Washington Disability Attorney Obtains Court Ruling That Discretionary Clauses Are Unenforceable in Disability Insurance Policies

The issue in the case of Edward W. Murray v. Anderson Bjornstad Kane Jacobs, Inc. et. al. revolved around the standard of review that the court must apply in reviewing a claim denial. Murray and his Washington disability attorney appealed their case after Murray was denied disability insurance benefits, claiming that the decision was made in violation or the Employee Retirement Income Security Act (ERISA). Appealing Anderson’s initial denial of insurance benefits to Murray, Murray and his Washington disability attorney asked the W.D. Court of Washington at Seattle to order that a de novo standard of review be granted in Murray’s case. In opposition Anderson argued that the applicable “standard of review is abuse of discretion.”

ERISA and Washington State Law in Conflict

According to ERISA, a plan administrator’s review of denied disability benefits cannot be scrutinized in its entirety unless the plan in question states that the administrator can review the denial at its discretion per the authority given in the policy specifications. Murray and his disability attorney do not deny that the plan granted the administrator the right to deny his benefits at the discretion of the insurer’s reviewer, but they point out that in Washington, state law prohibits the use of discretionary clauses, thus making the original ruling invalid.

And while both sides acknowledge that ERISA allows for the discretionary standard of review of insurance claims, the act also states that an employee benefits plan is subject to the terms of “any law of any State which regulates insurance, banking, or securities.” And that the standard for meeting this exception is two -fold:

  • “The state law must be specifically directed toward entities engaged in insurance”; and
  • The law “must substantially affect the risk pooling arrangement between the insurer and the insured.”
    Washington state law (WAC 284-96-012) bluntly prohibits insurance companies from including discretionary clauses in their insurance policies. A discretionary clause in the case of insurance providers is one where the wording in an employee insurance policy gives the insurance company and all its representatives the discretion to interpret policy terms and decide the fate of benefit claim applicants in regards to:
  • Denial, modification reduction or termination of payment of benefits, coverage, authorization or provision of heath care services; and
  • And whether or not the interpretation of a plan’s terms is based on a standard of review that is discretionary or de nova.

Anderson Bjornstad Kane Jacobs, Inc. et. al. States Its Case

The insurer, as would be expected argued that the Washington State law in question cannot alter the terms of an ERISA plan and attempted to argue that the law doesn’t apply to Murray’s case. Citing several cases that supported their argument, Anderson attempted to convince the Court that should insurer’s be denied the discretionary standard of review as Murray and his disability attorney requested, insurers would have to pay more and more claims which would lead to losses by the insurance companies and risk not serving consumers the way they should, and that “allowing the Washington Insurance Commissioner ‘to read discretionary language out of an ERISA plan-not just a disability insurance policy . . . would, in practice mandate universal de novo review of ERISA determinations.”

The Court found that the authority Anderson referenced and cited was inappropriate to the subject case of Murray. Stating that the cases cited did not “support their position,” the Court dismissed this argument by Anderson; however Anderson and its attorneys tried to sway the Court with yet a second argument.

Murray and His Washington Disability Attorney Prevail

The Washington law that prohibits Washington insurance policies from containing discretionary clauses was signed into law as of September 9, 2009. Since Murray’s disability benefits claim was denied on January 2, 2009, the disability insurance company argues he was not eligible for this exemption. On the other side, Murray and his Washington disability attorney argued that since Murray was denied his last administrative appeal on January 11, 2010, his claim was disputed after the law became in effect. And, the Court agreed.

After all was said and done in Edward W. Murray v. Anderson Bjornstad Kane Jacobs, Inc. et. al., the Western District Court of Washington in Seattle granted Murray’s “motion for summary judgment, and [found] that the applicable standard of review is de novo,” a victory for Murray and others in his situation.