Rose v. Liberty Life Assurance Company of Boston

Filing 37

MEMORANDUM OPINION AND ORDER by Judge David J. Hale granting 20 Motion for Application of the Arbitrary and Capricious Standard of Review. cc: Counsel(JAC)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
JILL ROSE,

Plaintiff,

v.

Civil Action No. 3:15-cv-28-DJH-CHL

LIBERTY LIFE ASSURANCE COMPANY
OF BOSTON,

Defendant.

* * * * *
MEMORANDUM OPINION AND ORDER
Plaintiff Jill Rose brought this action under the Employee Retirement Income Security
Act (ERISA) alleging that Defendant Liberty Life Assurance Company of Boston wrongly
denied her claim for disability insurance benefits. (Docket No. 1) The issue now before the
Court is which standard of review the Court should apply in its examination of Liberty Life’s
decision to deny Rose benefits. Liberty Life has moved the Court to apply the highly deferential
arbitrary and capricious standard. (D.N. 20) Rose argues for de novo review, under which no
deference would be given to Liberty Life’s decision. The issue turns on whether the applicable
plan documents grant Liberty Life discretionary authority. Although the policy documents are
silent on this point, the Plan Document and Summary Plan Description (SPD) contain clear
grants of discretion. The Court thus concludes that the arbitrary and capricious standard of
review applies.
I.
A participant in or beneficiary of an ERISA plan may bring a civil action “to recover
benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan,
or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).
A denial of benefits “is to be reviewed under a de novo standard unless the benefit plan gives the
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administrator or fiduciary discretionary authority to determine eligibility for benefits or to
construe the terms of the plan.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115
(1989). If the plan grants discretion to an administrator, the Court reviews the administrator’s
decision under the arbitrary and capricious standard. Wells v. U.S. Steel & Carnegie Pension
Fund, Inc., 950 F.2d 1244, 1247 (6th Cir. 1991). The Sixth Circuit requires “that the plan’s grant
of discretionary authority to the administrator be ‘express.’” Yeager v. Reliance Std. Life Ins.
Co., 88 F.3d 376, 380 (6th Cir. 1996) (quoting Perry v. Simplicity Eng’g, 900 F.2d 963, 965 (6th
Cir. 1990)).
II.
Liberty Life acknowledges that the policy itself contains no grant of discretion. The
reason for this silence, it notes, is that applicable Michigan law prohibits discretionary clauses in
such policies. (D.N. 20-1, PageID # 353) However, according to Liberty Life, the law does not
prohibit inclusion of discretionary clauses “in any other ERISA-regulated document, such as the
Plan Document or SPD.” (Id.) Liberty Life further contends that where the policy is silent
regarding discretion, the Court may examine “other relevant documents, such as the Plan
Document and the SPD, ‘to determine the appropriate standard of review.’” (Id. at 354 (quoting
Pettaway v. Teachers Ins. & Annuity Ass’n of Am., 644 F.3d 427, 433 (D.C. Cir. 2011)))
Therefore, Liberty Life argues, its decisions should be reviewed under the arbitrary and
capricious standard because there is clear discretionary language in the Plan Document and the
SPD. (Id.)
Rose, on the other hand, contends that the standard of review should be de novo. She
points out that the policy was issued in Michigan to a Michigan resident, and the express terms
clearly specify that Michigan law shall govern. (See D.N. 22, PageID # 377) Since Michigan

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insurance regulations “specifically prohibit the use of discretionary clauses (language that would
alter the standard of review) in ERISA plans,” Rose asserts, any such clause in the policy, “and
by extension the plan terms,” is prohibited. (Id.) Additionally, Rose argues that because a
Summary Plan Description cannot alter plan terms, any discretionary language in that document
has no binding effect on the overall policy. (Id. at 380)
III.
To determine the applicable standard of review, the Court must first decide whether the
Plan Document and Summary Plan Description are relevant documents for purposes of
determining whether a discretionary clause exists.

If the discretionary language in these

documents may be considered, the Court must then determine whether the Michigan ban on
discretionary clauses renders those provisions void.
With respect to whether the Court may consider the SPD and Plan Document, Rose relies
on Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), in which the Supreme Court concluded that
“the summary documents, important as they are, provide communication with beneficiaries
about the plan, but that their statements do not themselves constitute the terms of the plan.” Id.
at 1878. Amara is not dispositive here. First, “even after Amara, a plan sponsor can still give a
SPD controlling effect by incorporating it into its plan by reference.” Caesars Entm’t Operating
Co. v. Johnson, No. 3:13-CV-620-CRS, 2015 U.S. Dist. LEXIS 30221, at *19 (W.D. Ky. Mar.
12, 2015) (citing Engleson v. Unum Life Ins. Co. of Am., 723 F.3d 611, 620 (6th Cir. 2013)).
Further, “ERISA’s statutory text suggest[s] that multiple plan documents can be legally
relevant,” and “the ERISA sections on fiduciary responsibilities imply that there will be multiple
legally important plan documents.” Rice v. Sun Life & Health Ins. Co., No. 1:12-CV-1362, 2014
U.S. Dist. LEXIS 127, at *13 (W.D. Mich. Jan. 2, 2014) (quoting Pettaway, 644 F.3d at 433).

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The Sixth Circuit has recognized that determining whether discretionary authority exists
“requires an examination of the plan documents.” Lee v. MBNA Long Term Disability & Benefit
Plan, 136 F. App’x 734, 743 (6th Cir. 2005) (finding application of arbitrary and capricious
standard appropriate based on “[t]he language of the SPD”).
In this case, the SPD is expressly incorporated into the Plan Document. (See D.N. 20-1,
PageID # 361-62 (quoting Plan Doc. at 5-6)) And both the Plan Document and the SPD
expressly grant discretionary authority. The Plan Document states that the Claims Administrator
has “the sole and absolute discretion to decide claims and appeals” and “‘shall have such
discretionary power as may be necessary in order to carry out’ its assigned duties and powers.”
(Id., PageID # 360 (quoting Plan Doc. § 6.5(a))) The SPD likewise grants discretion, stating that
Claims Administrators have “‘the sole and absolute discretion to interpret the Plan
Document,’ . . . and that such interpretations ‘are conclusive and binding on all persons claiming
benefits under, or otherwise having an interest in, the Program.’” (Id. (quoting SPD at 30)) This
language satisfies the Sixth Circuit’s requirement that a grant of discretion “be ‘express.’”
Yeager, 88 F.3d at 380 (quoting Perry, 900 F.2d at 965)).
The Court must next decide whether Michigan’s administrative rule prohibiting
discretionary clauses applies to these provisions.

The rule in question is Michigan

Administrative Code Rule 500.2202, titled “Insurance Policy Forms – Discretionary Clauses,”
which went into effect on July 1, 2007. In American Council of Life Insurers v. Ross, the Sixth
Circuit held “that the Michigan rules fall within the ambit of ERISA’s savings clause and are not
preempted by that statute.” 558 F.3d 600, 609 (6th Cir. 2009); see also Markey-Shanks v. Metro.
Life Ins. Co., No. 1:12-CV-342, 2013 U.S. Dist. LEXIS 102412, at *17 (W.D. Mich. July 23,
2013). However, the Sixth Circuit did not decide whether the ban on discretionary clauses

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extends to plan documents or SPDs, which are “federally mandated ERISA plan documents
regulated by the Department of Labor.” Hess v. Metro. Life. Ins. Co., 91 F. Supp. 3d 895, 900
(E.D. Mich. 2015).
Michigan Administrative Code Rule 500.2202 provides, in pertinent part, that “an insurer
shall not issue, advertise, or deliver to any person in this state a policy, contract, rider,
indorsement, certificate, or similar contract document that contains a discretionary clause.”
Mich. Admin. Code R. 500.2202(2)(b). It further states that “a discretionary clause issued or
delivered to any person in this state in a policy, contract, rider, indorsement, certificate, or
similar contract document is void and of no effect.” Id. at 2(c). Insurers operating in Michigan
must submit to the commissioner of Michigan’s Office of Financial and Insurance Services
(OFIS) “a list of all forms in effect in Michigan that contain discretionary clauses,” as well as “a
certification that the list is complete and accurate.” Id. at 2(e).
The word “form” is defined by M.C.L. § 500.2236(1).

Mich. Admin. Code R.

500.2201(2)(d). The forms listed in that statute are “basic insurance policy” forms, “annuity
contract” forms, “insurance or annuity application” forms, “printed rider or indorsement” forms,
“form[s] of renewal certificate,” and “group certification[s].” M.C.L. § 500.2236(1). Section
500.2236 provides that such forms “shall not be issued or delivered to a person in this state, until
a copy of the form is filed with the department of insurance and financial services and approved
by the director of the department of insurance and financial services as conforming with the
requirements of this act and not inconsistent with the law.” Id. The Eastern and Western
Districts of Michigan have observed that “[a]n ERISA Plan or SPD is not among the documents
subject to approval by the Commissioner.” Hess, 91 F. Supp. 3d at 901 (quoting Markey-Shanks,
2013 U.S. Dist. LEXIS 102412, at *19-20).

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The courts in Hess and Markey-Shanks focused on this omission. In Markey-Shanks, the
court noted that the discretionary clause in question was found “not in the Policy, but in the
ERISA plan document itself, which is not subject to regulation by the Commissioner.” 2013
U.S. Dist. LEXIS 102412, at *19. Based on the plain language of the Michigan administrative
rules, the court found that the rules “do not apply to ERISA SPDs and other plan documents
subject to federal regulation.” Id. at 20 (citing 29 C.F.R. § 2520.102-3). Accordingly, the court
held that the arbitrary and capricious standard applied. Id. Expanding on that holding, the court
in Hess applied the arbitrary and capricious standard “based on the reservation of discretionary
authority . . . to defendant in the SPD.” 91 F. Supp. 3d at 901-02.
The Court agrees with the reasoning in Hess and Markey-Shanks and therefore concludes
that Michigan Administrative Code Rule 500.2202 does not bar grants of discretion in an SPD or
plan document. Because the SPD and Plan Document in this case expressly grant discretionary
authority to Liberty Life with respect to denial of benefits, the denial of Rose’s claim should be
reviewed under the arbitrary and capricious standard.
Rose’s contention that the de novo standard should apply because Liberty Life has not
presented proof that it actually exercised discretion barely warrants discussion. Liberty Life’s
denial of Rose’s claim for benefits is the basis of this lawsuit. (See D.N. 1, PageID # 2-3)
Moreover, Liberty Life cited evidence of that denial in its motion. (See D.N. 20-1, PageID # 358
(citing correspondence in administrative record regarding Liberty Life’s initial denial of claim
and subsequent decision on appeal)) Likewise, Rose’s argument that Liberty Life has offered no
evidence that the discretionary clauses in the Plan Document and SPD apply to Liberty Life is
clearly meritless; each document grants discretion to the Claims Administrator, and the SPD
identifies Liberty Life as the Claims Administrator. (See D.N. 18, PageID # 89 (Plan Document

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defining “Claims Administrator” as “the Initial Claims Reviewer or the Appeals Administrator,
depending on the context in which the term is used”); id. (defining “Appeals Administrator” by
reference to SPD); id., PageID # 92 (defining “Initial Claims Reviewer” by reference to SPD);
id., PageID # 155 (SPD identifying Liberty Life as “Claims Administrator for Claims for Plan
Benefits”))
Nor is the Court persuaded by Rose’s judicial-estoppel argument. Although Liberty Life
has conceded in previous cases that the Michigan administrative rules applied, Rose has not
shown that Liberty Life is estopped from arguing otherwise here. In each of the cited cases,
Liberty Life conceded that the Michigan rules apply to insurance policies. (See D.N. 22-1,
PageID # 402 (statement in brief of Liberty Life from James v. Liberty Life Assurance Co. that
Michigan rules applied to “the DTE Energy LTD Policy”); D.N. 22-2, PageID # 425 (statement
in brief of Liberty Life from Foorman v. Liberty Life Assurance Co. that “the OFIS Rules are
applicable only to insurance policies issued or delivered in the state of Michigan”)) Here,
Liberty Life does not dispute that the rules apply to the policy; the issue is whether Rule
500.2202 bars the grants of discretion in the SPD and Plan Document. (See D.N. 20-1, PageID #
364) As explained above, the Court finds that it does not.
IV.
Liberty Life had discretionary authority under the plan, and it exercised that authority in
denying Rose’s claim for benefits. Accordingly, and the Court being otherwise sufficiently
advised, it is hereby
ORDERED that the Motion for Application of the Arbitrary and Capricious Standard of
Review (D.N. 20) is GRANTED.
March 22, 2016

David J. Hale, Judge
United States District Court
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