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Ninth Circuit Grants a Small Reprieve to the Abuse of Discretion Standard of Review, Ruling That Discretionary Language Provisions in Self-Funded ERISA Will Apply

When litigating ERISA-governed short-term disability, long-term disability, life and medical insurance claims, a major consideration is which “standard of review” will apply to the Court’s review of the insurer’s decision – abuse of discretion or de novo. The de novo standard of review is more claimant friendly. When applying the abuse of discretion standard of review, the Court is required to give some deference to the insurer’s decision. Under the de novo standard of review, the Court does not give any deference to the insurer’s decision, but simply makes a determination as to whether available evidence establishes that the insured was disabled under the terms of the Plan.

The abuse of discretion standard of review, which is friendlier to insurers, only applies if the ERISA plan contains “discretionary language” generally stating that the insurer has total discretion to interpret the terms of the Plan and decide whether the claimant is entitled to policy benefits. However, in 2011, California enacted Insurance Code section 10110.6, which banned discretionary clauses in ERISA plans issued or renewed on or after January 1, 2012. Since that time, District Courts in California and the Ninth Circuit have repeatedly ruled that Insurance Code section 10110.6 was valid and enforceable, most recently in Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, 856 F.3d 686 (9th Cir. 2017). See our article on this case here. Unfortunately, with this ruling, the Ninth Circuit opened the door for the abuse of discretion standard of review to apply in a limited number of cases where employers provide group disability insurance and life insurance coverage which they fund.

Williby v. Aetna Life Insurance Co., 2017 WL 3482390 (9th Cir. August 15, 2017) involved a claim for short-term disability benefits made under a self-funded group short-term disability insurance plan. “Self-funded” means that the employer (here, Boeing) did not purchase an insurance policy to cover its plan obligations, instead committing to pay any benefits “from its own coffers.”

After Williby’s STD claim was denied, she filed a lawsuit seeking past-due benefits. At trial, the District Court Judge ruled that Insurance Code section 10110.6 invalidated the discretionary language in the STD Plan, and applied the de novo standard of review when ruling that Williby was entitled to STD benefits.

Aetna, the company Boeing hired to administer the ERISA plan, appealed the District Court’s decision, arguing that ERISA preempted the application of Section 10110.6 to self-funded plans. In considering Aetna’s argument, the Ninth Circuit offered a brief discussion of three interrelated ERISA provisions governing the preemption of state law – the “preemption clause,” the “saving clause,” and the “deemer clause” – before indicating that the issue would turn on the “presence or absence of traditional insurance.”

Specifically, the Court noted that in FMC Corp. v. Holliday, 498 U.S. 52 (1990), the Supreme Court set forth a “simple, bright-line rule: ‘if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer’s insurance contracts; if the plan is uninsured, the State may not regulate it.’” Thus, because the Boeing Plan was self-funded and not insured, state insurance regulations operating on a self-funded plan – like Section 10110.6 – are preempted. The Court accordingly ruled that the District Court applied the incorrect standard of review, and remanded the case back to the District Court for further consideration.

While this ruling does give limited life to the abuse of discretion standard in some California-litigated ERISA cases, in reality, the McKennon Law Group does not believe this will significantly harm insureds’ ability to successfully recover ERISA benefits through litigation. First, only a small number of group insurance plans are self-funded, so the reach of this ruling will be small. More importantly, we believe that, in practice, there is not much difference between the two different standards of review. Not only does the abuse of discretion standard of review gives claimants the ability to obtain helpful information through discovery, but we believe that if judges are convinced that a claimant is really totally disabled, they will rule in favor of the claimant no matter the standard.

High Court Changes Cumis Landscape

We all know the maxim that “bad facts make bad law.” Two years after J.R. Marketing, LLC prevailed in the Court of Appeal concerning its dispute with its commercial general liability insurer, Hartford, it ran out of luck before the California Supreme Court in its fight over important Cumis counsel issues. Hartford Cas. Ins. Co. v. J.R. Marketing, LLC, 190 Cal. Rptr. 3d 599, 2015 DJDAR 9111 (Cal. Aug. 10, 2015). This is a must read for every lawyer in California that acts as Cumis counsel.

The High Court held an insurance company can sue independent counsel (i.e., Cumis counsel) directly for reimbursement of unreasonable or unnecessary legal charges counsel billed it to defend its insured. This decision may dramatically change the entire Cumis counsel landscape. Previously, an insurer could only sue its insured for reimbursement of defense fees. The High Court’s decision, no doubt, will have a chilling effect on how Cumis lawyers represent their clients. They will fear subsequent fee litigation from the insurer. One has to wonder if “independent counsel” will truly be independent anymore. Quite possibly, this case will practically (though not legally) relegate Cumis counsel to a similar role as an insurance company’s panel counsel, who has to pander to the “hand that feeds them” even though, under the law, Cumis counsel has two clients, the insured and the insurer.

The facts of this case were unique because Cumis counsel racked-up a whopping $15 million in legal bills under a court order it drafted that allowed it to bill the insurer without any fear whether or not the bills would be immediately paid in full. Hartford had issued J.R. Marketing a commercial general liability policy that covered business-related defamation and disparagement. J.R. Marketing was sued in Marin County (and other liability actions) for interference with business relationships, defamation, unfair competition and other business-related torts. It tendered the defamation lawsuit to Hartford under the policy. Hartford denied any duty to defend or indemnify.

J.R. Marketing sued Hartford for breaching the insurance policy. Hartford, only after the coverage action was filed, agreed to defend under a reservation of rights but only prospectively. It refused to pay J.R. Marketing’s legal bills back to the date of tender, and it also refused to provide Cumis counsel in place of its own panel defense counsel. The trial court in the coverage action found Hartford breached it duty to defend by failing to provide and pay for Cumis counsel from the date of tender.

A few months later, because Hartford still had not paid Cumis counsel’s bills violating the trial court’s summary adjudication order, the trial court entered an enforcement order in the coverage action. The order, drafted by J.R. Marketing’s Cumis counsel, Squire Sanders, required Hartford to promptly pay all of Squire Sanders’s past defense invoices within 15 days and to pay “all future defense costs” in the defamation action “within 30 days of receipt.” The order stated Hartford breached its duty to defend by failing to honor it until ordered to do so by the court and by thereafter failing to pay counsel’s submitted bills in a timely fashion. The order further stated that Squire Sanders’s bills had to be reasonable and necessary and that, to “the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursement after resolution of the” underlying defamation action. The trial court’s order did not specify from whom Hartford could seek reimbursement, i.e. from its insured, J.R. Marketing or from Squire Sanders.

After the defamation suit ended, Hartford filed a cross-complaint in the coverage action for “reimbursement pursuant to the enforcement order,” unjust enrichment and other claims. It directly sued Cumis counsel, Squire Sanders, as well as its insured J.R. Marketing. “The cross-complaint asserted that Hartford was entitled to recoup from the cross-defendants a significant portion of some $15 million in defense fees and expenses, including some $13.5 million Hartford paid to Squire Sanders pursuant to the enforcement order.”

Squire Sanders, representing itself and J.R. Marketing, demurred to Hartford’s cross-complaint. It argued, among other things, that an insurer has no direct claim against an insured’s independent counsel for reimbursement. The trial court agreed and “concluded that Hartford’s right to reimbursement, if any, was from its insureds, not directly from Cumis counsel.” The appellate court affirmed the decision. It rejected Hartford’s argument that an insurer has a right to recover directly from Cumis counsel unreasonable and excessive fees it pays counsel because counsel (and not just the insured) is unjustly enriched in that scenario.

The California Supreme Court reversed. The Court was very careful to narrowly frame the issue before it because it did not want its holding to apply to all Cumis counsel cases, just ones where the insurer had a reimbursement right rooted in a trial court order. It therefore stated the issue in great detail as:

From whom may a CGL insurer seek reimbursement when: (1) the insurer initially refused to defend its insured against a third-party lawsuit; (2) compelled by a court order, the insurer subsequently provided independent counsel under a reservation of rights . . . to defend its insured in the third party suit; (3) the court order required the insurer to pay all “reasonable and necessary defense costs,” but expressly preserved the insurer’s right to later challenge and recover payments for “unreasonable and unnecessary” charges by counsel; and (4) the insurer now alleges that independent counsel “padded” their bills by charging fees that were, in part, excessive, unreasonable, and unnecessary?

The Court emphasized again, “We granted Hartford’s petition for review, which raised a narrow question: May an insurer seek reimbursement directly from counsel when, in satisfaction of its duty to fund its insureds’ defense in a third party action against them, the insurer paid bills submitted by the insureds’ independent counsel for the fees and costs of mounting this defense, and has done so in compliance with a court order expressly preserving the insurer’s post-litigation right to recover ‘unreasonable and unnecessary’ amounts billed by counsel?” [Emphasis added].

To that very narrow issue the High Court responded:

We conclude that under the circumstances of this case, the insurer may seek reimbursement directly from Cumis counsel. If Cumis counsel, operating under a court order that expressly provided that the insurer would be able to recover payments of excessive fees, sought and received from the insurer payment for time and costs that were fraudulent, or were otherwise manifestly and objectively useless and wasteful when incurred, Cumis counsel have been unjustly enriched at the insurer’s expense. [Emphasis added].

As alluded to earlier, bad facts make bad law. The Court could not ignore the fact that the law firm acting as independent counsel, Squire Sanders, had racked up $15 million in legal bills defending the insured! Moreover, the Squire firm had written its own meal-ticket. It drafted the proposed order adopted by the trial court finding the defendant insurance company owed a duty to defend its insured through independent counsel. But Squire Sanders did not stop there. It included language in the order requiring Hartford to pay all of its legal bills in the case within thirty days, no questions asked, and that Hartford could not challenge any of the bills until after the underlying liability action had ended. The Squire firm’s aggressive and expensive litigation tactics completely unchecked by anyone, and the fact that the firm had drafted the very order permitting that highly advantageous scenario to them, lead the High Court to decide it had to allow a direct reimbursement action by Hartford against Squire Sanders. It could not allow $15 million in legal bills to stand without affording Hartford an opportunity to contest their reasonableness.

Unfortunately, the extreme facts of J.R. Marketing may forever change the Cumis counsel landscape, and not in a good way. While the Supreme Court was careful to clarify its holding was limited to the unusual facts of the case before it, its opinion unrealistically downplays the chilling effect it will have on Cumis counsel’s ability to zealously represent their client’s interests independent from the influence of its insurer.

We emphasize that our conclusion hinges on the particular facts and procedural history of this litigation. . . . We . . . express no view as to what rights an insurer that breaches its defense obligations might have to seek reimbursement directly from Cumis counsel in situations other than the rather unusual one before us in this case.

While firms acting as independent counsel will try to zealously defend their clients and look out solely for their interests (as the law requires), the threat of fee litigation looming over their heads by insurance companies will shape Cumis counsel’s strategy. Cumis lawyers will consider whether the insurance company is likely to challenge their defense strategies as unnecessary in a subsequent reimbursement action for fear of having to re-pay large legal bills. They are likely to decide how to defend the case based not just on their client’s best interests but, on their own and the insurer’s too.

If insurance companies had a record of integrity and looking out for their insured’s interests (and the lawyers that defend them), the Court’s opinion might work. But they don’t. They have a well-earned reputation of unreasonably nitpicking lawyer’s bills, refusing to pay for necessary legal work, demanding to pay antiquated hourly rates rather than market rates, employing auditing firms paid on a commission by how much of a lawyer’s bills they cut, and by trying to impose unreasonable billing guidelines on law firms. Cumis firms therefore will make legal strategy decisions against that backdrop. They will decide strategy based not only on whether they think legal work is necessary to their client’s defense, but, the possibility that the insurer paying their bills will file an expensive reimbursement action against them that unreasonably challenges their fees.

In the proceedings below, the trial court and the appellate court held a breaching insurer has no right to seek reimbursement directly from Cumis counsel. The lower court’s opinion enhanced the ability of independent counsel retained by insureds to vigorously prosecute their clients’ cases without fear of a possible action for reimbursement by insurers. It sent a strong message: insurers who reserve their rights and refuse to fund the defense of Cumis counsel take a big chance that they will be stuck paying those fees without any real ability to challenge them.

The California Supreme Court obliterated that vitally important message and sent its own. Cumis lawyers better carefully scrutinize their bills and only perform legal work that is absolutely reasonable and necessary to defending their clients because, if they cross the line, they will end up with a huge legal bill of their own. This decision, no doubt, will have a chilling effect on how Cumis lawyers represent their clients.

This decision would appear to undermine the purpose of the Cumis doctrine codified in Civil Code section 2860: when the insurer has a conflict with its insured on how to defend the underlying liability case because the outcome of a reserved coverage issue can be controlled by how it is defended, the insurer must pay for an independent defense lawyer chosen by and with allegiance solely to its insured to defend the case. How can a lawyer be truly independent from the client’s insurer and solely dedicated to protecting the insured’s interests when the insurer has the power to question every defense decision the lawyer makes and recoup legal fees that were arguably not wisely spent? Even the most ethical, skilled lawyer will measure each strategy decision he makes not just by whether it will benefit his client’s defense but by whether an insurer may have room to argue against the strategy. What is the silver lining? Perhaps the courts will indeed limit this holding to its very unique facts and confine its application. We can only hope.

Does an Insurance Company Need to Deny a Claim to be Liable for Bad Faith Damages? You May Be Surprised to Learn the Answer is “No.”

Every insurance contract is accompanied by an implied covenant of good faith and fair dealing, meaning that the insurer cannot “unfairly frustrate” or unreasonably “deprive” the insured of the benefits of the insurance contract. This implied covenant applies to all types of insurance policies, including disability insurance, life insurance, health/medical insurance, long-term care insurance, accidental death and dismemberment insurance, and homeowners insurance. If the insurer unreasonably or without proper cause refuses to pay a benefit due under in insurance policy, the insurer may have acted in “bad faith.” This may allow an insured to collect extra-contractual damages, such as emotional distress damages, attorney’s fees and punitive damages. Typically, bad faith allegations follow a decision by the insurance company to deny a valid claim for benefits.

However, a recent Central District of California decision confirmed that a bad faith claim can be asserted even in the absence of a claim denial, if the insured can assert that any benefit of the policy was withheld by the insurance company. A bad faith claim does not necessarily only follow the denial of a claim. An insurer’s decision to unreasonably withhold anything of value regarding the insurance policy can be an act of bad faith.

That case, EFG Bank AG, Cayman Branch v. Transamerica Life Insurance Co., 2017 WL 3017596, 2017 U.S. Dist. LEXIS 109780 (C.D. Cal., July 6, 2017), involved a dispute between Transamerica and the owners and beneficiaries of 68 universal life insurance policies. Under the policies, premiums were deposited into an account for each policy, and each month, Transamerica withdrew a monthly deduction from each account and deposited a separate amount of interest. The amount in each policy’s account is known as the “Accumulation Value.” The plaintiffs alleged that Transamerica breached those insurance contracts, and did so in bad faith, by wrongfully increasing the monthly deduction rates (“MDR”) on the policies, and in doing so reduced the Accumulation Value of the policies.

Transamerica filed a motion to dismiss, claiming that its actions in calculating the MDR were proper and consistent with the plain language of the policies. The Court denied the motions to dismiss, in full, and in the process, confirmed that insurers can be liable for bad faith, even in the absence of a claim denial decision.

First, the court denied Transamerica’s motion to dismiss the breach of contract claim, finding that the policies did not give Transamerica “unfettered discretion” to set the MDR lower than the guaranteed maximum rate included in the policies.

Turning to the bad faith claim, the Court first ruled that it was not duplicative of the breach of contract claim because the plaintiffs alleged that Transamerica “exercised its discretion [in setting the MDR] in a way that was intentionally designed to unfairly frustrate the agreed purposes of the Policies.”

Next, the Court analyzed Transamerica’s argument that plaintiffs could not maintain a bad faith claim because they did not allege that Transamerica “withheld a benefit,” an allegation necessary to maintain a bad faith claim. See, e.g., Benavides v. State Farm General Insurance Co., 136 Cal. App. 4th 1241, 1250 (2006) (“[T]he essence of the tort of the implied covenant … is focused on the prompt payment of benefits under the insurance policy, there is no cause of action … when no benefits are due.”). The Court rejected Transamerica’s argument, explaining that if Transamerica improperly increased the MDR, that reduced plaintiffs’ Accumulation Value in the policies and forced them to pay increased premiums, and that impermissibly increasing premiums could constitute a breach of the implied covenant of good faith and fair dealing. See, e.g., Notrica v. State Comp. Ins. Fund, 70 Cal. App. 4th 911 (1999).

Typically, bad faith insurance claims are asserted only after an insurance company wrongfully denies a benefits claim. This case further confirms that an insurance company can be liable for bad faith damages for actions other than denying a claim. Basically, if the insurance company withholds anything of value under an insurance policy from an insured or causes the insured to unnecessarily pay increased premiums, they are potentially liable for bad faith damages.

Summary Plan Descriptions Under ERISA May Do More Than Summarize Your Benefit Plan

When individuals are enrolled in a group benefit plans, they are typically provided with a “Summary Plan Description” (“SPD”) which is a document that communicates plan rights and obligations to participants and beneficiaries under their ERISA plan. While the actual Benefit Plan Trust Agreement, which contains the formal provisions that make up a benefit plan, is usually made available to participants, the separate SPD is traditionally provided in order to summarize the material provisions of a Benefit Plan documents in a way that can be understood by an average benefit plan participant, as the actual Benefit Plan document can be extremely lengthy and complex. However, sometimes the provisions in the SPD can differ from those in the Benefit Plan or can contain provisions that are not found in the Benefit Plan. The United States Supreme Court determined that if the terms of a SPD differ from those contained within the ERISA plan documents, the provisions in the ERISA plan documents control (See CIGNA Corp. v. Amara, 563 U.S. 421 (2011)). A recent decision by the Ninth Circuit Court of Appeals, however, determined that a SPD may in fact constitute a formal Plan document, and its provisions may be enforced, when it adds provisions required by ERISA but does not conflict with the Benefit Plan.

In Mull v. Motion Picture Industry Health Plan, No. 15-56246 (9th Cir. Aug. 1, 2017), the plaintiff was injured in a car accident and her health insurance plan (the “Plan”) extended $147,948.38 in benefits for the treatment of her injuries. The plaintiff subsequently recovered $100,000.00 from the third party that was responsible for the car accident, and the Plan sought reimbursement from future payments pursuant to the overpayment provision contained in the SPD. The plaintiff sued the Plan seeking (1) a declaration prohibiting the health insurance plan from offsetting future benefits pursuant to the reimbursement provision, (2) reimbursement for offsets that were taken, and (3) recovery of future benefits. The district court granted summary judgment in favor of plaintiff, holding that because the reimbursement provisions the Plan sought to enforce were found only in the SPD and not within the Plan, the provisions were not legally enforceable under ERISA.

The Ninth Circuit Court of Appeals reversed the decision holding that because the Plan did not provide a basis on which payments were to be made to and from the Plan, but the SPD provided the basis for payments in great detail, the SPD constituted a Plan document. Therefore the ERISA Plan included the SPD. The Court determined that its decision did not conflict with the Supreme Court’s decision in Amara, as that decision only addressed the circumstance where both a governing plan document and a SPD existed and a plan administrator seeks to enforce a provision in the SPD over the terms found in a governing plan document. Here, the Court determined the SPD is a part of the plan itself as it provided for the basis on which payments were to be made and it did not conflict with the Plan.

This decision is important because it clarifies that a SPD may constitute a substantive plan document rather than merely a summary of the provisions contained in the Benefit Plan. The court in Mull found significant importance in the fact that the SPD at issue was clearly designed to constitute part of the Plan, and the court also found it important that the SPD contained a provision required by ERISA that was not contained within the other documents in the Plan. Therefore, the extent to which a SPD can be considered part of a plan’s controlling documents remains somewhat ambiguous. Nevertheless, the Mull decision clarifies that the SPD can be a substantive plan document, at least when it is clearly intended to be a substantive plan document and it adds a provision to a plan that is required by ERISA that is not contained within the other plan documents.

If your claim for life, retirement, health, short-term disability or long-term disability benefits has been denied, you can call (949) 387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling both ERISA insurance claims and non-ERISA state law insurance bad faith claims.

Robert McKennon Quoted in Los Angeles Daily Journal Article on Important Insurance Coverage Issue

On July 20, 2017, the Los Angeles Daily Journal quoted Robert McKennon of McKennon Law Group PC in an article entitled “Insurance Claim Denial Because Airbnb Rental May Have Wider Implications,” by Andy Serbe. The article discusses a recently filed complaint, and its broader applications regarding insurance coverage exclusions involving rentals and the impact on the potential for insureds to lose important coverage rights when they engage in once only or sporadic rentals of all or parts of their home. In the article, Mr. McKennon explains that the insurer failed to define the terms in the exclusion, specifically the phrase “other structures reserved for rental.” Accordingly, those terms were ambiguous as applied to the facts of the case (the complaint alleges that the insurer did not cover a claim for damages because the owner used part of the home for an Airbnb rental, which Travelers denied based on this exclusion). Mr. McKennon further explains that, under California law, such ambiguity in exclusions are narrowly construed in favor of the insured. Additionally, the insurer bears the burden of proof when it comes to proving that such an exclusion applies.

ERISA Preempts State Community Property Laws for Spouse’s Interest

The McKennon Law Group PC periodically publishes articles on its Insurance Litigation and Disability Insurance News blogs that deal with frequently asked questions in insurance bad faith, life insurance, long-term disability insurance, annuities, accidental death insurance, ERISA and other areas of law. To speak with a highly skilled Los Angeles life insurance lawyer at the McKennon Law Group PC, call (714)406-5582 for a free consultation or go to our website at mslawllp.com and complete our free consultation form today.

Has your spouse designated you as the beneficiary under his or her life insurance policy? This is critically important, especially if his insurance is through his work. Group policies issued to employers for the benefit of their employees are, with few exceptions, governed by a federal law called the Employee Retirement Income Security Act of 1974 (“ERISA”). Section 514(a) of that law provides that ERISA “supersede[s] any and all State laws insofar as they may … relate to any employee benefit plan.” Thus, your spouse’s life insurance obtained as an employee benefit from his or her work is governed by federal ERISA law, not state law.

Why is this important? Many states, including California, have community property laws that protect a surviving spouse’s interest in the deceased spouse’s life insurance policy. Under California State law, specifically its community property laws, a surviving wife, for example, may give a community property right up to half of his or her spouse’s life insurance proceeds even if the surviving spouse is not designated as the beneficiary. There is no such right, however, if the subject life insurance policy is governed by federal ERISA law. Under ERISA, all of a current or former spouse’s life insurance benefits go to the person who is designated as the beneficiary in accordance with the employer’s plan requirements – which usually means filling out the beneficiary form, signing it and returning it to the employer. So, for example, if your husband forgot to switch the beneficiary from his ex-wife to you, you are out of luck. Or, if your spouse designated his or her children as beneficiaries, the children are likely entitled to all his life insurance benefits. California’s community property laws will not help you. In other words, if you are not the named beneficiary under an employer-sponsored ERISA plan, you have no right to the proceeds (unless perhaps you can show the beneficiary waived his/her rights to the benefits after the designation or if you can show the beneficiary exercised undue influence). While that seems harsh for a spouse that simply forgot to make the switch on the employer’s beneficiary form, community property rights will not supersede the beneficiary designation under ERISA.

This is because ERISA preempts state community property laws, including California’s laws. The Ninth Circuit and its federal district courts agree that when a beneficiary has been identified in an ERISA-regulated life insurance plan, a state does not have the authority to supersede the designated beneficiary of the proceeds through community property laws. Instead, under federal ERISA law, the life insurance proceeds must be paid to the designated beneficiary. See Orr v. Prudential Ins. Co. of America, 2012 WL 2122157 (D. Idaho, June 12, 2012). Relying upon the United States Supreme Court’s decision in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the Orr court held: “In accordance with Egelhoff, the Court finds that ERISA preempts Idaho community property laws when such laws require an ERISA plan administrator to pay ERISA life insurance proceeds to someone other than the designated beneficiary.” Orr at *2. The Ninth Circuit Court of Appeals agrees. See Carmona v. Carmona, 603 F.3d 1041, 1062 (9th Cir. 2010).

In Orr, the insured decedent/employee named his minor son as the beneficiary of his group life insurance policy provided by his employer. Upon the decedent’s death, his surviving spouse sought the proceeds of the group life insurance policy on the basis that Idaho’s community property laws entitled her to a one-half interest in those life insurance proceeds. The Orr court, however, held that the surviving spouse’s state law arguments were completely preempted by ERISA and, under the provisions of ERISA, the proceeds were to be paid to the named beneficiary (the minor son) and not to the unnamed surviving spouse. Id. at *2.

The lesson learned from Orr is that, if a spouse is enrolled in a group life insurance plan governed by ERISA, that spouse must properly designate you as the beneficiary in accord with the plan’s requirements.

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