California district court rules exclusions can be enforced in ERISA suit

By Robert Lawson | Oct 12, 2016

SAN FRANCISCO—A California district court has ruled that a discretionary clause within a benefits policy was to be enforced in the case Bain v. United Healthcare Inc.

Plaintiffs sued under the Employee Retirement Security Act of 1974 (ERISA). The ERISA lawsuit brought forth by David, Dayna and Alaina Bain against United Healthcare Inc. and the Sagent Advisors Inc. Group Health Plan alleges the health plan providers wrongfully refused to reimburse medical costs to Alaina Bain under a group health insurance policy. 

The plaintiffs argued choice of law to be California, but Judge Edward M. Chen for the Ninth Circuit ultimately decided in favor of the defendants' argument that choice of law applied to New York law, where principals for the defendant were located. 

It may not have mattered even if the choice of law applied to California. The court also made clear that section 10110.6 of California's ban on exclusions in benefit plans did not apply to health insurance plans. Chen looked at the language of the statute to make his decision. Chen said the language was not ambiguous as it referred to this particular exclusion. His opinion for the court noted that the exclusions within the statute refer to disability and life insurance. The Bains did not seek disability benefits, but rather a reimbursement, so the exclusion rule therefore did not apply legally in this case. 

Sean Nalty, an attorney for Ogletree Deakins Nash Smoak & Stewart PC, wrote a lengthy opinion of his own after news of the decision broke. Nalty wrote in a blog that the two most important elements to take away from the case are presenting facts and data accurately and thoroughly in a choice of law argument and that district courts in the state have said that health insurance plans to do not preempt ERISA claims. 

"I don't know if it's necessarily significant as much a good reminder of the best way to present to a court a choice of law argument," Nalty told the Northern California Record. "Sometimes attorneys have a tendency to simply rely on language in insurance policies, but don't offer the court additional facts that will support the choice of law argument. In this case, the facts presented showed that New York law applying was fair and reasonable."

So, how will this decision help or harm insurance companies or policy holders? 

"I don't know that it helps or harms anyone particularly," Nalty said. "I think Judge Chen ruled the way most who understand the insurance code would, that it does not apply to health insurance plans. It does not reference health insurance."

That means attorneys should pay much closer attention to the details in the facts of the case rather than simply the language within policies, because the outcome can be very important for other cases where the case may be more complicated or the choice of law argument would greatly help the attorney's client, he said. 

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Ogletree, Deakins, Nash, Smoak & Stewart, PC U.S. Court of Appeals for the Ninth Circuit United Healthcare

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