Letters denying an insured’s claim often end by listing what steps an insured can take to challenge an unfavorable determination.  Assuming all administrative appeals have been exhausted, this generally involves filing a lawsuit. Depending on the language in the underlying insurance policy, the denial letter may state that if an insured wishes to bring suit, they must bring suit in a specific court in a particular state that could be on the other side of the country.  Clauses in contracts, such as insurance policies, that require filing suit in a particular jurisdiction are called “forum selection clauses.”

Courts often enforce forum selection clauses.  When determining whether to enforce a forum selection clause, a court will ask if the forum selection clause is “fundamentally unfair.”  Many people would question the fairness of forcing a Californian to bring suit in Vermont or Connecticut in order to vindicate their rights under an insurance policy bought in California.  Unfortunately for insureds, courts make the question of fundamental fairness rather complicated. To make the determination, courts consider three factors: “(1) whether the forum selection clause was motivated by bad faith; (2) whether accession to the forum selection clause was obtained by fraud or overreaching; and (3) whether a plaintiff was ‘given notice of the forum provision and, therefore, presumably retained the option of rejecting the contract with impunity.’”  Laasko v. Xerox Corp., 566 F.Supp.2d 1018, 1024 (C.D. Cal. 2008) (quoting in part Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991)).  The Supreme Court stated that “forum-selection clauses should control except in unusual cases.”  Atlantic Marine Construction Co. v. U.S. District Court for Western District of Texas, 571 U.S. 49, 64 (2013).

A further complication arises when the Employee Retirement Income Security Act of 1974 (“ERISA”) governs a policy or plan with a forum selection clause.  ERISA provides a systematic framework for the determination of an insured’s rights under many insurance policies. ERISA governs numerous life, accidental death and dismemberment, health and disability insurance policies.  When drafting ERISA, Congress attempted to protect the rights of insureds so that venue of an ERISA lawsuit is in a location that is typically close in proximity to the insured. ERISA provides that:

Where an action under this subchapter is brought in a district court of the United States, it may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found, and process may be served in any other district where a defendant resides or may be found.

29 U.S.C. § 1132.

ERISA provides for a wide variety of locations where an insured may file a lawsuit to vindicate their rights.  If a policy governed by ERISA includes a forum selection clause, can an insurer require that a matter be venued in a particular court thousands of miles away from the insured?  Most appellate courts have yet to rule on this issue. However, all appellate courts to have addressed the issue agree that courts should enforce forum selection clauses in policies governed by ERISA if the clauses are not “fundamentally unfair.”  In the ERISA context, courts look to the same factors previously listed.

To date, only two appellate courts have addressed this issue.  The Sixth Circuit Court of Appeals addressed the issue in Smith v. Aegon Companies Pension Plan, 769 F.3d 922 (6th Cir. 2014).  The Seventh Circuit Court of Appeals addressed the issue in In re Mathias, 867 F.3d 727 (7th Cir. 2017).  Both courts upheld the enforcement of the forum selection clauses in their respective cases.  Both courts reasoned that 29 U.S.C. section 1132 speaks in terms of permission. See, e.g., Smith, 769 F.3d at 932 (“ERISA’s venue provision is permissive: suit ‘may be brought’ in one of several districts.”).  The courts noted that no language in 29 U.S.C. section 1132 contains a command. The courts further emphasized that because courts have a strong tendency to honor forum selection clauses in contracts, and here the statute does not clearly prohibit forum selection clauses, ERISA does not deny an insurer the right to have a forum selection clause in a plan.

In each appellate opinion, one of the three judges dissented.  The dissenting judges presented largely identical arguments. The dissenters focused on how ERISA was meant to guarantee that insureds had ready access to a convenient court where the insured could bring suit.  The dissenters reasoned that Congress intended for insureds to have the chance to conveniently vindicate their rights in court. Furthermore, unlike other forum selection clauses, insurance companies and employers negotiate the contents of ERISA policies.  The insured/plan participant almost never takes part in those negotiations and thus has no chance to advocate for a plan that does not have a forum selection clause. A forum selection clause, so the dissenting judges reasoned, denies insureds some of the very rights Congress intended to establish and protect.

The Secretary of Labor also addressed the applicability of ERISA to forum selection clauses.  The Secretary argued as amicus curiae in several cases, including Mathias and Smith.  The Secretary consistently argues that ERISA supersedes forum selection clauses.  For example, in Mathias, the Secretary argued “that the statute ought to be read to protect . . . the interests of participants in employee benefit plans . . . by providing for appropriate remedies, sanctions, and ready access to the Federal courts[.]”  Mathias, 867 F.3d at 735 (internal quotations omitted).  The Secretary concludes that such a reading of ERISA results in the invalidation of forum selection clauses.  To date, the Secretary has had little success in persuading courts not to honor the clauses.

A majority of appellate courts have yet to address this issue.  Possibly, other circuits will rule contrary to their already decided sister courts.  To date, only a handful of district courts have struck down forum selection clauses in insurance plans governed by ERISA. McKennon Law Group PC will soon be briefing this issue in an ERISA pension case advocating for a district court in Orange County, California to reject the application of a forum selection clause in an ERISA plan.