Many states have banned discretionary clauses in life and disability policies. But remember to look closely at the language… to see if the ban actually applies to the policy at issue.

Here’s the case of Brian H and Alex H v. Blue Shield of California, 2018 WL 5778318 (N.D. Cal. November 1, 2018)(California’s ban on discretionary language did not apply to health insurance).

FACTS: Plaintiff sued contending certain medical treatments were “medically necessary”. The initial claims denial was made by Blue Shield’s Mental Health Administrator, which had not been expressly granted discretionary authority to make claims determinations. The final claim decision, however, was made by Blue Shield, which did have discretionary authority under the ERISA Plan.

Plaintiff argued that: (1) that California’s ban on discretionary clauses in life and disability policies applied to health insurance policies; (2) that de novo review should apply because the claims administrator was not granted discretionary authority, and (3) a conflict (Blue Shield made claim decisions and would pay the claim) required “heightened skepticism” during the court’s review.

DISTRICT COURT HELD: Abuse of Discretion Standard of Review Applies

  1. California’s regulation banning discretionary clauses in a “‘policy…that provides or funds life or disability insurance coverage’ is not applicable, as the Plan provides health insurance.”  Op. at 1
  2. “[N]othing in the [ERISA] Plan precludes Blue Shield from applying the ‘Magellan Medical Necessity Criteria Guidelines’ in determining whether services are ‘medically necessary’ under the Plan.” Op. at 2.
  3. With regard to whether a structural conflict requires review by the Court under “heightened skepticism,” “courts need not accord such factor signficant weight in the absence of evidence of bias.”  Op. at 2