ERISA Does Not Preempt State Laws Preventing Insurers From Including Discretionary Language in Policies
In American Council of Life Insurers v. Ross, case, 2009 U.S. App. LEXIS 5748,F.3d (6th Cir. 2009), the Sixth Circuit held that a Michigan law prohibiting insurers from including discretionary language in insurance policies fell within the scope of ERISA preemption “savings clause” and was therefore enforceable. The court relied on the Supreme Court’s Miller decision, which articulated a new test for determining whether a state law “regulates insurance” and is, therefore, saved from ERISA preemption. Applying the Miller test, the Sixth Circuit held that this particular law regulated insurance because it directly controlled the terms of insurance contracts by prohibiting insurers and insureds from entering into contracts having discretionary language.The case is particularly noteworthy because the court cites the Glenn case in support of its decision that the state law should not be preempted. The Court stated that Glenn provides further support for holding that Michigan’s law is not preempted by ERISA. The Court reiterated that a conflict of interest exists when the same insurer is responsible for examining and paying a benefits claim.
In view of that conflict, Glenn determined that courts, in reviewing a benefits decision by an insurer who has discretion over assessing and paying benefits, may consider that conflict as a factor in deciding whether the plan administrators decision amounts to an abuse of discretion. The Court added that if there is a conflict of interest when the same plan administrator decides the merits of a benefits plan and pays that claim, and if it is consistent with ERISA to account for that conflict of interest in reviewing a plan administrator’s decision, it is difficult to understand why a state should not be allowed to eliminate the potential for such a conflict of interest by prohibiting discretionary clauses in the first place.
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