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Exorcising discretion: the death of caprice in ERISA claims handling.

I. INTRODUCTION

The Employee Retirement Income Security Act of 1974 (ERISA) (1) was enacted to rectify mismanagement of union-sponsored pension plans. (2) To that end, the Act sought to "protect ... participants in employee benefit plans and their beneficiaries ..." by imposing fiduciary duties on persons responsible for management of benefit plans. (3) More than 130 million Americans receive health coverage and other employee benefits under plans governed by ERISA. About 64 million of them are covered under insurance policies purchased by their employers. (4)

ERISA permits a person who is denied benefits under a plan to contest the denial in federal court, subject to various limitations. (5) Nearly all ERISA plans contain "discretionary clauses," which bestow discretion on the "plan administrator" to interpret language in the policy and otherwise determine eligibility for benefits. These clauses proliferated in the early 1990s when they were construed by the federal courts to confer such authority upon insurers and employers that benefit denials can only be reversed when they are found to be "arbitrary and capricious." After more than a decade of litigation among private parties in every federal circuit, state insurance regulators stepped in, banning the clauses and restoring the rights of tens of millions of Americans to go to court to enforce their insurance contracts. (6) Challenged by the insurance industry, states have prevailed in two key legal battles. In Standard Insurance Co. v. Morrison and American Council of Life Insurers v. Ross, the federal courts ruled that ERISA does not preempt the power of state insurance regulators to prohibit discretionary clauses from insured group health and disability insurance policies. (7)

The cumulative effect of state regulatory action in this area, now judicially affirmed, can hardly be overestimated. Standard Insurance declared in its unsuccessful petition for Writ of Certiorari to the United States Supreme Court, "[t]his issue ... affects a massive number of cases, as there are nearly two million ERISA benefits denials annually that are potentially subject to challenge in federal court...." (8) In a broader sense, the elimination of discretionary clauses in ERISA plans makes health and disability coverage more meaningful by restoring a level of fairness to claims handling. Under the "arbitrary and capricious" standard of review, a federal court could not overturn a denial of benefits even if the court would have reached a different conclusion based on the evidence. Without that standard of review, insureds are entitled to their health or disability benefits when the evidence shows they are so entitled. This article reviews the history and effect of the discretionary clause, traces the movement among state insurance commissioners that led to its successful ban, and examines the judicial decisions that affirmed this historic exercise of state administrative power.

II. EVOLUTION AND PERVASIVENESS

A discretionary clause is a plan provision that grants authority to the plan administrator "to interpret the plan and to resolve all questions arising under it." (9) Such a clause might read: "Insurer has full discretion and authority to determine the benefits and amounts payable [as well as] to construe and interpret all terms and provisions of the plan." (10) Nearly all ERISA plan sponsors have written discretionary language into their plans to ensure that if a plan participant or beneficiary files an ERISA lawsuit, the court will be required to give deference to the administrator's decision. (11) This deferential standard is "a feature of judicial review highly prized by benefit plans[.]" (12)

ERISA does not mention discretionary clauses or the standard of review expected of courts examining denials of claims, or in ERISA parlance, plan benefits. (13) The notion that language in a plan or policy giving discretion to the plan administrator, often an insurer, leads to a deferential standard of review stems from the Supreme Court's 1989 opinion in Firestone v. Bruch. (14)

Firestone's landscape-changing opinion held that the default and "regular" standard of adjudicating ERISA claims is the de novo standard, which is consistent with the judicial interpretation of employee benefit plans prior to the enactment of ERISA. (15) However, the Court further held that, if the benefit plan expressly gives the plan administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the plan's terms, a deferential standard of review is appropriate. (16) The Court based its application of deferential review on the principles of trust law, which, it said, are summoned by ERISA's legislative history and the Court's prior decisions interpreting the statute. (17)

III. EFFECT OF THE CLAUSE

The ERISA claimant finds his litigation rights restricted in a host of ways. In claims arising under ERISA from benefit denials, there is no right to a jury trial. (18) Available remedies are limited to those set forth in ERISA. (19) They do not include consequential, non-economic, or punitive damages. (20) When a discretionary clause is present, discovery and the right to introduce evidence are limited and the federal court review is confined to consideration of the claim file, which serves as the administrative record. (21)

One ERISA scholar has called the discretionary clause an "enormous advantage" for the insurer and "a substantial, often insurmountable hurdle" for the claimant. (22) This is particularly true for the unwary claimant who does not have the benefit of counsel during the internal appeal process. He may be left with an incomplete administrative record to which the reviewing courts are confined. The advantage and the hurdle are magnified when the plan administrator is the insurance company that is at risk for the claim and is operating under a manifest conflict of interest. (23)

The hallmark of the discretionary clause is the arbitrary and capricious standard of review that it triggers. A glaring example of the resulting inequity appears in the First Circuit's opinion in Brigham v. Sun Life of Canada. (24) Upholding the denial of disability benefits to a paraplegic, the court seemed to lament the result and called it "counterintuitive." (25) "The question we face in this appeal," the court said, is "'not which side we believe is right, but whether [the insurer] had substantial evidentiary grounds for a reasonable decision in its favor.'" (26) The court continued:
   Beyond this, it seems counterintuitive that a paraplegic suffering
   serious muscle strain and pain, severely limited in his bodily
   functions, would not be deemed totally disabled. Moreover, it seems
   clear that Sun Life has taken a minimalist view of the record. But
   it is equally true that the hurdle plaintiff had to surmount,
   establishing his inability to perform any occupation for which he
   could be trained, was a high one. As to that issue, we have to
   agree with the district court that the undisputed facts of record
   do not permit us to find that Sun Life acted in an arbitrary or
   capricious manner in terminating appellant Brigham's benefits. (27)


Prior to Firestone, Richard Posner, renowned judge of the Seventh Circuit and legal philosopher, decried the deferential standard of review in Van Boxel v. The Journal Co. Employees' Pension Trust. (28) He wrote that employee benefits "are too important these days for most employees to want to place them at the mercy of a biased tribunal subject only to a narrow form of 'arbitrary and capricious' review, relying on the company's interest in its reputation to prevent it from acting on its bias." (29)

Another noted ERISA expert, Mark D. Debofsky, explained in comments before the National Association of Insurance Commissioners that:
   ... the effect of discretionary clauses has been to transform the
   judicial paradigm of decisionmaking. It is not enough for a
   claimant to show an insurer's decision was wrong or contrary to the
   terms of the insurance contract. Instead, the claimant must prove
   the decision is unreasonable, and not merely incorrect. (30)


Finally, Yale law professor John Langbein described discretionary clauses as "self-serving terms that severely restrict the ability of a reviewing court to correct a wrongful benefit denial." (31) Professor Langbein attributed the spate of bad faith claim denials that led to a multi-state investigation of Unum to the clauses and "an ill-considered passage in" Firestone Tire. (32)

IV. THE MOVEMENT TO BAN THE CLAUSES

A. THE NAIC

Unlike the other financial service industries, insurance is regulated by the states, a principal that was enshrined by the Supreme Court in 1868 (33) and, after a change of course by the Court, reaffirmed by Congress in the McCarran-Ferguson Act. (34)

The National Association of Insurance Commissioners (NAIC) is the organization of elected and appointed state government officials who, along with their departments and staff, regulate insurance in the states. (35) It is the avowed mission of the NAIC to "protect the public interest" and to "facilitate the fair and equitable treatment of insurance consumers." (36) The NAIC adopts model laws and generally serves as a national regulatory body for the insurance industry. (37)

B. THE MODELS

In March of 2001, the NAIC ERISA Working Group discussed the creation of a model law to assure that all insurer and HMO claims would be subject to de novo review and directed the NAIC legal staff to research the authority of the states to prohibit discretionary clauses in light of ERISA. In June 2001, the working group voted to develop a model law proposal. (38) After hearings and comments, the Health Insurance and Managed Care (B) Committee of the NAIC voted to adopt the "Prohibition on Use of Discretionary Clauses Model Act." (39) At the June 2002 NAIC meeting, despite "a flurry of notes to commissioners" and an industry attempt to derail the model act procedurally, the NAIC passed the model with "five 'no' votes and three states" abstaining. (40) The model initially prohibited discretionary clauses only in health insurance policies, but it was amended in 2004 to include disability income policies. (41) The amendment expanding the model followed another round of extensive hearings. (42) The model was adopted because Commissioners believed that discretionary clauses in insurance contracts were "inequitable, deceptive and misleading to consumers." (43)

Prohibition of discretionary clauses in the states began slowly after the NAIC model was adopted, but has gained momentum in the last few years. New York, California, Michigan, Illinois, and most recently Texas, are among the highly populated states that have banned the clauses. A variety of procedural approaches have been employed by the states to accomplish the prohibition. (44) These approaches have included enactment of a statute, (45) promulgation of an administrative rule, (46) issuance of a bulletin, memorandum or letter, (47) adoption of a checklist for form approval that includes removal of the clauses, (48) and simply refusing to approve policy forms that include discretionary clauses. (49)

V. ERISA PREEMPTION AND THE SAVINGS CLAUSE

ERISA generally preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan[.]" (50) However, Congress preserved the historic state authority to regulate insurance by exempting from preemption "any law of any State which regulates insurance, banking, or securities." (51) This passage, known as the "Savings Clause," has received much attention in ERISA jurisprudence as courts search for the line between the "broad preemptive force" of ERISA and the safe harbor that Congress created for traditional state insurance regulation. The Supreme Court has decried these "antiphonal clauses" that seem "simultaneously to preempt everything and hardly anything[.]" (52) Nevertheless, the Court has honored the Savings Clause so long as a state regulation does not disturb ERISA's exclusive civil remedy scheme. (53)

In order for the Savings Clause to apply, the state law in question must satisfy a two-part test articulated in Kentucky Ass'n of Health Plans v. Miller. (54) In Kentucky Ass'n, the Court stated, "[f]irst, the state law must be specifically directed toward entities engaged in insurance." (55) Second, it also "must substantially affect the risk pooling arrangement between the insurer and the insured." (56)

The first requirement of the Kentucky Ass'n test is straightforward: in order for a state law to establish that it is insurance regulation, it must be directed at insurance. This means that the law may not be a rule of general applicability frequently encountered in insurance law, such as contra proferentem. The law must be directed at insurance ab initio. The second requirement, that the law also affect the risk pooling arrangement in a substantial way, is meant to ensure that the saved state law is directed at insurance practices and not merely insurance companies. (57)

The Supreme Court has long recognized that states indirectly regulate the terms of insured ERISA plans through the regulation of the plan's insurer and its insurance contracts. (58) More recently, the Court noted that it "has repeatedly held that state laws mandating insurance contract terms are saved from preemption[.]" (59) Although critics of the Savings Clause have argued that it runs counter to ERISA's goal of national uniformity, the Court has responded that "[s]uch disuniformities ... are the inevitable result of the congressional decision to 'save' local insurance regulation." (60)

Importantly, federal common law developed under ERISA holds that even a state law regulating insurance will be preempted by ERISA when it encroaches upon ERISA's exclusive civil remedy scheme. (61) Like many facets of ERISA law, the exclusive civil remedy concept has engendered prolific litigation in all federal circuits. The question that is repeatedly presented is whether a certain state law or practice does "duplicate, supplement or supplant" the detailed remedy provisions of 29 U.S.C. section 1132. (62) The rule that the Savings Clause is trumped by ERISA's exclusive civil remedy section, however, though not codified in ERISA itself, is settled.

VI. RUSH VERSUS GLENN

For years, the federal courts and policy makers have struggled with the draconian effects of deferential review in the context of ERISA's great preemptive power. In two relatively recent cases, the Supreme Court has created some antiphony of its own, providing fodder to litigants on both sides of the claim denial divide.

Rush Prudential HMO, Inc. v. Moran (63) brought to the Court a challenge to the external review statute of Illinois. (64) The law permits patients to appeal claim denials to an independent physician when the issue is whether the medical procedure in question is "medically necessary." (65) When Rush failed to provide the review, Moran sued in state court to compel compliance with the Act. (66) Among other arguments, Rush contended that the review contemplated under the state law deprived it of the benefit of deferential review otherwise afforded by the discretionary clause in Moran's policy. (67) Rush claimed that ERISA's exclusive civil remedy scheme guaranteed a uniformly deferential standard of review. (68)

The Court in Rush rejected this argument and seemed to answer the preemption question. The Court noted that ERISA itself contained no provision providing a lenient standard for judicial review of benefit denials. It further acknowledged the holding in Firestone Tire that "a general or default rule of de novo review could be replaced by deferential review if the ERISA plan itself provided that the plan's benefit determinations were matters of high or unfettered discretion." (69) The court then explained:
   Nothing in ERISA, however, requires that these kinds of decisions
   be so 'discretionary' in the first place; whether they are is
   simply a matter of plan design or the drafting of an HMO contract.
   In this respect, then, [section]4-10 prohibits designing an
   insurance contract so as to accord unfettered discretion to the
   insurer to interpret the contract's terms. As such, it does not
   implicate ERISA's enforcement scheme at all, and is no different
   from the types of substantive state regulation of insurance
   contracts we have in the past permitted to survive preemption, such
   as mandated-benefit statutes and statutes prohibiting the denial of
   claims solely on the ground of untimeliness. (70)

   While the statute designed to do this undeniably eliminates
   whatever may have remained of a plan sponsor's option to minimize
   scrutiny of benefit denials, this effect of eliminating an
   insurer's autonomy to guarantee terms congenial to its own
   interests is the stuff of garden variety insurance regulation
   through the imposition of standard policy terms. (71) It is
   therefore hard to imagine a reservation of state power to regulate
   insurance that would not be meant to cover restrictions of the
   insurer's advantage in this kind of way. (72)


This passage in Rush left little question that the Court intended to permit states to restrict or eliminate discretionary clauses. Such state action constituted "garden variety" regulation of insurance contracts and did not implicate ERISA's enforcement scheme, "at all." (73)

Six years later, however, the Supreme Court muddied the discretionary clause water with Metropolitan Life Insurance v. Glenn. (74) Glenn was a Sears employee who was diagnosed with severe cardiomyopathy. Met Life denied her claim for disability benefits, although the Social Security Administration had found her completely disabled. The plan contained a discretionary clause. Met Life was the decision-maker and was on risk for the claim. The federal district court refused to disturb the denial. The Sixth Circuit Court of Appeals applied deferential review but found it a "relevant factor" that Met Life had a "conflict of interest" because it was "authorized both to decide whether an employee is eligible for benefits and to pay those benefits." (75) The Court recalled Firestone's comment that a fiduciary's "conflict of interest ... must be weighed as a 'factor in determining whether there is an abuse of discretion.'" (76) The Court approved the "combinations-of-factors method of review" employed by the Court of Appeals. (77)

The Glenn Court might have taken the opportunity to declare that conflicted insurers may not receive deferential review. Instead, the Court reaffirmed Firestone's key principles and the concept of deferential review generally. In dicta, widely quoted by insurers seeking to dilute Rush, the Glenn Court commented:
   We do not believe that Firestone's statement implies a change in
   the standard of review, say, from deferential to de novo review.
   Trust law continues to apply a deferential standard of review to
   the discretionary decision-making of a conflicted trustee, while at
   the same time requiring the reviewing judge to take account of the
   conflict when determining whether the trustee, substantively or
   procedurally, has abused his discretion. We see no reason to
   forsake Firestone's reliance upon trust law in this respect. Nor
   would we overturn Firestone by adopting a rule that in practice
   could bring about near universal review by judges de novo--i.e.,
   without deference--of the lion's share of ERISA plan claims
   denials. (78)


Rush clearly recognized the authority of states to ban discretionary clauses without running afoul of ERISA. Although Glenn did not back pedal on this point, its dicta seems to eschew de novo review and gives a foothold to insurers clinging to the deferential standard.

VII. JUDICIAL AFFIRMATION

Recently, Courts of Appeal have heard challenges to the regulatory prohibition of discretionary clauses by insurance commissioners. In each case, the authority of the state to ban the clauses has been affirmed.

A. THE NINTH CIRCUIT: STANDARD V. MORRISON

In Standard Insurance v. John Morrison, (79) a leading disability income insurer sued the Insurance Commissioner of Montana after he banned discretionary clauses in that state. Although litigation in other jurisdictions is also instructive and is summarized in this article below, the Standard case provides a sweeping look at the arguments advanced for and against the discretionary clause ban in both state and federal court.

Montana Law requires the Commissioner of Insurance to "disapprove any [insurance] form ... if the form ... contains ... any inconsistent, ambiguous, or misleading clauses or exceptions and conditions that deceptively affect the risk purported to be assumed in the general coverage of the contract[.]" (80) The Montana Insurance Department began disapproving policy forms containing discretionary clauses in 2001, concurrent with the adoption of the first NAIC model. In 2005, the Department issued a letter to all health and disability income insurers withdrawing previous approval and requiring resubmission of such forms without discretionary clauses. Standard insurance sued in federal court, arguing that ERISA preempted state law and the Commissioner's authority in the area. (81)

United States District Judge Donald Molloy upheld the Commissioner's prohibition of discretionary clauses. (82) Judge Molloy emphasized that the Savings Clause "recognized the traditional role of states in regulating insurance on behalf of state citizens and in accordance with state public-policy objectives." (83) Judge Molloy further found that the prohibition of discretionary clauses from insurance policies "is the straight forward regulation of insurance, a matter ERISA expressly saves from preemption." (84)

Acknowledging its charge to "balance ERISA's preemptive scope with its 'antiphonal' acceptance of state insurance regulation," the Ninth Circuit affirmed Judge Molloy. (85) Judge O'Scannlain, writing for a unanimous court, noted Rush's declaration that "[d]eferential review ... is not a settled given[.]" (86) The court reasoned that ERISA requires "a uniform judicial regime of categories of relief and standards of primary conduct, not a uniformly lenient regime of reviewing benefit determinations." (87)

Because the practice of disapproving discretionary clauses clearly "relates to" an employee benefit plan sufficiently to trigger the general preemptive provisions of ERISA, the Morrison court first focused on whether the Savings Clause applied. The court applied the two-part test set forth in Kentucky Ass'n of Health Plans, Inc. v. Miller. (88) Standard contended that Morrison's practice of disapproving discretionary clauses was not specifically directed at insurance companies because it was instead directed at "ERISA plans and procedures." (89) The court disagreed, saying, "[u]nfortunately for Standard, ERISA plans are a form of insurance, and the practice regulates insurance companies by limiting what they can and cannot include in their insurance policies." (90) Standard also argued that Morrison's rule was based on the common law principle of contra proferentem that applies to all contracts. Standard tried to equate the Montana rule with Mississippi bad faith law that was preempted in the seminal case Pilot Life Insurance Co. v. Dedeaux. (91) The court was not persuaded. Although conceding that Morrison's practice "admittedly achieves some of the same ends as the common-law contra proferentem rule," the court concluded that "the disapproval of insurance forms which contain discretionary clauses--is specific to the insurance industry." (92) The requirement that insurance policy forms be approved by the Commissioner was found by the court to be "an expression of [the state's] special solicitude for insurance consumers." (93) Further, the court found that "Morrison's practice is grounded in policy concerns specific to the insurance industry, such as ensuring fair treatment of claims by insurers with potential conflicts of interest." (94)

The second prong of the Kentucky Ass'n test required examination of whether the disapproval of discretionary clauses substantially affected the risk pooling arrangement. Standard argued for an actuarial definition of risk pooling that it claimed is used in the insurance industry: that risk is pooled at the time the contract is made and that all claims handling therefore post-dates the risk pooling and has no effect on it. The Court of Appeals rejected this theory as well, finding that risk pooling "extends to a much wider variety of circumstances[.]" (95) The court approved Judge Molloy's reasoning on this point and added:
   [C]onsumers can be reasonably sure of claim acceptance only when an
   improperly balking insurer can be called to answer for its decision
   in court. By removing the benefit of a deferential standard of
   review from insurers, it is likely that the Commissioner's practice
   will lead to a greater number of claims being paid. More losses
   will thus be covered, increasing the benefit of risk pooling for
   consumers. (96)


For these reasons, the court found that the Savings Clause ban was saved from preemption. One test remained. Standard argued, even if Morrison's practice fell within the savings clause, it infringed upon ERISA's exclusive civil remedy scheme. (97) The court reviewed the admonitions of Aetna Health and Pilot Life but found that the prohibition of discretionary clauses did not create any additional remedy. The court noted that the de novo review that follows elimination of the discretionary clause is the default standard of review. Thus, ensuring de novo review adds nothing to the ERISA scheme. (98)

Finally, Standard argued that banning discretionary clauses "is inconsistent with the purpose and policy of the ERISA remedial system, which emphasizes a balance between protecting employees' right to benefits and incentivizing employers to offer benefit plans." (99) Standard relied on the language in Glenn warning against a "near universal review by judges de novo." (100) The Morrison court distinguished Glenn and other cases though, explaining that "[t]he Court's refusal to create a system of universal de novo review does not necessarily mean that states are categorically forbidden from issuing insurance regulations with such effect." (101) The court further concluded that Firestone's acceptance of the de novo review standard, coupled with Glenn's recognition that a conflict of interest must be accounted for, indicate that "highly deferential review is not a cornerstone of the ERISA system." (102) The court ultimately confirmed this view by reference to Rush's clear holding that ERISA does not require "a uniformly lenient regime of reviewing benefit determinations." (103)

In its petition for certiorari, Standard argued that the Ninth Circuit opinion "revolutionizes" ERISA's remedial scheme. "This imposition on federal courts of de novo review for all plan insured benefit determinations necessarily enhances the remedy available under ERISA[.]" (104) Despite this appeal, the Supreme Court declined to hear the case.

B. THE SIXTH CIRCUIT: AMERICAN COUNCIL OF LIFE INSURERS V. ROSS

As Standard v. Morrison climbed through the Ninth Circuit, the Sixth Circuit handled a similar case on a parallel track. The state of Michigan promulgated administrative rules, which prohibited discretionary clauses. (105) The rules took effect June 1, 2007. The American Council of Life Insurers (ACLI) and America's Health Insurance Plans (AHIP), trade associations for the life and health insurance industries, filed suit against the Michigan Office of Financial and Insurance Services (OFIS) seeking declaratory relief that the rules do not govern plans subject to ERISA and enjoining the Commissioner's enforcement of the rules. (106) The federal district court granted summary judgment for the Commissioner (107) and the insurance associations appealed.

The issue presented to the Sixth Circuit was whether the Michigan rules were preempted by ERISA. As in Morrison, the court focused on the Kentucky Ass'n two-part test. First, the court found that the rules were directed at entities engaged in insurance because they imposed conditions on the right to engage in the business of insurance. (108) The insurance associations argued that the rules were actually directed at plan administrators rather than insurers, but the court disagreed. The court noted that rules are not removed from the protections of the Savings Clause simply because they also happen to affect other entities. (109)

Next, the court addressed the risk pooling issue. ACLI and AHIP argued, as Standard Insurance did in Morrison, that the risk had already been transferred and therefore the state rules did not substantially affect risk pooling. The Sixth Circuit was as unimpressed as the Ninth Circuit with this ultra-narrow definition of risk pooling. (110) The court noted that the risk pooling test set forth in Kentucky Ass'n contains no "timing element." (111) The court recognized that a rule that "alter[s] the scope of permissible bargains between insurers and insureds" substantially affects the risk pooling arrangement. (112)

The Ross court then turned its attention to ERISA's civil remedy scheme and the appellants' conflict preemption claim. The court noted that a law that falls within the savings clause may nonetheless be preempted by ERISA's civil enforcement provisions, saying that these remedies represent the "sort of overpowering federal policy that overrides a statutory provision designed to save state law from being preempted." (113) The court found that "[t]he [Michigan] rules did not authorize any form of relief in state court, either expressly or impliedly[.]" (114) Nor did the rules provide an alternative enforcement mechanism that would allow a participant to assert a claim that could otherwise be asserted under ERISA. (115) "The rules at most may affect the standard of judicial review if, and when, such a claim is brought before a court." (116)

Lastly, the Ross court addressed the industry's claim that the rules in question clashed with the policy and purpose of ERISA to provide a uniform set of rules for adjudicating cases under ERISA. The court found the industry's argument "unavailing." (117) The language of ERISA says nothing about the standard of review, the court explained, and de novo review is already the default standard. (118) The Supreme Court's rejection of a similar argument in Rush, and its holding that ERISA does not require a "uniformly lenient regime of reviewing benefit determinations," sealed the issue for the Ross court. (119)

Because the Ross court found that Michigan's rules prohibiting discretionary clauses were within the ambit of the savings clause and not subject to conflict preemption, the court affirmed the district court's summary judgment for OFIS. The Sixth Circuit's decision provides further strength to the judicial affirmation of actions by insurance regulators to ban discretionary clauses. The courts in Ross and Morrison addressed the same issues in the same ways, unanimously, fortifying the holdings of both.

C. THE TENTH CIRCUIT: HANCOCK V. METROPOLITAN LIFE INSURANCE CO.

One other Court of Appeals decision adds support to the holdings of Morrison and Ross, albeit indirectly. In Hancock v. Metropolitan Life Insurance Co., (120) the claimant challenged the insurer's denial of accidental death and dismemberment benefits following the death of her mother. Applying the arbitrary and capricious standard of review, the district court upheld Met Life's decision. On appeal, Hancock argued that the standard of review should be de novo because the discretionary clause in the plan failed to comply with Utah's insurance regulations. The Utah Insurance Department did not ban discretionary clauses but promulgated Rule 590-218, which required a certain font to be used to highlight the clauses.

The Tenth Circuit reviewed the rather gruesome circumstances of Verla Hancock's death and the plan under which she was covered. At issue was whether an accident was the sole cause of her death or whether it was caused in part by mental illness or its treatment, which was excluded. Coverage seemed to turn on whether Met Life was entitled to deference. (121) The court applied the Kentucky Ass'n two-part test to determine whether the Savings Clause protected Utah's law. (122) Because the parties did not dispute that the Utah rule was directed at the insurance industry, the court moved straight to prong two of the Kentucky Ass'n test and found that the Utah rule did not substantially affect risk pooling because it did not "alter the scope of permissible bargains between insurers and insureds." (123) The rule at bar related to the form, and not the substance, of discretion-granting clauses. (124) Then the court at once distinguished and joined the Ninth and Sixth Circuits:
   If Rule 590-218 imposed a blanket prohibition on the use of
   discretion-granting clauses, we would have a different case. Two
   circuits have held that such a prohibition substantially affects
   risk pooling. They reasoned that by preventing insureds from
   accepting a discretion-granting clause in return for a lower
   premium, the prohibition narrows the scope of permissible insurance
   bargains. (125)


But that reasoning does not apply here. Rule 590-218, although initially stating a prohibition, permits discretion-granting clauses in ERISA plans so long as they substantially conform to the rule's safe-harbor language and use bold, 12-point font. (126) "Indeed, the rule's title--'Permitted Language for Reservation of Discretion Clauses'--belies any notion that Rule 590-218 prohibits discretion." (127)

The Hancock court found that the Utah rule fell outside the Savings Clause and was therefore preempted by ERISA. Accordingly, the court applied the arbitrary and capricious standard of review and sustained the district court's affirmance of the claim denial. The holding in Hancock implicitly approves the reasoning of Morrison and Ross but adds a nuance. The prohibition of discretionary clauses by a state is saved from ERISA preemption and will stand, but attempts to regulate the appearance if those clauses fall outside the Savings Clause and will be preempted.

VIII. THE IMPACT OF HEALTH CARE REFORM

Following the circuit court decisions, particularly in Morrison and Ross, the power of the individual states to regulate discretionary clauses either through their prohibition or allowance is undisputed. However, one might question whether the central reason for sustaining the discretionary standard, at least in the case of large employers, may be mooted by the passage of the Patient Protection and Affordable Care Act (ACA). In his concurring opinion in Glenn, Chief Justice John Roberts revisits why the United States Supreme Court construed ERISA discretionary clauses as they did:
   We have long recognized 'the public interest in encouraging the
   formation of employee benefit plans.' Ensuring that reviewing
   courts respect the discretionary authority conferred on ERISA
   fiduciaries encourages employers to provide medical and retirement
   benefits to their employees through ERISA-governed plans--something
   they are not required to do. (128)


The recent federal health care reforms do not require large employers to provide health insurance for their employees, but they create a new, considerable incentive. The ACA will impose an assessment on large employers "equal to the product of the applicable payment amount and the number of individuals employed by the employer as full-time employees during such month." (129) In other words, large employers that fail to provide health insurance will be subject to a punitive fine.

For those who celebrate Morrison and Ross, the thrill of victory must remain tempered by Chief Justice Roberts's policy view. The inclusion of new incentives for employers to provide coverage to their employees, however, takes some wind out of those sails.

IX. CONCLUSION

For twenty years, the boundaries of employee benefit rights have been narrowed by the discretionary clause and its empowerment in Firestone v. Bruch. This "seemingly permanent fixture" and "highly prized feature" of employee benefit plans, has deprived countless thousands of working Americans of health and disability income benefits while spawning prolific litigation and frustrating judges. In the last ten years, and especially the last five, state insurance commissioners have flexed their muscle by banning the clauses from insured ERISA plans. Insurers responded by suing. With the ERISA preemption issue placed squarely before them, the United States Courts of Appeal have sustained the regulatory authority of the states to prohibit the clauses. Given how closely the ERISA discretion issue divides the Supreme Court, it would be naive to assume that the issue is settled. But for now, in many states, the field has been leveled and the right to fair claims handling restored.

(1.) H.R. Res. 2, 93rd Cong. (1974).

(2.) John H. Langbein, Trust Law as Regulatory Law. The UNUM/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 NW. U. L. REV. 1315, 1325 (2007) (citations omitted).

(3.) 29 U.S.C. [section] 1001(b) (2003).

(4.) CONGRESSIONAL RESEARCH SERVICE REPORT, ERISA REGULATION OF HEALTH PLANS: FACT SHEET (March 6, 2003), http://www.allhealth.org/briefingmaterials/erisaregulationofhealthplans_ 114.pdf.

(5.) 29 U.S.C. [section][section] 1001, 1132(a)(1)(B). See Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008).

(6.) PENSION & BENEFITS DAILY, Analysis and Perspective, Bureau of National Affairs, Inc., Feb. 2, 2010, at 1 (stating "[l]ong heralded as a seemingly permanent fixture in Employee Retirement Income Security Plans, 'discretionary clauses' are under fire in many states[]").

(7.) Standard Ins. Co. v. Morrison, 584 F.3d 837 (9th Cir. 2009), cert. denied, 130 S. Ct. 3275 (2010); Am. Council of Life Insurers v. Ross, 558 F. 3d 600 (6th Cir. 2009).

(8.) Petition for Writ of Certiorari, Standard, 130 S. Ct. 3275 (No. 09-885).

(9.) PENSION & BENEFITS DAILY, Analysis and Perspective, Bureau of National Affairs, Inc., Feb. 2, 2010, at 1.

(10.) See Morrison, 584 F.3d at 840.

(11.) Id.

(12.) Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 384 (2002).

(13.) Id. at 385-86. "Not only is there no ERISA provision directly providing a lenient standard for judicial review of benefit denials, but there is no requirement necessarily entailing such an effect even indirectly." Id. at 385.

(14.) Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111 (1989). Firestone was decided just two years after the Supreme Court stripped millions of Americans, insured under ERISA plans, of the protections of state insurance bad faith laws and the attendant legal remedies. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). In two short years, working Americans lost the right to pursue full remedies and punitive damages against malicious insurers, and then lost the right to even go to court and prove their cases through a preponderance of the evidence.

(15.) Bruch, 489 U.S. at 112.

(16.) ld. The Court must have known that the language would immediately trigger wholesale inclusion of discretionary clauses in every ERISA plan, as it did.

(17.) Id. A strong argument can be made that the references to trust law in ERISA's legislative history and early federal ERISA decisions are tied directly to the fiduciary responsibilities imposed on plan managers, a justifiable response to the looting and mishandling of pension plan assets by unions and large employers. Importation of trust principles into the resolution of contract disputes between policyholders and insurers, however, transforms a worker protection law into a company protection shield. The Seventh Circuit perceived this problem early on in Brundage-Peterson v. Compcare Health Services Insurance Corp., 877 F.2d 509, 512 (7th Cir. 1989). A full discussion of this issue is beyond the scope of this article, but the Morrison and Ross cases discussed infra may signal an awakening in the federal courts to the practical problems created by this importation. But see Conkright v. Frommert, 130 S. Ct. 1640 (2010). Plan administrators will not be stripped of deferential review by federal courts when they make a "single honest mistake" in administering and interpreting plans. Id. at 1643.

(18.) Thomas v. Or. Fruit Prods. Co., 228 F.3d 991, 996-97 (9th Cir. 2000).

(19.) 29 U.S.C. [section] 1132 (2006).

(20.) Id.

(21.) See Krolnik v. Prudential, 570 F.3d 841 (7th Cir. 2009) (explaining that when no discretionary clause is present, an ERISA benefits case is no different than any other contract law case involving a material dispute of facts, the parties are fully entitled to present at trial the evidence required to carry their burden of proof and sway the courts). See generally Mark D. Debofsky, Big Step Toward Clearing Up ERISA Litigation, CHICAGO DAILY LAW BULLETIN, April 30, 2007.

(22.) Beverly Cohen, Divided Loyalties: How the Metlife v. Glenn Standard Discounts ERISA Fiduciaries' Conflicts of Interest, 2009 UTAH L. REV. 955, 956 (2009).

(23.) Id.; see infra Part V.

(24.) 317 F.3d 72 (1st Cir. 2003).

(25.) Id. at 86.

(26.) Id. at 85 (citing Doyle v. Paul Revere Life Ins. Co., 144 F.3d 181, 184 (1st Cir. 1998)).

(27.) Brigham, 317 F.3d at 86.

(28.) 836 F.2d 1048 (7th Cir. 1987).

(29.) Id. at 1052.

(30.) Mark D. Debofsky, Why Discretionary Clauses Must Be Prohibited, Testimony before the National Association of Insurance Commissioners (NAIC) at their meeting in Anaheim, California on the topic of disability insurance and ERISA, December 8, 2003, available at www.ddbchicago. com/docs/naic_12-8-03_mdd_testimony.pdf (internal quotations omitted) (citing Herzberger v. Standard Ins. Co., 205 F.3d 327, 529 (7th Cir. 2000)).

(31.) John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 NW. U. L. REV. 1315, 1316 (2007).

(32.) Id.

(33.) Paul v. Virginia, 75 U.S. 168 (1868).

(34.) McCarran-Ferguson Act, 15 U.S.C. [section][section] 1011-15 (1994). See United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533 (1944).

(35.) National Association of Insurance Commissioners & the Center for Insurance Policy and Research, available at http://www.naic.org/index_about.htm.

(36.) Id. The Mission Statement of the NAIC also includes promoting competitive markets, promoting the reliability, solvency and financial solidity of insurance institutions and supporting and improving state regulation of insurance, ld.

(37.) See Susan Randall, Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners, 26 FLA. ST. U. L. REV. 625 (1999).

(38.) See 2001 NAIC Proceedings, June 11, 2001, at 120 (on file with author).

(39.) See 2002 NAIC Proceedings, March 18, 2002, at 175 (on file with author).

(40.) See 2002 NAIC Proceedings, June 9, 2002, at 10-13 (on file with author).

(41.) See 1 NAIC MODEL LAWS, REGULATIONS AND GUIDELINES, 42-1 to 42-6 (2002, amended 2004); see also 2004 NAIC Proc. 3rd Qtr. P. 68, 2004 WL 3650374. The full text of the final model excluding index, drafting notes, and legislative history, is as follows:

PROHIBITION ON THE USE OF DISCRETIONARY CLAUSES MODEL ACT

Section 1. Short Title

This Act shall be known and may be cited as the Discretionary Clause Prohibition Act.

Section 2. Purpose and Intent

The purpose of this Act is to assure that health insurance benefits and disability income protection coverage are contractually guaranteed, and to avoid the conflict of interest that occurs when the carrier responsible for providing benefits has discretionary authority to decide what benefits are due. Nothing in this Act shall be construed as imposing any requirement or duty on any person other than a health carrier or insurer that offers disability income protection coverage.

Section 3. Definitions

A. "Commissioner" means the Commissioner of Insurance.

B. "Disability income protection coverage" is a policy, contract, certificate or agreement that provides for periodic payments, weekly or monthly, for a specified period during the continuance of disability resulting from either sickness or injury or a combination of them.

C. "Health care services" means services for the diagnosis, prevention, treatment, cure or relief of a health condition, illness, injury or disease.

D. "Health carrier" means an entity subject to the insurance laws and regulations of this state, or subject to the jurisdiction of the commissioner, that contracts or offers to contract to provide, deliver, arrange for, pay for or reimburse any of the costs of health care services, including a sickness and accident insurance company, a health maintenance organization, a nonprofit hospital and health service cooperation, or any other entity providing a plan of health insurance, health benefits or health services.

E. "Person" means an individual, a corporation, a partnership, an association, a joint venture, a joint stock company, a trust, an unincorporated organization, any similar entity or combination of the foregoing.

Section 4. Discretionary Clauses Prohibited

A. No policy, contract, certificate or agreement offered or issued in this state by a health carrier to provide, deliver, arrange for, pay for or reimburse any of the costs of health care services may contain a provision purporting to reserve discretion to the health cartier to interpret the terms of the contract, or to provide standards of interpretation or review that are inconsistent with the laws of this state.

B. No policy, contract, certificate or agreement offered or issued in this state providing for disability income protection coverage may contain a provision purporting to reserve discretion to the insurer to interpret the terms of the contract, or to provide standards of interpretation or review that are inconsistent with the laws of this state.

Section 5. Penalties

A violation of this Act shall [insert appropriate administrative penalty from state law]

Section 6. Separability

If any provision of this Act, or the application of the provision to any person or circumstance, shall be held invalid, the remainder of the Act, and the application of the provision to persons or circumstances other than those to which it is held invalid, shall not be affected.

Section 7. Effective Date

This Act shall be effective [insert date].

1 NAIC Model Laws, Regulations and Guidelines, 42-1 to 42-6 (2002, amended 2004).

(42.) Testimony and Written Submissions, Joint Public Hearing of the Consumer Protection Working Group and the Health Insurance and Managed Care (B) Committee, San Francisco, California, Attachment 4-A, Health Insurance and Managed Care (B) Committee Minutes, 2004 NAIC Proceedings, 2nd Quarter, 368-69 (June 14, 2004) (on file with author).

(43.) Amicus Curie Brief of National Association of Insurance Commissioners at 16, Standard Ins. Co. v. Morrison, No. 08-35246 (9th Cir. 2008) (citing 2 Proceedings of the National Association of Insurance Commissioners 17 (2002); 2002 NAIC Proceedings 2nd Qtr. P. 10, 2002 WL 3270063 (noting issues in technical amendment and project history)).

(44.) Alaska uses a checklist for form approval that includes a discretionary clause ban, which prohibits any "inconsistent, ambiguous, or misleading clause." ALASKA STAY. [section][section] 21.42.130 and 21.36 (2010). California issued a "letter opinion" in 2004 stating discretionary clauses violate California law and withdrawing approval for all forms containing the clauses. It also said ERISA does not preempt state law. Colorado banned the clauses in the Colorado Insurance Fair Conduct Act in 2008. Hawaii issued a 2004 "Memorandum" saying the clauses violate Hawaii Revised Statutes Section 431:l3-102, which prohibits unfair or deceptive practices. HAW. REV. STAY. [section] 431:13-102 (2010). Idaho issued Insurance Rule 18.01.29 banning the clauses. Idaho Department of Insurance Rule IDAPA 18.01.29, "Restrictions on Discretionary Clauses in Health Insurance Contracts." Illinois also passed a discretionary clause ban in 2005. State Insurance Code Section 2001.3. Maine banned the clauses by statute in 1995. ME. REV. STAY. ANN. tit. 24-A, [section] 4303 (2010). Michigan banned the clauses by Administrative Code Rule 550.112 in 2007. MICH. ADMIN. CODE r. 550.112 (2007). Montana began disapproving policies containing discretionary clauses in 2001, which prohibits approval of forms that contain "inconsistent, ambiguous or misleading clauses or exceptions." MONT. CODE ANN. [section] 33-1-502 (2010). Approval of prior forms containing the clauses was withdrawn by letter in 2005. New Jersey administrative code bars the clauses. N.J. ADMIN. CODE [section] 11:4-58 (2007). New York banned the clauses as well. Circular Letter No. 14 (2006). Oregon adopted a form approval checklist that includes a discretionary clause prohibition. OR. REV. STAY. 742.005(2) and (3) (2010). The South Dakota Insurance Code bans the clauses from any policy issued or renewed after June 30, 2008. S.D. ADMIN. R. 20:06:52:02 (2008). Texas recently banned the clauses by rule. Washington issued a "Rule-making Order" in 2009 banning the clauses. Nevada, New Hampshire, Utah, and Wyoming allow the clauses but only with language explaining the deference that is given to the insurer. Wyoming also prescribes that review of a claim denial under a policy containing a discretionary clause must be de novo. WYO. STAY. ANN. [section] 26-13-304 (2010).

(45.) Maine, Colorado, Illinois, and South Dakota have enacted statutes. See supra note 44.

(46.) Idaho, Michigan, New Jersey, Texas and Washington have promulgated rules. See supra note 44.

(47.) California, Hawaii, Montana and New York have banned the clauses through bulletin, memorandum, or letter. See supra note 44.

(48.) Alaska and Oregon have used checklists. See supra note 44.

(49.) Montana began prohibiting the clauses this way and later issued a letter directing insurers to refile all policies being used in the market after removing any discretionary clauses.

(50.) 29 U.S.C. [section] 1144(a) (West 2006).

(51.) 29 U.S.C. [section] 1144(b)(2)(A) (West 2006). This line of demarcation exists only as to insured plans. True self-funded ERISA plans are exempt from state regulation altogether because they are deemed by ERISA to not be insurance. 29 U.S.C. [section] 1144(b)(2)(B) (West 2006).

(52.) Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 364-65 (2002).

(53.) See id. See also Aetna Health Inc. v. Davila, 542 U.S. 200 (2004). State bad faith claims may survive the legal test for preemption, but still inapplicable to ERISA because such causes of action provide for damages beyond those permitted in 29 U.S.C. section 1132 (West 2006).

(54.) 538 U.S. 329, 341-42 (2003).

(55.) Id.

(56.) Id. Kentucky's Any Willing Provider law prohibited discrimination by an insurer against any health care provider who was willing to meet the terms of a given health plan. "By expanding the number of providers from whom an insured may receive health services, AWP laws alter the scope of permissible bargains between insurers and insureds ..." thus affecting the risk pool arrangement. Id. at 338-39.

(57.) Id. at 338. The Court reasoned that without this element, any law directed at insurance companies, such as a law requiring insurers to pay janitors twice the minimum wage, could be saved from preemption. This second prong of the Kentucky Ass'n test is ill-conceived on more than one level. First, why would a law governing wages paid to insurance company janitors be preempted by ERISA in the first place? More to the point though, there is a wide array of state insurance regulation that has no affect at all on risk pooling but obviously remains squarely within the ambit of state insurance departments. Two examples are licensing of agents or "producers" and the requirement that companies file annual reports. ERISA has no interest in these regulatory activities and clearly, as a practical matter, they have not been preempted. The second prong of the Kentucky Ass "n test should be revised to simply say that a state law, to be saved, must not only be aimed at the insurance industry, but must be aimed at the industry's insurance business.

(58.) FMC v. Holliday, 498 U.S. 52, 64 (1990). "By recognizing a distinction between insurers of plans and the contracts of those insurers, which are subject to direct state regulation, and self-insured employee benefit plans governed by ERISA, which are not, we observe Congress' presumed desire to reserve to the States the regulation of the 'business of insurance.'" Id. at 63.

(59.) UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 375-76 (1999) (citing Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 758 (1985)).

(60.) UNUM Life, 526 U.S. at 376 n.6 (citing Metropolitan Life, 471 U.S. at 747).

(61.) See Aetna Health v. Davila, 542 U.S. 200, 208-09 (2004) (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987)).

(62.) See id.

(63.) 536 U.S. 355 (2002).

(64.) Illinois Health Maintenance Organization Act, 215 ILL. COMP. STAT. 125/4-10 (2000).

(65.) Rush Prudential, 536 U.S. at 396.

(66.) Id. at 362.

(67.) Id. at 377-78.

(68.) Id. at 384.

(69.) Id. at 385-86 (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)).

(70.) Id. at 386 (citing Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985); UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358 (1999)).

(71.) Id. at 387 (citing Metropolitan Life, 471 U.S. at 741 (stating "state laws regulating the substantive terms of insurance contracts were commonplace well before the mid-70's")).

(72.) Id. at 387.

(73.) Id. It is worth noting that the Court was closely divided. Justice Thomas dissented, with Chief Justice Rehnquist, Justice Scalia and Justice Kennedy joining. Equating independent review with arbitration, the dissenters argued that it created an impermissible additional remedy, stating:
   [a]llowing disparate state laws that provide inconsistent external
   review requirements to govern a participant's or beneficiary's
   claim to benefits under an employee benefit plan is wholly
   destructive of Congress' expressly stated goal of uniformity in
   this area. Moreover, it is inimical to a scheme for furthering and
   protecting the 'careful balancing of the need for prompt and fair
   claims settlement procedures against the public interest in
   encouraging the formation of employee benefit plans,' given that
   the development of a federal common law under ERISA-regulated plans
   has consistently been deemed central to that balance.


Id. at 400.

(74.) 554 U.S. 105 (2008).

(75.) Metro. Life Ins. Co. v. Glenn, 461 F.3d 660, 666 (6th Cir. 2006).

(76.) Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (quoting RESTATEMENT (SECOND) OF TRUSTS [section] 187 cmt. d (1959)).

(77.) Metropolitan Life, 554 U.S. at 118.

(78.) Id. at 115-16 (internal citations omitted).

(79.) 584 F.3d 837 (9th Cir. 2009).

(80.) MONT. CODE ANN. [section] 33-1-502 (2009 & Supp. 2010). This is a standard provision in insurance codes and is part of the NAIC model law concerning form approval.

(81.) In addition to the federal court challenge raising ERISA preemption issues, Standard sued in state court, arguing that its discretionary clause was compliant with Montana law. State District Court Judge Thomas C. Honzel disagreed, ruling that "on its face, Standard's discretionary clause is ambiguous and inconsistent. Therefore, the court concludes that Morrison was correct in determining that Standard's discretionary clause violates Section 33-1-502(2), MCA." Standard Ins. Co. v. Mont. Dep't of Ins. & Morrison, First Judicial District Court of Montana, 2008 Mont. Dist. LEXIS 681, *12-13. Standard chose not to appeal the adverse decision to the Montana Supreme Court.

(82.) Standard Ins. Co. v. Morrison, 537 F. Supp. 2d 1142 (D. Mont. 2008).

(83.) Id. at 1153.

(84.) Id.

(85.) Standard Ins. Co. v. Morrison, 584 F.3d 837, 847 (9th Cir. 2009) (quoting Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 364 (2002)).

(86.) Rush Prudential, 536 U.S. at 386.

(87.) Morrison, 584 F.3d at 848 (quoting Rush Prudential, 536 U.S. at 385.) At the outset of its opinion, the court also noted that the NAIC, which appeared as Amicus Curiae, opposes the use of discretionary clauses and believes that banning them mitigates the conflict of interest present when the claim adjudicator also pays the benefit. Id

(88.) 538 U.S. 329 (2003).

(89.) Morrison, 584 F.3d at 842.

(90.) Id.

(91.) 481 U.S. 41, 48-49 (1987).

(92.) Morrison, 584 F. 3d at 843.

(93.) Id.

(94.) Id. at 844.

(95.) Id.

(96.) Id. at 845.

(97.) Id.

(98.) Id. at 846.

(99.) Id. at 847.

(100.) Id.

(101.) Id.

(102.) Id. at 847-48.

(103.) Id. (citing Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 385 (2002)).

(104.) Petition for Writ of Certiorari, Standard Ins. Co. v. Lindeen, 2010 WL 285409, *10 (No. 09-885).

(105.) MICH ADMIN. CODE r. 500.2201-500.2202, 550.112 (2011).

(106.) Am. Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009).

(107.) Am. Council of Life Insurers v. Watters, 536 F. Supp. 2d 811, 824 (2008). During the course of the litigation, Ken Ross replaced Linda Watters as Commissioner.

(108.) Ross, 558 F.3d at 605. The court stated:
   under the plain language of the rules, any insurer who wishes to
   provide insurance in Michigan must submit its insurance forms to
   the Commissioner for review and may not include a discretionary
   clause in such forms; if an insurer fails to comply with this
   requirement, the insurance contract is void and of no effect.


Id.

(109.) Id. at 606 (citing Ky. Ass'n of Health Plans v. Miller, 538 U.S. 329, 335-36 (2003); Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 372 (2002)).

(110.) Id. at 606-07.

(111.) Id. at 606.

(112.) Id.

(113.) Id. at 607 (citing Rush Prudential, 536 U.S. at 375; Aetna Health, Inc. v. Davila, 542 U.S. 200, 217-18 (2004)).

(114.) Id.

(115.) Id. at 607-08.

(116.) Id. at 608.

(117.) Id.

(118.) Id. (internal citations omitted).

(119.) Id. (citing Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 385 (2002)).

(120.) 590 F.3d 1141 (10th Cir. 2009).

(121.) Id. at 1146.

(122.) Id. at 1148.

(123.) Id. at 1148-49 (citing Ky. Ass'n of Health Plans v. Miller, 538 U.S. 329, 338-39 (2003)).

(124.) Id. at 1149.

(125.) Id. (internal citations omitted).

(126.) See UTAH ADMIN. CODE r. 590-218-5(3), (4) (2011).

(127.) Hancock, 590 F.3d at 1149. Wyoming enacted a statute similar to Utah's. WYO. STAY. ANN. [section] 26-13-304 (2009). Given Hancock, it will have the effect of simply authorizing discretionary clauses.

(128.) Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 120 (2008) (internal citations omitted).

(129.) Patient Protection and Affordable Care Act [section]4980H(a), Pub. L. 111-148, 124 Stat. 119 (2010).

JOHN MORRISON ([dagger])

JONATHAN MCDONALD ([dagger][dagger])

([dagger]) John Morrison is the senior partner of Morrison, Motl, and Sherwood in Helena, Montana. He served as State Auditor and Insurance Commissioner of Montana from 2001 to 2009.

([dagger][dagger]) Jonathan McDonald is a partner in the firm of Dix, Hunt, and McDonald and was co-counsel in Standard Ins. Co. v. Morrison. The authors wish to acknowledge and thank Professor Gregory Munro of the University of Montana School of Law for his valuable assistance in developing and editing this article.
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