“Savings Clause” Still Threatens ERISA Plan Limitations


In Kentucky Association of Health Plans v. Miller, 538 U.S. 329 (2003), the United States Supreme Court restructured the ERISA preemption analysis and reaffirmed the holding in Unum Life Ins. Co. v. Ward, 526 U.S. 358 (1999), that California’s notice-prejudice rule was saved from preemption. As illustrated by a recent case decided a decade after Miller, plaintiffs’ attorneys are still invoking Miller and Ward to try to prevent enforcement of clear group policy provisions.

Francis v. Anacomp, Inc. Accidental Death and Dismemberment Plan, S.D. Cal. Case No. 10-cv-467, Ninth Circuit Case No. 13-55648 (appeal filed April 18, 2013), brought the preemption issue forward in the context of a group accidental death insurance policy. The case involved the question of whether the interpretation of a policy provision limiting accidental death coverage to loss “resulting directly and independently of all other causes” from a covered accident was preempted by state law.

In Francis, the decedent insured had end-stage liver failure and a plethora of other medical problems. She died of a subdural hematoma that was diagnosed post-hospitalization and without evidence of a head injury, although there was equivocal evidence of a non-impact fall (the alleged “accident”) occurring several days earlier. It was undisputed that plaintiff’s liver disease compromised her ability to clot and thus was a substantial factor in causing her death whether or not a fall had occurred.

Plaintiff argued that Ward and Miller, which hold that state laws are saved from preemption if they “regulate insurance” and “substantially affect the risk pooling arrangement between insurer and insured,” required the district court to apply a state law analysis to the limiting language. California law would have substituted a proximate cause test for the policy requirements, effectively writing the clear limiting language out of the policy.

In successive unpublished orders, the district court rejected plaintiff’s preemption argument and instead followed McClure v. Life Insurance Co. of North America, 84 F.3d 1129, 1134-35 (9th Cir. 1996). McClure holds that similar limiting language in an ERISA-governed policy is enforceable as written so long as it is conspicuous. Thus, a preexisting condition would be deemed to preclude coverage if the condition “substantially contributed” to the loss. Because the policy language in Francis was conspicuous and because the decedent’s medical condition substantially contributed to the loss, Judge Gonzalo P. Curiel awarded judgment in favor of the defendants.

Appeal and Analysis
Plaintiff appealed the decision to the Ninth Circuit, and the case ultimately was settled. But the potential remains under Miller and Ward for further encroachment on the right of insurers to limit coverage, even by clear and conspicuous language in the coverage grant, in group policies governed by ERISA.


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