Overview of the Facts and Procedures

In Jacob v. Unum Life Insurance Company of America, Plaintiff Lauren Jacob submitted a claim for disability benefits to Unum stating she became disabled at work on January 8, 2014. Unum denied her request for disability benefits. After exhausting her administrative remedies, Jacob filed an ERISA lawsuit in federal court.

In the Louisiana District Court, both parties agreed that Texas law applied to the case to the extent it was not preempted by ERISA, but disagreed about how to apply Texas law concerning a clause in the policy at issue which gave the plan administrator the discretion to determine eligibility for disability benefits. Under Texas law, such clauses are prohibited. Unum argued that since the policy went into effect before the statute went into effect, the Texas law was not applicable to the policy and the Court should apply the abuse of discretion standard.

The Plaintiff pointed out that the policy had been amended subsequent to the effective date of the law, so the regulation was valid and the proper standard of review was de novo. The Court agreed with the Plaintiff and ruled that it would review the denial of benefits de novo.

Arbitrary and Capricious Standard v. De Novo Review

In an ERISA case, the standard of review is most often the arbitrary and capricious standard. Arbitrary and capricious is a legal ruling where the court determines that a previous determination by an insurance company is or is not invalid because it was made on unreasonable grounds or without any proper consideration of circumstances. This is an extremely deferential standard and is often favorable to the insurance company. Under de novo review, the court acts as if it were considering the question for the first time, affording no deference to the decisions made by the insurance company. This is a much more favorable to the claimant as the judge acts as the insurance company and reviews the administrative record for the first time to determine whether the plaintiff is disabled and unable to work.

The Texas Ban on Discretionary Clauses Applies to this Policy

A Texas statute bans discretionary clauses in policies issued after June 17, 2011. Additionally, the Texas Commissioner of Insurance issued a regulation prohibiting the use of discretionary clauses included in insurance amendments to policies applicable to amendments issued after June 1, 2011.

Unum argued that its policy had been in effect since its first issuance in 1997 and therefore, the statute did not apply to its policy. It further argued that the Commissioner had no authority to issue the rule about amendments, so that regulation also did not apply to its January 1, 2014, policy.

The Plaintiff argued that the policy amendment of January 1, 2014, actually created a new policy, so the statutory ban on discretionary clauses applied. Plus, even if it did not create a new policy, the insurance commissioner did have the authority to issue the rule banning discretionary clauses in amendments, so the amendment of January 1, 2014, which included a discretionary clause could not apply to her case.

After a detailed statutory analysis, the Court agreed with the plaintiff. The statute did apply to this policy which was amended creating a new policy after the effective date of the statute, so the discretionary clause was invalid. Additionally, the insurance commissioner did have the authority to issue rules and regulations, so the amendment including the discretionary clause was void according to both the statute and the regulation.

The Court concluded, “Because the Plan’s discretionary clause is not valid under Texas law, the standard of review reverts to the default for ERISA cases. This Court will review the Plan administrator’s interpretations of the Plan de novo.”

This case was not handled by our office, but we thought it could be instructive to those who may have a similar issue. If you have a disability claim of any type, feel free to contact one of our disability attorneys at Dell & Schaefer for a free case evaluation.