Inclusion of Discretion-Granting Language in Rider is Sufficient to Put Policyholder on Notice

In Orlando v. United of Omaha Life Ins., a policyholder purchased coverage from an insurer, United of Omaha Life Ins., through a group insurance policy. A rider attached to the policy contained discretion-granting language giving the insurer, United of Omaha Life Ins., the authority to conclusively decide all questions regarding payment of any policy benefits. The ERISA Summary Plan Description (“SPD”) lacked any mention of the discretionary power. The policyholder alleged that he became disabled and was entitled to receive benefits under his insurance policy. The insurer denied the full claim but paid out partial benefits.

The policyholder disputed whether he received proper notice of the discretion-granting language included in the policy. The policyholder argued that the insurer’s failure to include mention of the discretionary power in the SPD failed to provide notice. The SPD only indicated that the coverage described within the document was “subject to the terms and conditions” of the Policy, which included the rider.

The court in Orlando v. United of Omaha Life Ins. noted that the discretionary language was written after coverage was contracted for, was very short in length, and was not in the policy itself but attached as a rider. However, the court noted that notice of discretionary authority is not currently demanded in the SPD.

The court reluctantly held the inclusion of the discretion-granting language in the rider to be sufficient to put the policyholder on notice. Therefore, the policyholder’s claim challenging the denial of benefits was to be reviewed under the arbitrary and capricious standard.

Orlando v. United of Omaha Life Ins. Co., not reported in F.Supp.2d, 2008 WL 4874731 (N.D.Ill., 2008).