On May 11, 2017, in Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan (C.D. Cal. 2017) — 2017 DJDAR 4376 –, the Ninth Circuit Court of Appeals delivered an important victory to insureds in California who have been denied disability benefits under an insurance plan governed by the Employee Retirement Security Act (ERISA).
Orzechowski upholds the enforceability, under federal law, of California Insurance Code § 10110.6, a California statute that provides for de novo review of a denial of benefits under an ERISA plan. Most states enforce ERISA policy provisions granting the insurer discretion to determine eligibility to benefits and, therefore, review denials under an abuse of discretion standard rather than a de novo standard. This is an important distinction because the de novo standard of review provides a far more favorable standard, and a much better chance of prevailing in court when challenging an insurance company’s denial. Section 10110.6 invalidates insurance plan provisions providing for discretionary review, and thus requires courts in California to review an insurance company’s denial of ERISA benefits under a de novo standard.
Previous California cases had noted that “the Ninth Circuit ha[d] yet to rule on the applicability of § 10110.6 in ERISA cases.” (Murphy v. California Physicians Service (N.D. Cal. 2016) 213 F.Supp.3d 1238, 1248.) The decision by the Ninth Circuit in Orzechowski upholding section 10110.6 cements the validity of the law. It provides a tremendous advantage to California residents seeking to challenge an insurer’s denial of benefits under an ERISA.
The lawsuit in Orzechowski arose from the insurer’s termination of disability benefits under an employee plan governed by ERISA. The plan included a “broad grant of discretionary authority” to determine eligibility for benefits. The insured employee developed fibromyalgia and chronic fatigue syndrome, and made a disability claim under the plan. The insurer initially recognized the disability, and paid benefits, before changing its determination and terminating benefits. The insurer’s doctor concluded the employee’s “symptoms must be psychiatric in origin.” The employee appealed the termination with the insurance company, as required prior to filing legal action, but the insurer denied the appeal. In the subsequent legal action, the trial court “applied an abuse of discretion standard of review . . . rather than a de novo standard,” and affirmed the insurance company’s denial.
In the Ninth Circuit, the insurer argued that the trial court decision should be affirmed because section 10110.6(a), a state law, is preempted by ERISA, a federal law. The Ninth Circuit in Orzechowski rejected this argument. It noted that ERISA has a savings clause, saving from federal preemption “any law of any State which regulates insurance.” The Ninth Circuit in Orzechowski concluded that section 10110.6(a) was within ERISA’s savings clause, and not preempted. The Ninth Circuit also rejected the insurer’s argument that section 10110.6(a) did not apply because the plan was in effect before the law was enacted. Orzechowski held that because the plan was renewed annually, it came within the ambit of section 10110.6(a).
Orzechowski’s decision upholding section 10110.6(a)’s validity under federal law is a significant win for Californians insured under a plan covered by ERISA. It means that denials of ERISA benefits to persons insured in California are reviewed de novo by the courts.