Supreme Court,FILED

FE61 S 2o10

No. 09-885OFFICE OF "[’HE CLERK

STANDARD INSURANCE COMPANY,

Petitioner,V.

MONICA LINDEEN, State Auditor,ex officio Commissioner of Insurance,

Respondent.

On Petition for a Writ of Certiorarito the United States Court of Appeals

for the Ninth Circuit

BRIEF OF ASSOCIATED OREGONINDUSTRIES, ASSOCIATION OF CALIFORNIA

LIFE AND HEALTH INSURANCECOMPANIES, BLUE CROSS AND BLUE

SHIELD OF MONTANA, MONTANA CHAMBEROF COMMERCE, AND NEW WEST HEALTH

SERVICES AS AMICI CURIAE INSUPPORT OF PETITIONER

ANDREW E. TAUBERCounsel of Record

BRIAN J. WONGMayer Brown LLP1999 K Street, NWWashington, DC 20006(202) 263-3000atauber@mayerbrown.com

Counsel for Amici Curiae

WILSON-EPES PRINTING Co., INC. - (202) 789-0096 - WASHINGTON, D. C. 20002

Blank Pag~

TABLE OF CONTENTS

PageTABLE OF AUTHORITIES .......................................ii

INTEREST OF AMICI CURIAE ................................1

REASONS FOR GRANTING THE PETITION .........4

I. THIS CASE PRESENTS ISSUES OFNATIONAL SIGNIFICANCE---ANDWARRANTS THIS COURT’SATTENTION BECAUSE MANY STATESHAVE ADOPTED OR ARECONSIDERING THE ADOPTION OFPROHIBITIONS ON DISCRETIONARYCLAUSES ...............................................................4

A. Allowing Discretionary Clauses Is AnIntegral Part Of The Balance CongressStruck When Enacting ERISA .........................5

B. Many States Have Already ProhibitedDiscretionary Clauses, And Many OtherStates Are Considering SuchProhibitions .......................................................9

CONCLUSION ..........................................................21

ii

TABLE OF AUTHORITIES

Page(s)

CASES

Abena v. Metro. Life Ins. Co.,544 F.3d 880 (7th Cir. 2008) .................................5

Aetna Health Inc. v. Davila,542 U.S. 200 (2004) ...............................................6

Am. Council of Life Insurers v. Ross,558 F.3d 600 (6th Cir. 2009) .........................14, 18

Cash v. Wal-Mart Group Health Plan,107 F.3d 637 (8th Cir. 1997) .................................8

Curtiss-Wright Corp. v. Schoonejongen,514 U.S. 73 (1995) .................................................8

Firestone Tire & Rubber Co. v. Bruch,489 U.S. 101 (1989) ...............................6, 7, 16, 20

Hancock v. Metro. Life Ins. Co.,590 F.3d 1141 (10th Cir. 2009) ...........................18

Hughes Aircraft Co. v. Jacobson,525 U.S. 432 (1999) ...............................................5

Massachusetts Mut. Life Ins. Co. v. Russell,473 U.S. 134 (1985) ...............................................5

McClenahan v. Metro. Life Ins. Co.,621 F. Supp. 2d 1135 (D. Colo. 2009) .................12

Mertens v. Hewitt Assocs.,508 U.S. 248 (1993) ...............................................5

Metro. Life Ins. Co. v. Glenn,128 S. Ct. 2343 (2008) ...........................................7

Moon v. Am. Home Assurance Co.,888 F.2d 86 (llth Cir. 1989) .................................8

Pilot Life Ins. Co. v. Dedeaux,481 U.S. 41 (1987) .......................................3, 5, 20

o.oIII

TABLE OF AUTHORITIES--continued

Page(s)

Reichelt v. Emhart Corp.,921 F.2d 425 (2d Cir. 1990) ..................................5

Varity Corp. v. Howe,516 U.S. 489 (1996) .......................................3, 5, 8

STATUTES, RULES AND REGULATIONS

29 U.S.C. § 1132(a) .....................................................6

29 U.S.C. § 1132(a)(1)(B) ............................................6

ALASKA STAT. ANN. § 21.42.130(2) ...........................10

COLO. REV. SWAT. § 10-3-1116(3) .............................. 11

IDAHO ADMIN. CODE R. 18.01.29.011.01 ...................17

IDAHO ADMIN. CODE R. 18.01.29.010.05 ...................17

ILL. ADMIN CODE tit. 50, § 2001.1 ............................13

ILL. ADMIN CODE tit. 50, § 2001.3 ............................13

ME. REV. SWAT. ANN. tit. 24-A, § 4303(11)(A) ..........13

ME. REV. SWAT. ANN. tit. 24-A, § 4303(11)(B) ..........13

MICH. ADMIN. CODE R. 500.2202 ..............................14

N.H. CODE. ADMIN. R. ANN. INS. 401.03(/)(3) ...........18

N.J. ADMIN. CODE § 11:4-58.1(b) .............................. 14

N.J. ADMIN. CODE § 11:4-58.3 ................................... 14

OR. REV. SWAT. § 742.005 ..........................................15

S.D. ADMIN. R. 20:06:52:02 ......................................15

S.D. ADMIN. R. 20:06:52:03 ......................................15

UTAH ADMIN. CODE R. 590-218-2 .............................18

UTAH ADMIN. CODE R. 590-218-5(2)-(3) ...................18

WASH. ADMIN. CODE. § 284-44-015 .......................... 15

Wyo. SWAT. ANN. § 26-13-304(b) ............................... 16

WYo. SWAT. AINrN. § 26-13-304(c) ............................... 16

iv

TABLE OF AUTHORITIES--continued

Page(s)

MISCELLANEOUSAn Act Concerning Life or Health Insurance

Policies and Contracts - DiscretionaryClauses- Prohibition, Md. H.B. 236 § 1(2008), available at http://mlis.state.md.us/2008RS/bills/hb/hb0236f.pdf. ...................18

Gary M. Cohen, General Counsel, Departmentof Insurance, State of California, Letteropinion per CIC § 12921.9: DiscretionaryClauses (Feb. 26, 2004), available at http://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commiss-opinion/upload/Opinion-February-26-2004.pdf. .........................................................10

Department of Commerce, Community andEconomic Development, State of Alaska,Group Health Policy Form Checklist (Sept.4, 2009), available at http://www.commerce¯ state.ak.us/ins/p ub/Group_Health_Checklist.pdf .......................................................10

Department of Consumer & Business Services,Oregon Insurance Division, StandardProvisions for Group Health Benefit Plans(Aug. 2009), available at http://insurance.oregon.gov/docs/serff/2448.pdf ......................14, 15

V

TABLE OF AUTHORITIES~continued

Page(s)

Department of Insurance, State of California,Notice to Withdraw Approval and Order forInformation (Feb. 27, 2004), available athttp ://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commissopinion/upload/Notice-February-27-2004.pdf .........................................11

Roy F. Harmon III, The Debate Over Deferencein the ERISA Setting--Judicial Review ofDecisions by Conflicted Fiduciaries, 54 S.D.L. REV. 1 (2009) .....................................................7

Indiana Department of Insurance, Bulletin103: Full and Final Discretion Clauses inGroup Health Contracts (May 8, 2001),available at http ://www.in. gov/idoi/files/Bulletin_103.pdf ...................................17

Insurance Department, State of New York,2010 Regulatory Agenda (Dec. 23, 2009),available at http://www.ins.state.ny.us/r_misc/agenda 10jan.pdf ......................................19

Insurance Department, State of New York,Circular Letter No. 14 (2006), available athttp ://www.ins. state.ny.us/circltr/2006/c106_14.htm ................................................19

vi

TABLE OF AUTHORITIES---continued

Page(s)

Insurance Division, Department of Commerce& Consumer Affairs, State of Hawaii,Memorandum 2004-13H re: DiscretionaryClauses in HMSA’s Agreement for GroupHealth Plan and Guide to Benefits ~Dec. 8,2004), available at http://hawaii.gov/dcca/ins/commissioners_memo/commissioners_memorandum_2004/ins_commissioners_memorandum_13h.p df]at_download/~le ............12

National Association of InsuranceCommissioners Model Act 42 ~"Prohibitionon the Use of Discretionary Clauses ModelAct") .......................................................................

Texas Department of Insurance,Commissioner’s Bulletin #B-0003-10 (Jan.7, 2010), available at http://www.tdi.state.tx.us/bulletins/2010/cc2.html ....................

INTEREST OF AMICI CURIAE"

Associated Oregon Industries (AOI) was foundedin 1895 to promote Oregon products. Today, AOI is anonprofit, statewide business and lobbying organiza-tion representing more than 1600 members, whichcollectively employ approximately 200,000 people--about 30 percent of the state’s workforce. AOI’smembers include manufacturing, retail, agriculture,technology, healthcare, and construction companieslocated throughout Oregon. As an advocate for busi-ness, AOI represents its members in the legislature,in courts of law, and before rulemaking agencies onmatters dealing with education, the environment,health care, employment and labor law, natural re-sources, taxation, transportation, workplace safetyand workers’ compensation, and other issues impor-tant to Oregon employers.

The Association of California Life and Health In-surance Companies (ACLHIC) was founded in 1962,and was originally known as the Association of Cali-fornia Life Insurance Companies. In 1995, the asso-ciation’s name was changed to reflect the increasedattention paid to health and disability insurance is-sues. ACLHIC’s main goals have been to advance theinterests and well-being of the life and health insur-

" Pursuant to this Court’s Rule 37.6, amici state that this briefwas not authored in whole or in part by counsel for a party, thatneither counsel for a party nor a party itself made a monetarycontribution intended to fund the preparation or submission ofthis brief, and that no person other than amici, their members,or their counsel made such a monetary contribution. Pursuantto this Court’s Rule 37.2(a), counsel of record for both partiesreceived timely notice of the intent to file this brief. The parties’letters consenting to the filing of this brief have been filed withthe Clerk’s office.

ance industry before legislative and administrativebodies.

Blue Cross and Blue Shield of Montana(BCBSMT) is a Montana nonprofit Health ServiceCorporation operating as an independent, locally op-erated licensee of the Blue Cross and Blue Shield As-sociation in the state of Montana. BCBSMT has beenproviding health care coverage and third party ad-ministration services to Montanans and Montanabusinesses for almost 70 years. BCBSMT currentlyinsures or offers third-party administration servicesfor 4800 Montana groups and 237,000 members.BCBSMT is regulated by the Montana State Auditorand therefore has a direct interest in the Auditor’sdeterminations related to discretionary clauses.

The Montana Chamber of Commerce is a 79year-old private, not-for-profit 501(c)(6) organization.It represents and promotes the interests of businessat the state and national levels. It is dedicated tobuilding Montana’s economy, creating a business-friendly environment, and growing the number ofgood-paying careers in Montana. It has nearly 1500members throughout the state ranging from smallmain street businesses to larger natural resource-based industries, from multi-generational ranches tohigh-tech manufacturers. These member companiesemploy tens of thousands of Montana workersaround the state. In its efforts to make Montana aneven better place to do business, the MontanaChamber represents its membership on a variety ofimportant business issues, including health care,energy, taxation, human resource law, workers’ com-pensation, trade, government regulation, and legalreform. The Montana Chamber also has a direct in-terest in this case as a Montana employer: it pro-

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vides its employees an ERISA-governed benefits planfunded through insurance issued by BCBSMT.

New West Health Services (New West) is a Mon-tana nonprofit Health Service Corporation, also li-censed as a health maintenance organization usingthe name New West Health Plan. New West is spon-sored by six Montana hospitals and their affiliatedmedical groups and has been in business for over 12years. New West provides health care plans, Medi-care Advantage coverage as a local preferred provid-er organization, and third party administration ser-vices to Montanan individuals and businesses. NewWest currently insures or offers third party adminis-tration services for approximately 41,000 Monta-nans. New West is regulated by the Montana StateAuditor and therefore has a direct interest in theAuditor’s determinations related to discretionaryclauses.

The Employee Retirement Income Security Act of1974 (ERISA) does not require employers to offertheir employees health benefits or any other kind ofwelfare benefits. It contains a "comprehensive civilenforcement scheme," which "represents a careful ba-lancing of the need for prompt and fair claims set-tlement procedures against the public interest in en-couraging the formation of employee benefit plans."Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987).Congress purposely eschewed creating a system thatwas "so complex that administrative costs, or litiga-tion expenses, unduly discourage employers from of-fering welfare benefit plans in the first place." VarityCorp. v. Howe, 516 U.S. 489, 497 (1996).

This case presents the issue of whether statescan effectively dictate the application of a de novostandard of review in suits brought under ERISA’s

4

civil enforcement provisions. By making ERISA ben-efit litigation considerably more expensive, mandato-ry de novo review inevitably increases the cost ofERISA-governed insurance plans. Because membersof amici provide health benefits to employeesthrough ERISA-governed welfare benefit plans or in-sure such plans, they have a substantial interest inthe resolution of the questions presented in this case.Faced with higher insurance costs, businesses maywell pass those costs on to their workers or choosenot to offer insurance benefits to their employees atall. The ability of amici and their members to provideor have access to affordable insurance is of great im-portance to them and to their employees.

REASONS FOR GRANTING THE PETITION

I. THIS CASE P R E SE NTS ISSUES OFNATIONAL SIGNIFICANCE--ANDWARRANTS THIS COURT’S ATTENTION--BECAUSE MANY STATES HAVE ADOPTEDOR ARE CONSIDERING THE ADOPTIONOF PROHIBITIONS ON DISCRETIONARYCLAUSES.

This case is of national importance. Its signific-ance extends far beyond the parties and the State ofMontana. It affects employers and employees inevery state that prohibits discretionary clauses in in-surance policies funding ERISA-governed insuranceplans. As detailed below, no fewer than twenty stateshave already prohibited, or are currently consideringthe prohibition of, discretionary clauses in insurancepolicies. And, of those twenty states, thirteen havealready banned discretionary clauses in group poli-cies funding ERISA-governed benefit plans. Becausesuch prohibitions on discretionary clauses interferewith ERISA’s finely tuned enforcement mechanism,

5

and thus upset the careful balance Congress delibe-rately struck when it adopted ERISA, this Court’simmediate intervention is warranted. The Courtshould not await the emergence of an open conflict inthe circuits on the questions presented here beforegranting review, because even if confined to theNinth Circuit, the decision below has the potential toaffect tens of millions of employees’ access to health-care coverage through their employers.

A. Allowing Discretionary Clauses Is AnIntegral Part Of The Balance CongressStruck When Enacting ERISA.

Congress designed ERISA with an eye towardsthe "public interest in encouraging the formation ofemployee benefit plans." Pilot Life, 481 U.S. at 54. Itwas well aware that if providing benefits was too ex-pensive, employers might not offer them at all. SeeMassachusetts Mut. Life Ins. Co. v. Russell, 473 U.S.134, 148 n.17 (1985) (recognizing concern that the"cost of federal standards [would] discourage thegrowth of private pension plans"). Thus, in enactingERISA, Congress had to strike a balance between"offer[ing] employees enhanced protection for theirbenefits" and creating a "system that is so complexthat administrative costs, or litigation expenses, un-duly discourage employers from offering welfare ben-efit plans in the first place." Varity, 516 U.S. at 497.

One way that Congress resolved the "tension" be-tween the "goal of benefitting employees" and thegoal of containing the costs of providing benefits un-der an ERISA plan (Mertens v. Hewitt Assocs., 508U.S. 248, 262-263 (1993) (internal quotation marksomitted)) was to give employers significant flexibilityin determining the terms on which they would pro-vide benefits to their employees. Employers accor-

6

dingly have broad discretion in "decision[s] regardingthe form or structure of the Plan such as who is en-titled to receive Plan benefits and in what amounts,or how such benefits are calculated." Hughes AircraftCo. v. Jacobson, 525 U.S. 432, 444 (1999). For exam-ple, "ERISA affords plans the flexibility to set con-tractual limitations periods of varying lengths,"which must be enforced regardless of state law. Ab-ena v. Metro. Life Ins. Co., 544 F.3d 880, 884 (7thCir. 2008). ERISA also gives employers "considerableflexibility" with respect to the vesting, accrual, andtermination of welfare benefits. Reichelt v. EmhartCorp., 921 F.2d 425, 429 (2d Cir. 1990). And of par-ticular import here, ERISA enables employers toelect a deferential standard of review for benefit de-cisions by giving the plan administrator full discre-tionary authority to determine eligibility for benefitsor to construe the terms of the plan. See FirestoneTire & Rubber Co. v. Bruch, 489 U.S. 101, 115(1989).

ERISA contains an "integrated enforcement me-chanism, ERISA § 502(a), 29 U.S.C. § 1132(a)." AetnaHealth Inc. v. Davila, 542 U.S. 200, 208 (2004). Pur-suant to that provision, a plan participant or benefi-ciary may file a civil action in federal court "to recov-er benefits due to him under the terms of his plan, toenforce his rights under the terms of the plan, or toclarify his rights to future benefits under the termsof the plan." 29 U.S.C. § l132(a)(1)(B). Challengesbrought under ERISA § 502(a) are subject to one oftwo possible standards of review: de novo or abuse ofdiscretion. In Firestone, this Court explained that denovo review applies unless the plan grants "the ad-ministrator or fiduciary discretionary authority todetermine eligibility," in which case "a deferentialstandard of review [is] appropriate." 489 U.S. at 111,

115. Under Firestone, the federal district court mustfirst ascertain whether the plan documents contain aso-called "discretionary clause," conferring upon theplan administrator the discretion to interpret theterms of the plan and to determine eligibility forbenefits. If the plan contains such a clause~and, infact, "many ERISA plans grant discretionary author-ity to administrators" (Metro. Life Ins. Co. v. Glenn,128 S. Ct. 2343, 2350 (2008))--the reviewing courtmay reverse a denial of benefits only if the plan ad-ministrator’s decision constituted an abuse of discre-tion.

Firestone thus permits employers to include adiscretionary clause in their welfare plans and, by sodoing, to ensure that courts will deferentially reviewdiscretionary claims decisions. "[H]eeding the optionoffered in Firestone," most employers have adopted"plan documents that confer discretion to the admin-istrator in interpretation of plan language." Roy F.Harmon III, The Debate Over Deference in the ERISASetting~Judicial Review of Decisions by ConflictedFiduciaries, 54 S.D.L. REV. 1, 21 (2009).

The Montana Commissioner of Insurance’s prac-tice of disapproving insurance contracts with discre-tionary clauses, which the Ninth Circuit upheld inthe decision below, denies employers the freedom totailor employee benefits to fit the conditions of theirbusiness and the preferences of their employees. Aban on discretionary clauses effectively requires fed-eral courts to engage in de novo review of ERISAbenefit claim decisions. As the petition explains (atpp. 19-21), the requirement that benefit determina-tions be reviewed de novo would dramatically in-crease plan-related litigation costs, and therefore in-surance premiums. In contrast to the deferential re-

8

view afforded benefit determinations made by planadministrators operating under a discretionaryclause, de novo review increases the likelihood thatotherwise reasonable claim denials will be over-turned in close cases. Cf. Cash v. Wal-Mart GroupHealth Plan, 107 F.3d 637, 641 (8th Cir. 1997) (ex-plaining that under an abuse of discretion standardof review, "[i]f the decision is supported by a reason-able explanation, it should not be disturbed, eventhough a different reasonable interpretation couldhave been made"). This, in turn, will encourage indi-viduals to contest claim determinations in court, fur-ther driving up expenses. Additionally, de novo re-view, unlike review for abuse of discretion, is notnecessarily confined to the record before the planadministrator, which invites expansive (and expen-sive) discovery and fact development, consuming stillmore resources. E.g., Moon v. Am. Home AssuranceCo., 888 F.2d 86, 89 (llth Cir. 1989).

Consequently, a rule mandating de novo judicialreview will predictably increase the cost of providinginsurance as part of an employee welfare benefitplan. Because ERISA does not require employers toprovide their employees with benefits at all, bans ondiscretionary clauses likely will have the perverseconsequence of making employer-sponsored insur-ance coverage even less accessible. See Varity, 516U.S. at 497. After all, ERISA generally leaves em-ployers free "for any reason at any time, to adopt,modify, or terminate [their] welfare plans" (Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78(1995)), and there is every reason to expect that atleast some employers will respond to increased in-surance premiums by cutting back on benefits.

B. Many States Have Already ProhibitedDiscretionary Clauses, And Many OtherStates Are Considering Such Prohibi-tions.

The Court should not await development of aconflict on the questions presented here. Immediatereview is warranted because the decision below is ofimmense practical importance. At least twelve otherstates, besides Montana, have already banned dis-cretionary clauses in insurance policies offered underERISA-governed benefit plans, including five in theNinth Circuit alone.

It is not surprising that so many states have de-cided to prohibit discretionary clauses. In 2002, theNational Association of Insurance Commissionersapproved Model Act 42, which is titled "Prohibitionon the Use of Discretionary Clauses Model Act." TheModel Act recommends that states prohibit discre-tionary clauses in order to "assure that health insur-ance benefits and disability income protection cover-age are contractually guaranteed, and to avoid theconflict of interest that occurs when the carrier re-sponsible for providing benefits has discretionary au-thority to decide what benefits are due." Id. § 2. Themodel language provides: "No policy, contract, cer-tificate or agreement offered or issued in this stateby a health carrier to provide, deliver, arrange for,pay for or reimburse any of the costs of health careservices may contain a provision purporting to re-serve discretion to the health carrier to interpret theterms of the contract, or to provide standards of in-terpretation or review that are inconsistent with thelaws of this state." Id. § 4(A). Illinois, Michigan, NewJersey, South Dakota, and Wyoming have all

10

adopted the Model Act, or language closely trackingit.

The states that have adopted rules or statutesprohibiting discretionary clauses in ERISA-governedbenefit plans include:

¯ Alaska: Claiming statutory authority underALASKA SWAT. ANN. § 21.42.130(2), which re-quires the Alaska Director of Insurance todisapprove any policy that "contains or in-corporates by reference * * * an inconsistent,ambiguous, or misleading clause, or excep-tion and condition that deceptively affectsthe risk purported to be assumed in the gen-eral coverage of the contract," the Alaska De-partment of Commerce recently issued abinding directive according to which an in-surance policy, in order to be approved for is-suance in Alaska, must "not assert exclusiveor discretionary authority to interpret con-tractual provisions." Department of Com-merce, Community and Economic Develop-ment, State of Alaska, Group Health PolicyForm Checklist, at 2 (Sept. 4, 2009), availableat http ://www.commerce.state.ak.us/ins/pub/Group_Health_Checklist.pdf.

¯ California: In February 2004, the CaliforniaDepartment of Insurance issued a LetterOpinion finding that "that all * * * discretio-nary clauses in disability insurance contractsviolate California law and deprive insureds ofprotections to which they are entitled." GaryM. Cohen, General Counsel, Department ofInsurance, State of California, Letter opinionper CIC § 12921.9: Discretionary Clauses, at1 (Feb. 26, 2004), available at http://www.in-

11

surance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commiss-opi-nion/upload]Opinion- February-26-2004.pdf.The Opinion Letter went on to note that "[i]nthe case of group, employer-sponsored disa-bility contracts that are governed by ERISA,the presence of a discretionary clause has thelegal effect of limiting judicial review of adenial of benefits to a review for abuse of dis-cretion. * * * This standard of review de-prives California insureds of the benefits forwhich they bargained, access to the protec-tions in the Insurance Code and other protec-tions in California law." Id. at 2. Shortly af-terwards, the Department withdrew approvalof all policy forms that contained discretio-nary clauses. See Department of Insurance,State of California, Notice to Withdraw Ap-proval and Order for Information (Feb. 27,2004), available at http://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commissopiniorgupload/Notice-February-27-2004, pdf.

Colorado: COLO. REV. STAT. § 10-3-1116(3)provides that "[a]n insurance policy, insur-ance contract, or plan that is issued in thisstate shall provide that a person who claimshealth, life, or disability benefits, whoseclaim has been denied in whole or in part,and who has exhausted his or her adminis-trative remedies shall be entitled to have hisor her claim reviewed de novo in any courtwith jurisdiction and to a trial by jury." (Em-phasis added.) The U.S. District Court for theDistrict of Colorado has upheld the statuteagainst an ERISA preemption challenge.

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McClenahan v. Metro. Life Ins. Co., 621 F.Supp. 2d 1135, 1140-1142 (D. Colo. 2009).

¯ Hawaii: The Insurance Commissioner hasdeclared that "[a] ’discretionary clause’ grant-ing to a plan administrator discretionary au-thority so as to deprive the insured of a denovo appeal is an unfair or deceptive act orpractice in the business of insurance andmay not be used in health insurance con-tracts or plans in Hawaii." Insurance Divi-sion, Department of Commerce & ConsumerAffairs, State of Hawaii, Memorandum 2004-13H re: Discretionary Clauses in HMSA’sAgreement for Group Health Plan and Guideto Benefits, at 3 (Dec. 8, 2004), available athttp ://hawaii.gov/dcca/ins/commissioners_memo/commissioners_memorandum_2004/ins_commissioners_memorandum_13h.pdf]at_download/file. The Commissioner madeclear that his declaration encompassedERISA plans. See id. at 4 ("This decision isnot affected by whether a plan is an ERISAplan.").

¯ Illinois: In 2005, the Illinois Department ofInsurance promulgated a regulation whichstates that "[n]o policy, contract, certificate,endorsement, rider application or agreementoffered or issued in this State, by a healthcarrier, to provide, deliver, arrange for, payfor or reimburse any of the costs of healthcare services or of a disability may contain aprovision purporting to reserve discretion tothe health carrier to interpret the terms ofthe contract, or to provide standards of inter-pretation or review that are inconsistent with

13

the laws of this State." ILL. ADMIN CODE tit.50, § 2001.3. This prohibition is "applicableto all individual and group accident andhealth policies, disability insurance policies,and group accident and health certificates,regardless of whether they provide disabilitybenefits." Id. § 2001.1.

¯ Maine: "A policy, contract, certificate oragreement offered, delivered, issued or re-newed for delivery in this State by a carrierto provide, deliver, arrange for, pay for orreimburse any of the costs of health care ser-vices may not contain a provision purportingto reserve sole or absolute discretion to thecarrier to interpret the terms of the contractor to provide standards of interpretation orreview that are inconsistent with the laws ofthis State. ME. REV. STAT. ANN. tit. 24-A,§4303(11)(A). Furthermore, carriers "maynot enforce a provision in a policy, contract,certificate or agreement that was offered, de-livered or issued for delivery in this Stateand has been continued or renewed by agroup policy holder or individual enrollee inthis State that purports to reserve sole or ab-solute discretion to the carrier to interpretthe terms of the contract or to provide stan-dards of interpretation or review that are in-consistent with the laws of this State." Id.§ 4303(11)(B).

¯ Michigan: Insurers are prohibited from "is-su[ing], advertis[ing], or deliver[ing] to anyperson in this state a policy, contract, rider,indorsement, certificate, or similar contractdocument that contains a discretionary

14

clause." MICH. ADMIN. CODE R. 500.2202; seealso Am. Council of Life Insurers v. Ross, 558F.3d 600 (6th Cir. 2009) (upholding regula-tion against preemption challenge).

¯ New Jersey: New Jersey law provides that"[n]o individual or group health insurancepolicy or contract, individual or group life in-surance policy or contract, individual orgroup long-term care insurance policy or con-tract, or annuity contract, delivered or issuedfor delivery in this State may contain a pro-vision purporting to reserve sole discretion tothe carrier to interpret the terms of the poli-cy or contract, or to provide standards of in-terpretation or review that are inconsistentwith the laws of this State." N.J. ADMIN.CODE § 11:4-58.3. This prohibition on discre-tionary clauses applies to "all individual andgroup health insurance policies and con-tracts; all individual and group life insurancepolicies and contracts; all individual andgroup long-term care insurance policies; andall annuity contracts delivered or issued fordelivery in" New Jersey. Id. § 11:4-58.1(b).

¯ Oregon: To be considered for approval inOregon, an insurance policy must satisfy anumber of criteria. "If plan includes a discre-tionary clause," it must "not give the insurerfull and final discretion in interpreting its in-surance contract." Department of Consumer& Business Services, Oregon Insurance Divi-sion, Standard Provisions for Group HealthBenefit Plans, at 9 (Aug. 2009), available athttp ://insurance .ore gon. gov/docs/serff/2448.p df. A clause that vests full discretionary au-

15

thority in the plan administrator "is consi-dered to be inequitable, deceptive, and mis-leading to consumers," and is therefore for-bidden. Ibid.; see also OR. REV. STAT. §

742.005.

¯ South Dakota: "A discretionary clause isnot permitted in any individual or grouphealth policy. No policy offered or issued inthis state by a health carrier or plan to pro-vide, deliver, arrange for, pay for, or reim-burse any of the costs of health care servicesmay contain a discretionary clause or similarprovision purporting to reserve discretion tothe health carrier or plan to interpret theterms of the policy or to provide standards ofinterpretation or review that are inconsistentwith the laws of this state." S.D. ADMIN. R.20:06:52:02. This provision applies to "to anyhealth insurer or third party administratorengaged in the business of insurance includ-ing any contractual arrangement entered in-to for the administration of claims under anemployer health benefit plan." Id. R.20:06:52:03.

¯ Washington: Under Washington law, no in-surance "contract may contain a discretio-nary clause," or any "provision that purportsto reserve discretion to a carrier, its agents,officers, employees, or designees in interpret-ing the terms of a contract or deciding eligi-bility for benefits, or requires deference tosuch interpretations or decisions." WASH.ADMIN. CODE. § 284-44-015.

¯ Wyoming: WYO. STAT. ANN. §26-13-304generally forbids discretionary clauses, but

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ostensibly carves out an exception for a"group policy, contract, certificate or agree-ment subject to the federal Employee Re-tirement Income Security Act." Id. § 26-13-304(b). Subsection (b), however, requiressuch plans to include mandatory languagespecifying that "[b]y including this discretio-nary clause (insurer’s name) agrees to allowa court to review its determinations anewwhen a claimant seeks judicial review of (in-surer name’s) determinations of eligibility ofbenefits, the payment of benefits or interpre-tations of the terms and conditions applicableto the benefit plan." (Emphasis added.) Sub-section (c) further requires such plans to"contain a provision entitling any person de-nied benefits in whole or in part to have thedetermination reviewed de novo in any courtwith jurisdiction." By requiring application ofa de novo standard of review, the Wyomingstatute deprives discretionary clauses of theeffect that they otherwise would have underFirestone.

In addition to the twelve states identified abovethat have banned discretionary clauses in insurancepolicies offered as part of an ERISA plan, four otherstates have adopted rules forbidding discretionaryclauses in insurance policies that are not governedby ERISA. Although these more limited prohibitionsare not directly implicated by the decision below, ifthe decision is allowed to stand, nothing would pre-vent these states from expanding the scope of theirprohibitions to also encompass ERISA plans. Thestates with such prohibitions are:

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¯ Idaho: IDAHO ADMIN. CODE R.18.01.29.011.01 provides that "[n]o health in-surance contract may contain a discretionaryclause." But "[f]or purposes of this rule,’health insurance contract’ does not include acontract for group coverage offered by orthrough an employer to its employees." Id. R.18.01.29.010.05.

¯ Indiana: The Indiana Department of Insur-ance has declared that "in group accident andsickness insurance policies governed by statelaw," provisions that "give the company fulland final discretion in interpreting benefitsand administering the contract" are "inequit-able and deceptive, and tend to mislead con-sumers." Indiana Department of Insurance,Bulletin 103: Full and Final DiscretionClauses in Group Health Contracts (May 8,2001), available at http://www.in.gov/idoi/files/Bulletin_103.pdf. Therefore, policiesincluding such a provision are "subject to ob-jection and disapproval." Ibid. The Depart-ment took no position "on the interpretationof employee benefit contracts governed byERISA." Ibid.

¯ New Hampshire: Discretionary clauses arepermitted only in policies "governed by theEmployment Retirement Income Security Act(ERISA)," and only if the policy discloses,among other things, that "It]he assignment ofdiscretionary authority made under this pro-vision may affect the standard of review thata court will use in reviewing the appro-priateness of [the Company’s] determination"and that "[i]n order to prevail, a plan partici-

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pant or beneficiary may be required to provethat [the Company’s] determination was ar-bitrary and capricious or an abuse of discre-tion." N.H. CODE. ADMIN. R. ANN. INS.401.03(/)(3) (internal quotation marks omit-ted).

¯ Utah: Utah "prohibits the use of reservationof discretion clauses in forms that are not as-sociated with ERISA employee benefitplans." UTAH ADMIN. CODE R. 590-218-2.Even in the case of ERISA-governed plans,discretionary clauses are forbidden unlessthey are conspicuously disclosed using lan-guage that is the "same as, or substantiallysimilar" to the language specified by theCommissioner of Insurance. Id. R. 590-218-5(2)-(3). In Hancock v. Metropolitan Life In-surance Co., 590 F.3d 1141 (10th Cir. 2009),the Tenth Circuit held that this disclosurerequirement was preempted, but in dictasuggesting possible agreement with the deci-sion below and the Sixth Circuit’s decision inAmerican Council of Life Insurers--alsostated that "a blanket prohibition on the useof discretion-granting clauses" would present"a different case." Id. at 1149.

Finally, three states have considered or are con-sidering regulatory or legislative action that wouldprohibit discretionary clauses in insurance policies.These include:

¯ Maryland: In 2008, the Maryland legisla-ture considered a bill that would prohibit thesale or issuance of insurance policies contain-ing a discretionary clause. An Act ConcerningLife or Health Insurance Policies and Con-

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tracts - Discretionary Clauses - Prohibition,Md. H.B. 236 § 1 (2008), available athttp ://mlis.state.md.us/2008RS/bills/hb/hb0236f.pdf.

New York: New York’s Insurance Depart-ment "believes that the use of discretionaryclauses are contrary to Sections 3201(c) and4308(a) and Article 24" of the New York In-surance law, which prohibit unjust, unfair, ordeceptive insurance practices. Circular LetterNo. 14 (2006), available at http://www.ins.state.ny.us/circltr/2006/cl06_14.htm. The De-partment is in the process of "drafting regu-lations that would proliibit the use of discre-tionary clauses in all new and existing acci-dent and health insurance policies, life in-surance policies, annuity contracts andsubscriber contracts upon renewal, modifica-tion, alteration or amendment on or after theeffective date of the regulation." Ibid.; see al-so Insurance Department, State of New York,2010 Regulatory Agenda ¶ 60 (Dec. 23, 2009),available at http://www.ins.state.ny.us/r__misc/age nda 10j an.p df.

Texas: In October 2009, the Department ofInsurance received a rulemaking petitionseeking adoption of a rule prohibiting the useof discretionary clauses in life, accident, andhealth insurance policies. On January 7,2010, the Department announced that itwould complete its evaluation of the petitionwithin 90 days. Texas Department of Insur-ance, Commissioner’s Bulletin #B-0003-10(Jan. 7, 2010), available at http://www.tdi.state.tx.us/bulletins/2010/cc2.html. In the

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meantime, the Department encouraged in-surers "to suspend filing of insurance policyforms containing discretionary clauses." Ibid.

All in all, at least 20 states---including four of thefive most populous states in the nation (i.e., Califor-nia, Illinois, New York, and Texas)---have alreadyprohibited or are currently considering prohibitingthe use of discretionary clauses in insurance policies.

The decision below upsets the balance struck byCongress and could, as a result, discourage employ-ers from offering insurance to their employees. Inenacting ERISA, Congress crafted a carefully struc-tured set of judicial remedies that balance the inter-est of individual claimants in prompt and fair benefitdeterminations with the "public interest in encourag-ing the formation of employee benefit plans" in thefirst place. Pilot Life, 481 U.S. at 54. And Firestonemakes clear that plan sponsors can fix what stan-dard of review will be applied by the federal court byincluding, or not including, a provision giving planadministrators full discretionary authority to deter-mine eligibility for benefits. Today, many employersquite reasonably prefer to offer ERISA plans contain-ing a discretionary clause in order to take advantageof the lower insurance premiums that come fromavoiding expensive, de novo ERISA benefit litigation.The decision below allows states to deprive employ-ers of this option, and in so doing, enables states toundermine the carefully calibrated balance struck byCongress.

Even in the absence of a circuit split, the ques-tions presented by petitioners call for resolution now.As our survey of state prohibitions on discretionaryclauses in insurance policies makes clear, there isnothing to be gained from delay and much to be lost,

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as the decision below will have a direct and imme-diate effect on whether (and at what cost) employersaround the country will provide their employees withinsurance benefits.

CONCLUSION

For the foregoing reasons, and those stated inthe petition, the petition for a writ of certiorarishould be granted.

Respectfully submitted.

ANDREW E. TAUBERCounsel of Record

BRIAN J. WONGMayer Brown LLP1999 K Street, NWWashington, DC 20006(202) 263-3000atauber@mayerbrown.com

Counsel for Arnici Curiae

FEBRUARY 2010

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