When a claimant complies with the administrative procedures in a plan, and has been denied a benefit, the claimant may bring a lawsuit pursuant to 29 U.S.C. § 1132(a)(1)(B). A court reviews the plan’s decision under a standard of review that is either an abuse of discretion standard or a de novo standard. Under an abuse of discretion standard, the court reviews the plan’s decision with deference to the plan, that is if the plan’s decision is on the spectrum of reasonableness, it will be upheld. Under a de novo standard, the court will review the plan’s decision without giving deference to the plan and make its own determination regarding the benefit. One can see how the abuse of discretion standard greatly favors the plan. Therefore, it is in the claimant’s interest to obtain a review by the court that is under the de novo standard.

The abuse of discretion standard of review applies where “the benefit plan gives the administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” This authority is usually found in the written plan document

29 U.S.C. § 1102(a)(1) where claimant’s employer has delegated such discretion. It is typically referred to as a discretionary clause. Firestone Tire & Rubber Co. v. Bruck, 489 U.S. 101, 115, 109 S. Ct. 948, 956 (1989).

In many benefit situations the plan benefits are funded by an insurance policy with the benefit decision made by an insurance company. If this authority to determine eligibility for benefits and to construe the terms of the plan is found in the policy of insurance, Texas law renders such discretionary clause void. As such the default standard of review applicable to a claim under 29 U.S.C. § 1132(a)(1)(B) is de novo.

If a claimant successfully alleges that such discretionary clause is void in Texas, the claimant will have secured a much more favorable standard of review, i.e., de novo. Any purported grant of discretion is barred by the Texas Administrative Code, §3.1201 et seq. which provides:
§3.1201. Applicability, Effective Dates, and Severability.
(a) this subchapter applies to any form filed under the Insurance Code Chapters 1701 or 1271, . . .
. . .
(c) For forms that include disability income protection coverage providing for periodic payments during disability due to sickness and/or accident, whether provided through a policy, certificate, or rider, this subchapter applies to forms, offered, issued, renewed, or delivered on or after February 1, 2011.
. . .
§3.1202. Discretionary Clauses Defined. For the purpose of this subchapter, a discretionary clause is a provision that:
(1) purports or acts to bind the claimant to, or grant deference to subsequent proceedings to, adverse claim decisions or policy interpretations by the insurer or health maintenance organization;
. . .
(3) specifies that the insurer’s or health maintenance organization’s interpretation of the terms of a form or its decision to deny coverage or the amount of benefits is binding upon a policyholder or other claimant;
(4) specifies that in any appeal the insurer’s or health maintenance organization’s decision-making power as to the interpretation of the terms of a form or as to coverage is binding; or
(5) specifies or gives rise to a standard of review in any appeal process that gives deference to the original claim decision or provides standards of interpretation or review that are inconsistent with the laws of this state.

§3.1203. Discretionary Clauses Prohibited. Inclusion of a discretionary clause in any form to which this subchapter applies is prohibited.

An effort to prohibit clauses in insurance policies that would trigger a deferential standard of review has been spearheaded by the National Association of Insurance Commissions (“NAIC”) which has promulgated a model law that is gaining acceptance in many states. NAIC, Accident and Health Insurance Consumer Protection-42-1 Prohibition On The Use Of Discretionary Clauses Model Act.

ERISA expressly preempts any state law “insofar as [it] may now or hereafter relate to any employee benefit plan,” See 29 U.S.C. § 1144(a), unless the law “regulates insurance, banking, or securities,” id. at § 1144(a)(2)(A). Section 3.120 et seq. of Title 28 to the Texas Administrative Code is therefore not preempted by ERISA because it “regulates insurance” pursuant to U.S.C. § 1144(b)(2)(A). Two other appellate circuits have addressed that state laws or practices banning discretionary clauses in health, accident, and disability insurance policies are saved from preemption under 29 U.S.C. § 1144(b)(2)(A)(“savings clause”). See Am. Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009); and Standard Ins Co. v. Morrison, 584 F.3d 837 (9th Cir. 2009) cert. denied by Standard Ins. v. Lindeen, 2010 U.S., Lexus 4079 (May 17, 2010). These cases relied heavily on Rush Prudential HMO, Inc. V. Moran, 536 U.S. 355, 373-74 (2002) in finding that the “savings clause” allows state insurance laws to otherwise obviate ERISA principles.

. . . To fall under the savings clause, a regulation must satisfy a two-part test laid out in Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003). First, the state law must be specifically directed toward entities engaged insurance. Id. Also, it “must substantially affect the risk policy arrangement between insurer and the insured.” Id. . . .

Morrison, 584 F.3d at 842. Consequently, state laws banning discretionary clauses such as 28 Tex. Admin. Code § 3.120 et seq. are viewed as laws “regulat[ing] insurance” within the meaning of section 1144(b)(2)(A) and are not preempted by ERISA.