The U.S. Court of Appeals for the Eighth Circuit has ruled, in Williams v. Unum Life, that a state law regulating health insurance policies does not apply to an accidental death and dismemberment (“AD&D”) plan.
Facts. A participant’s wife died after falling down a flight of stairs. According to the death certificate, the cause was an “intracranial hemorrhage” and the manner in which it occurred was an “accident.” However, her blood-alcohol content was more than four times the amount used for the state’s legal driving limit. The participant submitted a claim for AD&D benefits. After investigating the claim, the insurer denied benefits under the policy’s intoxication exclusion. The denial letter stated that the accident was “caused by, contributed to by, or result[ed] from…being intoxicated.”
Even though the AD&D policy in this case grants “absolute discretion” to the insurer when administering claims, the participant said that the court should have reviewed his claim under the “de novo” standard rather than the “abuse of discretion” standard because the state has a statute forbidding “health plans” from conferring “absolute discretion” on plan administrators.
Nevertheless, the district court granted summary judgment to the insurer on the grounds that it had not abused its discretion in denying benefits.
Law. Generally, ERISA preempts state laws that “relate to any employee benefit plan” covered by ERISA. However, there is an exception for applicable state insurance laws.
The default standard of review for benefit denials in an ERISA-covered plan is the de novo standard of review, which means that a court will independently review a claim and not defer to the plan administrator’s, or insurer’s, decision. However, if the plan document (or insurance policy) grants discretionary authority to determine benefit entitlement, the court will apply a less demanding “abuse of discretion” standard of review, under which the plan’s or insurer’s decision will be upheld unless it is determined to be “without reason, unsupported by substantial evidence or erroneous as a matter of law.”
Eighth Circuit. The court acknowledged that, under ERISA preemption rules, if the state law was applicable, the claim should be reviewed under the de novo standard regardless of what was in the insurance policy. However, to be applicable, the accidental death and dismemberment policy must be “a health plan.” Under the state law, health plans “provide for the financing or delivery of health care services to persons enrolled in the plan, other than a plan that provides only accidental injury…coverage.” The law also applies to plans that are subject to the requirements of the Affordable Care Act.
The court then noted that the AD&D policy does not “provide for the financing or delivery of health care services” which it defined as “[t]he prevention, treatment, and management of illness and the preservation of mental and physical well-being.” It also ruled that the policy is not “subject to the requirements of the federal Affordable Care Act,” which excludes “[c]overage only for accident[s].”
Therefore, the state health plan law did not apply and the lower court was correct in applying the abuse of discretion standard. The court then ruled in favor of the insurer stating that “because there was plenty of evidence that the spouse was intoxicated when she fell down the stairs, the insurer did not abuse its discretion by denying benefits under the policy’s intoxication exclusion.