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A new federal court opinion in California may prompt employers and their benefits advisors to quick look at benefit plan cover pages.
U.S. Chief District Judge Richard Seeborg ruled last week that the courts should use North Carolina law when reviewing a worker's long-term disability insurance claim, not California law, because the insurer, Life Insurance Company of North America, made it clear that North Carolina law should apply.
"The cover page of the policy contains the following provision: the policy 'is issued in North Carolina and shall be governed by its laws,'" Seeborg wrote in an opinion explaining an order granting the insurer's motion to have the court use California law when looking at the case.
Life Insurance Company of North America was once owned by Cigna but is now owned by New York Life Insurance Company. New York Life could not immediately be reached for comment.
Jim Keenley, an attorney on Farris's team, said the ruling and others like it act as a "green light for insurance companies to evade any substantive state insurance regulation that they would rather not comply with by way of choice-of-law clauses."
"It is an affront to the California legislature's right to regulate the business of insurance within its borders and to protect its residents from unscrupulous insurance company conduct and unconscionable insurance policy terms," Keenley said.
The case: The worker who filed the suit, Heather Farris, worked as a store manager for Lowe's in California and continues to live in California.
Lowe's is based in North Carolina.
Farris applied for LTD benefits in 2020, and the plan denied both the initial claim and an appeal.
Farris filed a suit in the U.S. District Court for the Northern District of California in 2025.
Abuse of discretion: The Employee Retirement Income Security Act includes a provision that gives employer plans broad discretion when administering claims.
California has a state law that governs cases involving allegations of claim administrator abuse of discretion, and it has been trying to apply the law to ERISA plans.
Farris and her attorneys have argued that the North Carolina choice-of-law provision is not enforceable, in part because a reasonable layperson would not read the sentence on the cover page as voiding all insurance regulation in the layperson's state.
Farris's team has also argued that the LTD policy includes a separate notice related to state laws in Arizona, Florida and Maryland in part because, in some cases, the laws in states other than North Carolina do affect the coverage.
Seeborg wrote that the choice-of-law statement on the policy coverage page still applies.
"The Arizona-Florida-Maryland Notice provides additional warning to residents in those states, but it does not neutralize the North Carolina provision," Seeborg wrote.
Seeborg also disagreed with the argument that the North Carolina choice-of-law provision is unenforceable because it hurts the interests of the covered worker.
"Various courts in this district have rejected the position that a non-California choice-of-law provision is unreasonable or fundamentally unfair simply because it does not provide for the protection" provided by the California abuse-of-discretion law, Seeborg wrote.
Keenley said Farris's team believes Farris may prevail under North Carolina law.
Farris's team intends to "litigate the case as far as is necessary to obtain fair relief for her," Keenley said.
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