## Facts

- Talana Orzechowski, a Boeing employee, participated in Boeing’s Non-Union Long-Term Disability Plan (Plan No. 625), with benefits funded and administered by Aetna under a group long-term disability insurance policy.
- Boeing maintained a Master Welfare Plan providing general benefit information and containing a broad grant of discretionary authority delegated to Aetna.
- The long-term disability (LTD) coverage provided “own occupation” benefits for 24 months, and thereafter only if the claimant could not work in any reasonable occupation suited to training, education, or experience.
- The LTD coverage included a 24-month limitation when the “primary cause” of disability was “mental illness.”
- Orzechowski was diagnosed with fibromyalgia and chronic fatigue syndrome and reported worsening physical and cognitive symptoms, along with depression and other mental-health symptoms.
- Aetna initially approved LTD benefits, then terminated benefits in July 2011 on the ground that her disability was due to depressive and mood disorders subject to the 24-month mental-illness limitation.
- Orzechowski pursued an administrative appeal, contending her disability was primarily physical and that the mental-illness limitation was misapplied.

## Issues

1. Whether California Insurance Code § 10110.6 voided the discretionary clause relied on to apply abuse-of-discretion review, requiring de novo review of the benefit termination.
2. Whether § 10110.6 was preempted by ERISA or saved from preemption as a law regulating insurance.
3. Whether § 10110.6 applied to Orzechowski’s claim based on the policy’s renewal timing relative to the statute’s effective date.

## Decision

- The Ninth Circuit reversed the judgment for defendants and remanded.
- The court held § 10110.6 applied to the Aetna group disability policy and rendered its discretionary clause void and unenforceable.
- The court held § 10110.6 was saved from ERISA preemption because it regulates insurance.
- The court held the statute applied because the relevant group policy renewed after § 10110.6 became effective.
- The district court was directed to review Aetna’s termination decision de novo on remand.

## Legal Principles

- In an ERISA benefits action, de novo review applies unless the plan confers valid discretionary authority on the administrator.
- A state law that is directed at the insurance industry and substantially affects the risk-pooling arrangement between insurer and insured regulates insurance and is saved from ERISA preemption under 29 U.S.C. § 1144(b)(2)(A).
- California Insurance Code § 10110.6 voids and makes unenforceable discretionary clauses in disability insurance policies (and specified related instruments) offered, issued, delivered, or renewed in California.
- When an insured ERISA plan’s operative benefit terms are contained in an insurance policy subject to § 10110.6, courts may not rely on discretionary language in that policy (or corresponding plan language) to apply deferential review.
- For § 10110.6’s applicability, the relevant trigger is renewal (or issuance/delivery) of the insurance policy after the statute’s effective date.

## Conclusion

The Ninth Circuit held that California’s prohibition on discretionary clauses in disability insurance is not preempted by ERISA and, because the group policy renewed after the statute took effect, the discretionary clause was void, requiring the district court to reconsider the LTD termination under de novo review.


Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, 856 F.3d 686 (9th Cir. 2017)