Forum Selection Clauses in ERISA Disability Insurance Policies Found Unenforceable

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As a general rule, litigation over matters of insurance coverage should take place in the Federal or State forum in which the insurance contract is signed. However, disabled claimants are sometimes surprised to learn that their policy contains a “forum selection clause”–a provision in the policy dictating that any litigation regarding the contract must take place in a specific jurisdiction, regardless of where the contract was signed or where the claimant lives.

In the groundbreaking decision of Coleman v. Supervalu, Inc. Short Term Disability Program, 2013 U.S. Dist. LEXIS 13372 (N.D. Ill. Jan. 31, 2013), the Northern District of Illinois recently held that forum selection clauses in ERISA policies are per se invalid. Coleman resided in Illinois, yet her disability policy contained a forum selection clause requiring all litigation related to her policy to be filed in the United States District Court for the District of Minnesota. The Court found the clause unenforceable, emphasizing ERISA, 29 U.S.C. 1132 (e)(2)’s provision that litigation under the Act may be brought in the district where the alleged breach of contract occurs (meaning where the individual denied benefits resides). The Court noted that this “is not a neutral provision,” since ERISA’s policy declaration states that ERISA is meant to protect the interests of plan participants by providing “ready access to the Federal courts” and Congress’ intent as expressed in the legislative history was “to remove jurisdictional and procedural obstacles which in the past appear to have hampered effective enforcement of fiduciary duties.” Citing 29 U.S.C. ยง 1104(a)(1)(D), which provides that “[A] fiduciary shall discharge his duties with respect to a plan…(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of [ERISA],” the Court concluded that since forum selection clauses deprive claimants of ready access to the Courts, they are unenforceable as inconsistent with the provisions and rights provided by ERISA.

The Coleman decision departs from caselaw in other jurisdictions upholding forum selection clauses in ERISA contracts. In Klotz v. Xerox Corp., 519 F. Supp. 2d 430 (S.D.N.Y. 2007), the court upheld the clause in Klotz’s disability policy, stating that the clause furthered ERISA’s public policy objectives by mandating litigation take place in the Western District of New York, since it “allows one federal court to oversee the administration of the LTD Plan and gain special familiarity with the LTD Plan Document, thereby furthering ERISA’s goal of establishing a uniform administrative scheme.” The court in Smith v. AEGON USA, LLC, 770 F. Supp. 2d 809 (W.D. Va. 2011) reached the same result, finding that mandating jurisdiction in the Northern District of Iowa where the company’s headquarters were located “was [not] fixed as a way to discourage potential plaintiffs from pursuing legitimate claims.” Hopefully the Federal Courts– including the Third Circuit–will embrace the outcome in Coleman based on the court’s novel and in-depth rationale.

We at Bonny G. Rafel, LLC have a successful track record of ensuring fairness for our clients who are forced to litigate. If you are concerned that your policy contains language jeopardizing your legal rights, contact us for a consultation.

– By Sara E. Kaplan, Esq.

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