As you know, many states have imposed statutes which affect which standard of review governs ERISA claim decisions.

Many policies include a “choice of law” provision, setting forth which state law will govern the standard of review. 

But what happens when the policy does not have a “choice of law” provision?

How does the court determine which state law governs the standard of review in ERISA claims?

This new case provides practitioners with an excellent review of the deliberative process courts will undertake in determining which state law governs the standard of review. Byerly v. Standard Insurance Co., 2020 WL 1451543 (E.D. Texas March 25, 2020).

FACTS: Byerly, a Texas resident employed by a Florida-based employer, stubbed his toe on some furniture. Due to complications with diabetes and arterial disease, doctors ultimately had to amputate part of his leg. Byerly then sought ERISA-governed accidental death and dismemberment (AD&D) benefits.

Standard denied the claim, concluding the amputation was caused by “sickness” which is excluded under the policy: the amputation “was not caused solely and directly by an accident independently of other causes.”

Byerly brought suit in Texas alleging wrongful denial of benefits. At issue was what standard of review should be applied:  The standard authorized under Florida or Texas law? (Florida would have allowed a more favorable standard of review for the insurer).

DISTRICT COURT HELD, applying 5th Circuit and 11th Circuit precedent: Florida law applied to the ERISA claim brought by a Texas resident.

  1. “When jurisdiction is predicated upon the diversity of the parties before the court, “[a] federal court is required to follow the choice of law rules of the state in which it sits.” Op. at 16.
  2. “[W]hen exercising federal question [ERISA] subject matter jurisdiction, [courts] should apply ‘federal common law choice of law principles’[.]”  Op. at 16.
  3. “Federal common law follows the approach of the Restatement (Second) of Conflicts of Laws.”  Op. at 17.
  4. Key factors. In insurance contract cases, in the absence of a choice of law provision, the court considers: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation of business of the parties.  “If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied.”  Op. at 19.  The Court also considers “Section 6” principles.
  5. Application of the factors.
  • Place of contracting. The contract was entered into with a Florida employer and an Oregon insurer, using negotiators from Georgia and Florida. This favored application of Florida law. Op. at 20.
  • Place of performance. “The place of performance of a life insurance contract is the state where the premiums are made payable, even if the contract was made in another state.”  “[T]he fact that the premiums were paid in Florida to an Oregon company trumps Byerly’s involvement (applying for benefits in Texas). The place of performance factor favors Florida. Op. at 22.
  • Location of subject matter of contract. “The subject matter of a life insurance contract is the life of the insured.”  This factor favors application of Texas law. Op. at 22.
  • Domicil, Residence, Place of Incorporation.  “The domicil of the insured is a contact of particular importance in the case of life insurance contracts.” The principal place of business of the employer and Standard Insurance is Florida and Oregon, respectively.  Byerly is a Texas resident. “[T]he Court is still unpersuaded that the final factor favors Texas.  The majority of the members to this contract are not incorporated in Texas….”  Op. at 23.
  • Section 6 principles of the Restatement. (The Court applied a number of these factors, some of them are highlighted here.)
    • needs of interstate systems. The federal ERISA scheme “is the most important consideration for the Court.” Op. at 24.
    • relevant policies of the forum state and other states.   “Florida’s interest in the Group Policy, relative to Texas’ interest [to protect its citizens] seems persuasive to the Court.” Op. at 24.
    • justified expectations of the parties. “If any law is favored, it is the Florida law.”  Op. at 25.

This opinion is worth reading as it outlines the arguments one should make when contesting the choice of law to be applied to a claim.