Unum inserted the amendments into the text of the policy, such that all policy information was contained in a single document. Reviewing the 2007 contract as a whole, we agree with Unum’s characterization and hold that the policy under which Stephan was insured constituted a renewal within the meaning of the CSA. First, as noted, any changes between the 2006 and 2007 policies were minimal and permitted under California law. Second, the language of the amendment itself indicates that the policy to which it is attached is a renewal. The amendment states that “[t]he policy’s terms and provisions will apply other than as stated in this amendment.” Were the 2007 policy entirely new and not a renewal, this language would make little sense, as the reference to “the policy” would have no meaning. Furthermore, the repeated use of the word “amendment” in the 2007 contract indicates that it did not constitute a new policy, but rather a continuation of the old policy with minimal, permitted changes. The amendment also states that “[t]his amendment forms a part of Group Policy No. 537429 001 issued to the Policy holder: Thomas Weisel Partners LLC,” the policy issued to TWP in 1999, and that “[t]he effective date of these changes is January 1, 2007” (emphasis added). This language further confirms that the 2007 policy was not a renewal by indicating that while the changes were effective as of January 1, 2007, the remainder of the policy as a whole retained its original effective date. Indeed, the effective date of the policy continued to be listed as June 11, 1999. The CSA refers to “existing California contracts” as those “issued prior to the Order of the Commissioner” (emphasis added). The retention of the 1999 effective date on the STEPHAN v. UNUM LIFE INSURANCE 11093 amended policy is the strongest indicator that the policy was issued in 1999, prior to the CSA. Overall, then, the language and structure of the 2007 contract, taken together, indicate that the original 1999 policy remained in effect. In support of his position to the contrary, Stephan relies on cases holding that “[t]he renewal of a policy is a new contract of insurance” (citing Borders v. Great Falls Yosemite Ins. Co., 72 Cal. App. 3d 86, 94 (1977)). But the cases Stephan cites are context-specific and inapplicable to the question at issue here. As we noted above, the CSA explicitly differentiates between new policies and renewals. If all renewals constituted new policies under the CSA, the CSA’s differentiation between the two would be meaningless. Stephan’s reliance on cases where no such distinction was made is therefore misplaced. [4] Because the language and structure of the 2007 policy clearly indicates that it is a renewal of the existing policy, initially effective June 11, 1999, its discretionary authority provisions are unaffected by the CSA.