Employees, executives and partners in Chicago may wonder how a clause in a health insurance plan or disability insurance plan may still contain a clause granting the insurance company discretion to construe the terms of the plan and make benefit determinations. As covered in a prior post, Illinois bans the use of such discretionary clauses in health insurance and disability plans. The catch, however, is that courts have held the insurance regulation banning such clauses--50 Ill. Admin. Code § 2001.3--only applies prospectively, that is to plans issued or renewed after July 1, 2005. Garvey v. Piper Rudnick LLP Long Term Disability Insurance Plan, 2011 U.S. Dist. LEXIS 31592, at *4 (March 25, 2011).
Determining whether an insurance plan was issued after the applicable date is easy. More difficult is determining when the plan has been renewed. One may be tempted to assume that the insurance policy renews every year. After all, employees must submit their elections for open enrollment every fall for the following calendar year. In practice, most health, accident, disability or term life insurance policies do renew every year. Whole life insurance policies, on the other hand, do not renew annually because they are longer duration contracts. But according to at least one federal judge in Chicago, the plan only renews if there is an amendment to the plan. Id. at *6-7. The court did not explicitly explain what would need to occur for such an amendment to take place, but apparently the disability policy in the Garvey case did not renew annually. The disability insurance plan was issued on January 1, 2001, and the court held it had not been renewed prior to the final denial of disability benefits on January 5, 2006. In at least what appeared to be a counter-intuitive holding, readers of the opinion can only be left wondering what the court would require to hold a policy renewal occurred.
If you have been denied disability or health insurance benefits and need assistance in determining whether the plan has an enforceable discretionary clause, consult a lawyer versed in ERISA.