Employment: Supreme Court Declines to Review Decision Upholding A State's Ability to Prohibit Discretionary Clauses in ERISA Insurance Policies


The Ninth Circuit Court of Appeals recently upheld the ability of the State of Montana to prohibit the inclusion of discretionary clauses in ERISA-governed insurance plans. The insurance company that was the party in that case - Standard Insurance Company - asked the United States Supreme Court to review the decision. On May 17, 2010, the Supreme Court declined to review the decision, leaving the Ninth Circuit's decision intact.

Besides Montana, at least 12 other states have passed legislation or regulations banning discretionary clauses in ERISA governed insurance policies - Alaska, California, Colorado, Hawaii, Illinois, Maine, Michigan, New Jersey, Oregon, South Dakota, Washington, and Wyoming. In addition, four other states - Idaho, Indiana, New Hampshire, and Utah - forbid discretionary clauses in insurance policies not governed by ERISA. Maryland, New York, and Texas are considering regulatory or legislative action that would prohibit discretionary clauses in all insurance policies.

At the present time there is no pending legislation in Oklahoma to ban discretionary clauses in ERISA governed insurance contracts. However, with the Supreme Court's decision not to review the Ninth Circuit's approval of such a clause, more states - including Oklahoma - can be expected to consider whether they should join those states that prohibit such clauses.

By Jon E. Brightmire, jbrightmire@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment litigation and counsels clients regarding everyday employment matters. 

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