Favorable Ruling against Pre-emption on Discretionary Clauses in ERISA Disability Case

Earlier this year, the Law Office of Shawn E. McDermott, LLC received a favorable decision from the United States District Court Judge Christine M. Arguello in an ERISA long-term disability case involving two important issues. The case handled by this office is titled Mark Kohut v. Hartford Life and Accident Insurance Company and has now been published by WestLaw at __ F.Supp.2d __, 2008 WL 5246163 (D. Colo.). This disability case was subsequently resolved by agreement of the plaintiff and disability insurance company, Hartford Insurance.

As mentioned in an earlier blog, dated June 5, 2008, the Colorado legislature adopted C.R.S. §10-3-1116 which bans the use of “discretionary clauses” within any insurance policy, including group policies, issued in Colorado. We believe this is the first decision issued by a Colorado federal court judge finding that Colorado’s new statute is not pre-empted by ERISA, meaning that it applies to all insurance benefit disputes. Removal of the discretionary clauses from ERISA-governed policies in Colorado results in the court being able to decide on its own whether the insurance company’s decision was right or wrong (know as a de novo standard of review), with no deference being given to the insurance company’s internal decision. This should result in far more equitable and realistic reviews of such denials in the future by Colorado judges. On an unfortunate note, the court ruled that the statute could not be applied retroactively to the case as the insurance denial occurred prior to the enactment of the new statute. Not so good news for Mr. Kohut’s case but a very favorable result for future ERISA disability claims handled by this office in the state of Colorado.

On the second issue, Judge Arguello ruled that discovery could be conducted by Mr. Kohut’s attorneys and the court would look beyond the insurance company’s claim file to determine the seriousness of Hartford Life and Accident Insurance Company’s conflict of interest in rendering determinations (i.e. denying long-term disability claims). This office has received many favorable orders on the issue of discovery, including the reported cases of Hoyt v. Prudential Ins. Co. of Am., No. 07-cv-02210-LTB-KLM, 2008 WL 686922 (D.Colo. Mar. 12, 2008) and Jeffryes v. Hartford Life & Accident Ins. Co., No. 05-cv-01770-EWN-CBS, 2006 WL 1186493 (D.Colo. May 4, 2006).

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