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Choice-of-Law Plan Provision Enforced As A Matter of Federal Common Law

The Tenth Circuit recently concluded that, as a matter of federal common law, a choice-of-law provision in a long-term disability insurance policy, which was part of the plaintiff’s employer’s ERISA plan, must be enforced because a “clear, uniform rule . . . is required to ensure plan administrators enjoy the predictable obligations and reduced administrative costs central to ERISA.”  The central issue on appeal was whether the Court’s review of the decision to deny plaintiff his claim for long-term disability benefits should be governed by the highly deferential arbitrary and capricious standard of review, or reviewed de novo.  The plaintiff commenced the action in Colorado, but the policy had a choice-of-law provision that required the application of Pennsylvania law.  Which law to apply was of paramount importance because Colorado state law bans discretion-granting clauses while Pennsylvania does not.

The Court first determined that it need not decide whether or not ERISA preempts state laws banning discretionary clauses in insurance policies because it concluded that the Colorado law should not apply in light of the policy’s choice-of-law provision.  In so ruling, the Court recognized that other circuits had developed a variety of approaches to determining whether a choice-of-law provision should be enforced, all of which essentially focused on a rule of reasonableness.  Without commenting on how those approaches might be applied in the instant case, the Tenth Circuit found them inappropriate because they “overlook[ed] the uniformity and efficiency objectives” central to ERISA.  The Tenth Circuit further explained that a choice of law doctrine must account for the “centrality” of the plan in ERISA matters and the aims of uniformity and reduced administrative costs.  Accordingly, the Court concluded that if the plan has a legitimate connection to the state whose law is chosen, ERISA’s interest in efficiency and uniformity, as well as its recognition of the primacy of plan documents, compelled the conclusion that the selected law should govern as a matter of federal common law.

In the end, the Court determined that the denial of plaintiff’s claim for long-term disability benefits was not arbitrary and capricious.  The case is Ellis v. Liberty Life Assurance Co. of Boston, No. 1:15-cv-00090 (10th Cir. May 13, 2020).

© 2020 Proskauer Rose LLP. National Law Review, Volume X, Number 143

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About this Author

Russell L Hirschhorn ERISA Litigation, employee benefits attorney, Proskauer
Senior Counsel

Russell Hirschhorn is a Senior Counsel in the Labor & Employment Law Department, where he focuses on complex ERISA litigation and advises employers, fiduciaries and trustees on ERISA benefit and fiduciary issues. 

Russell represents employers, plan sponsors, plans, trustees, directed trustees and fiduciaries in all phases of litigation, arbitration and mediation involving employee benefits, including class action and individual claims relating to ERISA’s fiduciary duty and prohibited transaction provisions, denials of claims for benefits, severance plans, ERISA Section 510,...

212.969.3286
Kyle Hansen Employment lawyer Proskauer
Associate

Kyle Hansen is an associate in the Labor & Employment Law Department and a member of the ERISA Litigation Group.

Kyle graduated summa cum laude from the University of Mississippi School of Law, earning his J.D. and two honors diplomas in the areas of Space & Aviation Law and Business Law. During law school, he won the North American Championship at the 2017 International Manfred Lachs Space Law Moot Court Competition, also winning “best brief.” He went on to represent North America at the world competition and was runner-up. Kyle also served as the senior editor for the Journal of Space Lawand as an associate editor for the University of Mississippi Law Journal. He gained experience working for the Mississippi Attorney General’s Office on a variety of pension fund issues.

Prior to law school, Kyle graduated cum laude from Claremont McKenna College with degrees in Philosophy and Legal Studies.

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