Evans makes several other claims, none of which merit fulsome analysis. Evans points to a New Jersey regulation that discretionary clauses are void as contrary to public policy, but the regulation is only applicable as of January 1, 2008, and only prohibits those provisions that claim to reserve sole discretion to the carrier. See N.J. Admin. Code. § 11:4 – 58.4. MetLife’s policy does not reserve sole discretion.

Evans v. Employee Benefit Plan, 2009 U.S. App. LEXIS 3426 (3d Cir. N.J. Feb. 20, 2009)

This unpublished Third Circuit opinion provides some interesting insight on discretionary clause prohibitions.    Notwithstanding New Jersey’s regulation restricting use of such clauses, the Court applied an abuse of discretion standard in reviewing the case.  

How is that possible?

New Jersey’s regulation is a bit odd.  Wilson Elser summarizes the law’s pecularities in a July 2007 ERISA Alert.  

By emphasizing the restriction in terms of “sole” discretion, the insurance department left open the gap that MetLife took advantage of in Evans.

Note:  The comment associated with the proposed regulation shows suggests that the Department intended its regulation to have more teeth.  On the other hand, the Department did not adopt the NAIC Model Act:   

In 2004, the National Association of Insurance Commissioners (NAIC) adopted Model Act 42, titled “Prohibition on the Use of Discretionary Clauses,” the statedpurpose of which was “to assure that health insurance benefits are contractuallyguaranteed, and to avoid the conflict of interest that occurs when the health carrier has unfettered authority to decide what benefits are due.” While the New Jersey Legislature has not adopted Model Act 42, the Department has continually rejectedthe inclusion by carriers of discretionary clauses in health insurance and long-term care policies and contracts on the basis that such clauses are inequitable, unfair, and contrary to this State’s laws and public policy.

The proposed new rules codify the Department’s long-standing practice ofdisallowing the inclusion of discretionary clauses in all individual and group life, health and long-term care insurance policies and contracts, and all annuity contracts.

Frankly, the New Jersey regulation could have used review by experienced ERISA counsel.   In the final analysis, it does not appear the regulation accomplishes anything.