An issue dogging claims administrators is:

What effect do choice-of-law provisions have on the standard of review of ERISA benefit decisions?

And, what happens when the plain language of the ERISA plan confers abuse of discretion standard of review, but state law renders such language unenforceable, requiring de novo review?

Here’s the case of Kalnajs v. Lilly Extended Disability Plan, 2017 WL 2589445 (W.D. Wisconsin June 14, 2017)(choice-of-law provision required abuse of discretion standard of review contained in ERISA plan language).

FACTS: For nearly a decade, Kalnajs, a pharmaceutical sales representative, received ERISA-governed long term disability benefits due to Lyme disease. Under the plan terms, benefits could be discontinued if there was evidence she was “engaging in an occupation for profit.” In 2014 the claims administrator learned Kalnajs worked as an “internationally acclaimed dog trainer,” giving over 28 “lively” seminars nationally and internationally. Following review of multiple doctor’s reports, it was determined Kalnajs could perform “work in a job she is trained for,” and disability benefits were terminated. The plan conferred discretion.


  1. The Court rejected Plaintiff’s argument that de novo review should apply because Indiana law disfavors discretionary review. The Court looked to the ERISA plan’s choice-of-law provision and concluded: “The flaw in Kalnajs’s argument is immediately apparent: ERISA preempts ‘any and all State Laws insofar as they may now or hereafter relate to any employee benefit plan.’ 29 U.S.C. 1144(a)….Section 6.03 of the Disability Plan relates to an employee benefit plan, so ERISA, not state law, applies regardless of any choice-of-law provision. And even if the choice of law provision were relevant, the Welfare Plan adopts Indiana law only to the extent that it is not preempted by ERISA.” Op. at 16.
  2. Episodic surveillance sufficient to establish she was “engaging in an occupation for profit.” Plaintiff claimed that the surveillance only showed “isolated episodes” of activity and does not show that Kalnajs could engage in activity on a sustained basis. But the Court held “[t]he surveillance shows [she] is engaging in an occupation for profit consistent with her education, training, and experience: she earns money working as a dog trainer.” This met the plan terms which supported terminating disability benefits. Op. at 20.

NOTE: Courts are not consistent on what effect choice-of-law provisions have on the standard of review. Many courts have determined, for example, that state law prohibitions of discretionary clauses fall within ERISA’s savings clause and are not preempted by ERISA.

-Make sure early in the case you assess the applicability of state insurance regulations;

-Review your choice-of-law provisions to determine what state law may apply;

-Attempt to seek application of federal common law on choice-of law issues;

-Be prepared to address policy issues implicated by application of the choice of law provision.