[Regarding discretionary clauses,] the Commissioner’s practice is “specifically directed toward entities engaged in insurance,” Kentucky Ass’n, 538 U.S. at 342, and it “substantially affect[s] the risk pooling arrangement between the insurer and the insured,” more so than other laws which have been upheld by the Supreme Court. The practice of disapproving discretionary clauses is thus saved from preemption under 29 U.S.C. § 1144(a) by the savings clause in section 1144(b)
Dan Schelp noted on erisaboard.com today that the Supreme Court denied the petition for writ of certiorari in the case ofStandard Ins. Co. v. Lindeen, leaving in place the 9th Circuit’s decision in Standard Ins. Co. v. Morrison.
For fully insured plans, this is another indication that state regulations banning discretionary clauses will survive ERISA preemption challenge. Bear in mind that these regulations, in states adopting them (often based upon the NAIC model act) will apply to disability plans as well as health plans. The consequence will be de novo review of claim denials with augmented discovery in many cases.