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Jacob v. Unum Life Insurance Co. of America

United States District Court, E.D. Louisiana

October 19, 2017

LAUREN JACOB
v.
UNUM LIFE INSURANCE COMPANY OF AMERICA

         SECTION: “H” (3)

          ORDER AND REASONS

          JANE TRICHE MILAZZO UNITED STATES DISTRICT JUDGE

         Before the Court are cross motions for summary judgment: Plaintiff's Motion for Summary Judgment Regarding Choice of Law and Retroactivity of Law (Doc. 7), and Defendant's Motion for Summary Judgment to Determine Standard of Review for Matters of Plan Interpretation (Doc. 11). For the following reasons, Plaintiff's Motion is GRANTED and Defendant's Motion is DENIED.

         BACKGROUND

         This case arises from the denial of disability benefits. Plaintiff Lauren Jacob alleges that she became disabled on January 8, 2014 while employed by Apache Corporation.[1] At that time, it is undisputed that Apache Corporation held a long-term disability insurance policy (“the Plan”) issued by Defendant Unum Life Insurance Company of America (“Unum”) and covering Plaintiff.[2]Defendant denied Plaintiff's claim for disability benefits, making a factual determination that Plaintiff was not disabled.[3] Plaintiff disputes that determination and alleges that Defendant did not pay her the benefits she was entitled to under the Plan. Plaintiff now seeks past underpayment, a declaration of her rights under the Plan, and costs and fees associated with the action. Defendant argues that Plaintiff failed to establish that she was entitled to disability benefits under the Plan, and that in any event Defendant did not abuse its discretion in denying Plaintiff benefits.[4]

         The Plan first became effective on March 1, 1997.[5] The Plan was altered by Amendment Number 13, effective January 1, 2014.[6] Amendment 13 states that, “[t]he entire policy is replaced by the policy attached to this amendment, ” but is otherwise silent as to the specific changes it enacted.[7] The parties do not dispute that the version of the Plan attached to Amendment Number 13 is the one that controls in this case.[8]

         The parties stipulate that the Plan is governed by ERISA, that ERISA preempts all state-law claims related to the Plan, and that the Plan contains a clause purporting to grant Defendant discretionary authority to determine eligibility for benefits and construe provisions of the Plan.[9] Under Metropolitan Life Insurance Co. v. Glenn, when a policy includes such a clause, the determinations of the policy administrator are reviewed by courts under an abuse of discretion standard.[10] Further, the parties agree that the law of the Fifth Circuit requires courts to review factual determinations made by an ERISA claims administrator under an abuse of discretion standard regardless of whether the policy contains a discretionary clause.[11] The parties also agree that Texas law governs the Plan to the extent that it is not preempted by ERISA.

         The parties disagree as to the standard of review applicable to determinations made by the Plan administrator interpreting provisions of the Plan. Plaintiff points to Texas laws forbidding the use of policy forms that contain discretionary clauses. Plaintiff moves for summary judgment that the Texas laws apply and that this Court will review interpretations of the Plan by its administrator de novo. Defendants argue that the Texas laws do not apply to the Plan and move for summary judgment that this Court will apply an abuse of discretion standard when reviewing decisions of the Plan administrator interpreting the Plan's provisions.

         LEGAL STANDARD

         Summary judgment is appropriate if “the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations. . ., admissions, interrogatory answers, or other materials” “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[12] A genuine issue of fact exists only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”[13]

         In determining whether the movant is entitled to summary judgment, the Court views facts in the light most favorable to the non-movant and draws all reasonable inferences in his favor.[14] “If the moving party meets the initial burden of showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial.”[15] Summary judgment is appropriate if the non-movant “fails to make a showing sufficient to establish the existence of an element essential to that party's case.”[16] “In response to a properly supported motion for summary judgment, the nonmovant must identify specific evidence in the record and articulate the manner in which that evidence supports that party's claim, and such evidence must be sufficient to sustain a finding in favor of the nonmovant on all issues as to which the nonmovant would bear the burden of proof at trial.”[17] The Court does “not . . . in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts.”[18] Additionally, “[t]he mere argued existence of a factual dispute will not defeat an otherwise properly supported motion.”[19]

         LAW AND ANALYSIS

         Two provisions of Texas law prohibit the use of discretionary clauses like the one in the Plan at issue here. The first is a set of regulations (“Subchapter M”) promulgated by the Texas Commissioner of Insurance that took effect on December 23, 2010.[20] Section 3.1203 of Title 28 of the Texas Administrative Code forbids the use of an insurance form that includes a discretionary clause.[21] Section 3.1201 establishes the effective date of that prohibition by stating,

For forms issued or delivered prior to the effective date of this subchapter that do not contain a renewal date, this subchapter applies on or after the effective date of any rate increase applicable to the form or any change, modification, or amendment of the form occurring on or after June 1, 2011.[22]

         The second is a statute, Section 1701.062 of the Texas Insurance Code, that took effect June 17, 2011.[23] It states that “[a]n insurer may not use a [policy or endorsement] in this state if the document contains a discretionary clause.”[24] The chapter elsewhere states that, “‘use' includes issue and deliver.”[25]

         Plaintiff argues that § 3.1203 and § 1701.062 apply to the Plan and void its discretionary clause even though the Plan first became effective before the prohibitions because Amendment Number 13, which replaced the Plan with an attachment, created a new policy with an effective date of January 1, 2014. Plaintiff also argues that Defendant has failed to produce evidence that the discretionary clause existed in the policy prior to the effective date of the prohibitions, as the only copy of the policy submitted is the Amendment Number 13 version from 2014.[26]

         Defendant argues that the Plan has been in continuous effect since its inception in 1997 and therefore is not subject to either § 3.1203 or § 1701.062 which forbid only the issuance of new policies containing a discretionary clause. To the extent that § 3.1203 attempts to apply to plans that are merely amended after § 3.1203 became effective, Defendant argues that the regulation exceeds the Commissioner of Insurance's statutory authority and directly conflicts with the more limited § 1701.062.

         The plain language of § 3.1201 makes the prohibition on discretionary clauses contained in § 3.1203 applicable to the Plan here. The Plan is a form that was issued or delivered prior to the effective date of the section's subchapter and does not contain a renewal date. Therefore the prohibition on discretionary clauses applies on the “effective date of . . . any change, modification, or amendment of the form occurring on or after June 1, 2011.”[27]Amendment Number 13 is at the very least an amendment to the Plan that occurred after June 1, 2011 and so triggered the application of § 3.1203 to the Plan.[28] Unless that regulation is invalid, the Plan's discretionary clause is void.

         Texas “[c]ourts generally presume that agency rules are valid.”[29] The party challenging a rule bears the burden to “show that the rule's provisions are not in harmony with the objectives of the act involved.”[30] Courts look to the plain text of the statutes granting or restricting the agency's authority, examining the whole act rather than a single section.[31] “Generally then, the objecting party must show that the rule: (1) contravenes specific statutory language; (2) runs counter to the general objectives of the statute; or (3) imposes additional burdens, conditions, or restrictions in excess of or inconsistent with the relevant statutory provisions.”[32]

         Defendant first argues that the Texas Commissioner of Insurance did not have the statutory authority to enact Subchapter M at all. Defendant cites to Texas Insurance Code § 1701.060, which allows the Commissioner to “adopt . . . rules that establish procedures and criteria under which: (1) each type of form submitted to the department under this chapter will be reviewed and approved by the commissioner.”[33] Defendant argues that Subchapter M goes beyond establishing procedures under which insurance forms will be reviewed, as authorized by § 1701.060, and instead makes substantive rules affecting the rights of parties to an insurance contract. However, the Court need not decide the extent of authority granted by § 1701.060 because other statutes authorize the Commissioner to adopt Subchapter M.[34]

         The Texas Insurance Code grants the Commissioner broad authority to “adopt any rules necessary and appropriate to implement the powers and duties of the department under this code.”[35] Chapter 541 of the Insurance Code specifically prohibits insurance companies from engaging in unfair or deceptive practices and authorizes the Commissioner to “adopt and enforce reasonable rules the commissioner determines necessary to accomplish the purposes of this chapter.”[36] The Legislature indicated that Chapter 541 should be construed liberally to give effect to its purpose.[37] In adopting § 3.1203, the Commissioner explicitly found that, “Discretionary clauses are unjust, encourage misrepresentation, and are deceptive because they mislead consumers regarding the terms of the coverage.”[38] The Commissioner was therefore authorized by § 541.401 and § 36.001 to prohibit their use, and did not exceed his statutory authority in enacting § 3.1203.

         Defendant next argues that the portion of § 3.1201 that purports to apply to previously-issued policies when they are amended after the regulation's effective date is invalid because it conflicts with the later-enacted and more limited statute, § 1701.062. That law became effective on June 17, 2011 and forbids an insurance company to “use” a document with a discretionary clause.[39] The chapter elsewhere specifies that, “‘use' includes issue and deliver, ” and Defendant ...


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