SAN FRANCISCO (LN) — A California resident denied long-term disability benefits cannot invoke a state law that would have entitled her to de novo court review of that denial, a federal judge ruled Friday, because the plan's North Carolina choice-of-law clause controls.
Heather Farris, who worked for Lowe's Companies in California until she became disabled, sued Life Insurance Company of North America after it denied her claim under Lowe's Long-Term Disability Plan. The policy, issued to Lowe's in North Carolina effective September 1, 2013, states on its cover page that it "is issued in North Carolina and shall be governed by its laws."
That single sentence proved decisive. Farris argued the provision was not a true contractual choice-of-law clause — that a reasonable layperson would read it as merely a declaration that the issuance of the policy was being done pursuant to North Carolina's laws, rather than a wholesale displacement of California insurance protections. Chief U.S. District Judge Richard Seeborg rejected that reading, holding that the language "unambiguously reflects a choice of North Carolina law."
The stakes were the standard of review. California Insurance Code § 10110.6, effective in 2012, voids any provision in a disability policy covering a California resident that grants the insurer discretionary authority to determine benefit eligibility or interpret policy terms — effectively forcing courts to review benefit denials fresh, without deference to the insurer. The plan documents here granted LINA exactly that discretionary authority. If § 10110.6 applied, those provisions would be void and Farris would get de novo review; under North Carolina law, she gets the far more deferential abuse-of-discretion standard.
Seeborg applied federal choice-of-law rules — mandatory in ERISA cases — under which a contractual choice of law should be followed if not unreasonable or fundamentally unfair when viewed when the contract was made. Farris argued that enforcing the North Carolina clause was fundamentally unfair because it stripped her of protections California specifically enacted for residents like her. The court was unmoved, aligning itself with a line of Northern District decisions holding that a non-California choice-of-law clause is not rendered unreasonable simply because it forecloses § 10110.6's protections.
The court pointed to Lowe's scale as the practical justification: the retailer is headquartered in North Carolina and employs hundreds of thousands of workers across the country, making uniform application of North Carolina law to every dispute under the policy reasonable.
Farris also argued that the policy's inclusion of special notices for residents of Arizona, Florida, Maryland, and Texas — but not California — showed the North Carolina clause could not have been intended to displace all other state law. Seeborg disagreed, ruling that those notices provided additional warning to residents of those states but did not neutralize the governing-law provision.
The ruling resolves only the choice-of-law and standard-of-review questions; Farris's underlying claim for benefits remains pending.