The U.S. Supreme Court recently declined to review a significant decision of the Second Circuit which (1) clarified the scope of California’s statutory ban on discretionary clauses in life and disability insurance contracts, and (2) clarified the meaning of a “full and fair review” under the version of ERISA’s claims-procedure regulation applicable to all claims filed prior to April 1, 2018. See Mayer v. Ringler Assocs. Inc., 9 F.4th 78 (2d Cir. 2021), cert. denied, No. 21-879, 2022 WL 515943 (U.S. Feb. 22, 2022).
In an issue of first impression at the Circuit Court level, Mayer held that California’s statutory ban on discretionary clauses in insurances, Cal. Ins. Code § 10110.6(a), applies only to claims by California residents, and does not extend to claims by non-California residents under any circumstance—even under policies delivered in California.
Section 10110.6(a) states in pertinent part: “If a policy… offered, issued, delivered, or renewed, whether or not in California, that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, … that provision is void and unenforceable.”
In Mayer, a New York resident insured under a policy delivered in California argued that § 10110.6(a) voided all grants of discretion in any group policy delivered in California that provides benefits to even one California resident. The Second Circuit rejected this argument, holding that “it would raise concerns under the Commerce Clause of the U.S. Constitution because it would allow for the application of a state statute to commerce that takes place wholly outside of the State’s borders, whether or not the commerce has effects within the State.” Mayer, 9 F.4th at 85 (internal quotation marks and citations omitted).
The Second Circuit further observed that, “[i]n addition to the constitutional concerns,” adoption of the “expansive interpretation of § 10110.6(a)” advanced by the insured would also “‘undermine the significant ERISA policy interests of minimizing costs of claim disputes and ensuring prompt claims-resolution procedures’ because the standard of review applicable to a given claimant would depend on the residence of any other person insured under the policy, assuming one might be from California.” Mayer, 9 F.4th at 86 (quoting Locher v. Unum Life Ins. Co. of Am., 389 F.3d 288, 295 (2d Cir. 2004)); see also id. (citing Varity Corp. v. Howe, 516 U.S. 489, 497 (1996)).
Separately, resolving an issue of first impression in the Second Circuit, the Mayer Court held that subsection (h)(4) of the old version of the ERISA claims-procedure regulation (29 C.F.R. § 2560.503-1) which governed claims filed prior to April 1, 2018, does not require claim administrators to provide claimants with documents considered for the first time during an administrative appeal while the appeal is still under review and in advance of a final determination. In so holding, the Second Circuit overruled Hughes v. Hartford Life & Accident Ins. Co., 368 F. Supp. 3d 386 (D. Conn. 2019), and joined ranks with the Third, Fifth, Sixth, Eighth, Tenth, Eleventh, and D.C. Circuits.