The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance, ERISA and other areas of the law.  To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949) 387-9595 for a free consultation or go to our website at mslawllp.com and complete the free consultation form.

Which state law will govern your disability insurance claim?  That often is a very important question.  Whereas each state has its own collection of laws governing insurance companies and various types of insurance policies, ERISA is a uniform federal law that applies throughout the entire country.  ERISA preempts state law under the Constitution’s Supremacy Clause.  However, in certain circumstances, some state laws are not preempted and therefore apply to policies governed by ERISA.  Given that ERISA litigation often entails an insured and an insurer who are domiciled/reside in different states, an important question naturally arises: Which state’s laws apply?

An important aspect of any litigation over the denial of benefits under a policy governed by ERISA is the standard of review.  This affects life insurance, disability insurance and even medical insurance.  We have previously written about the standard of review.  As we noted in a previous blog, the standard of review determines how much deference an insurance company has to deny a claim and how difficult it will be for an insured to establish their entitlement to their benefits in any resulting litigation.  Many states have laws firmly establishing that, even under policies governed by ERISA, the standard of review is always de novo, a standard that is more favorable to the insured/plan participant.  Not all states have those laws.  In light of this difference between states, the answer to the above question about the application of state law can potentially become significant.  This is something that the insured in Earle v. UNUM Life Insurance Co. of America, 2020 WL 4434951 (C.D. Cal. July 23, 2020), learned firsthand.

Ms. Elaine Earl had an accidental death and dismemberment (“AD&D”) policy with UNUM.  She acquired her policy through her employment at the University of Southern California.  This policy provided that she would receive a benefit under the policy if she suffered one or more various types of injuries, such as going blind.  One day, while walking, she fell down stairs.  Initially, her injuries did not seem particularly severe.  However, over time, she started to develop significant vision problems that eventually resulted in her becoming legally blind.  After a protracted administrative appeals process, UNUM denied her AD&D claim.  Ms. Earl sued to enforce her rights under the AD&D policy.

Ms. Earl lived in California.  Unum is a legal entity of Maine.  A Summary of Benefits for the policy contained a choice-of-law provision that stated that the laws of Maine apply to the extent not preempted by federal law.  Ms. Earl wanted California law to apply for one key reason: Under the law of California, the standard of review for her claim would be de novo, while if the law of  Maine applied, then the abuse-of-discretion standard would apply.  In short, if California law applied, Ms. Earl would have a better standard of review available to her in litigation.  As such, a key question of the case was whether a clause in the policy stating that the law of Maine applied was valid. 

The district court ruled that Maine law applied.  The district court explained that “The Ninth Circuit has consistently held that ‘[w]here a choice of law is made by an ERISA contract, it should be followed, if not ‘unreasonable or fundamentally unfair.’  Wang Labs., Inc. v. Kagan, 990 F.2d 1126, 1128 (9th Cir. 1993)[.]”  Id. at 10.  The district court concluded, “that it would not be ‘unreasonable or unfair’ to enforce the Maine choice of law provision in the Summary of Benefits.”  Id. at 11.  The district court based its reasoning on the fact that USC, the contracting employer, was aware that it was contracting with Unum, an entity from Maine, and that the contract was quite clear as to what law applied.  It also emphasized how it was reasonable, in the district court’s opinion, for an insurer domiciled in another state to insist that its law applies. 

Unfortunately for Ms. Earl, this conclusion of law resulted in the more stringent abuse-of-discretion standard being applied to her case.  The district court granted summary judgment for UNUM, concluding that Unum had not abused its discretion in denying her claim.

For many areas of the law, the differences between states can be minimal.  In those situations, a choice-of-law provision does not significantly affect the case.  However, under certain circumstances, such as those related to the standard of review, the differences can determine whether an insured will receive benefits versus being sent home with nothing.