Kovacs v. American General Life Insurance Company

Filing 17

OPINION and ORDER Regarding 10 , 12 Cross-Motions to Affirm or Reverse ERISA Benefits Determination. Signed by District Judge Gerald E. Rosen. (JOwe)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
RONALD A. KOVACS,
Plaintiff,
Case No. 15-11581
Hon. Gerald E. Rosen

v.
AMERICAN GENERAL LIFE
INSURANCE COMPANY,
Defendant.
_________________________________/

OPINION AND ORDER
REGARDING CROSS-MOTIONS TO AFFIRM
OR REVERSE ERISA BENEFITS DETERMINATION
At a session of said Court, held in
the U.S. Courthouse, Detroit, Michigan
on
January 9, 2017
PRESENT:

Honorable Gerald E. Rosen
United States District Judge

I. INTRODUCTION
Plaintiff Ronald A. Kovacs commenced this action in state court on or
around March 18, 2015, asserting a breach of contract claim and other state-law
theories of recovery against Defendant American General Life Insurance Company
arising from Defendant’s denial of Plaintiff’s claim for benefits under a group life
insurance policy issued by Defendant to Property Loss Consultants, Inc., the

employer of Plaintiff’s deceased wife. Defendant removed the case to this Court
on May 1, 2015, on the ground that Plaintiff’s state-law claims challenging the
denial of benefits under a group life insurance policy issued to an employer are
completely preempted by the Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. § 1001 et seq. See Metropolitan Life Insurance Co. v.
Taylor, 481 U.S. 58, 66-67, 107 S. Ct. 1542, 1548 (1987).
Presently before the Court are Plaintiff’s and Defendant’s cross-motions to
reverse or affirm, respectively, the Defendant insurer’s denial of Plaintiff’s claim
for life insurance benefits. As the basis for this denial, Defendant asserts that
Plaintiff’s wife, Terry Kovacs, no longer had life insurance coverage at the time of
her death because she had ceased her active employment several months earlier
and had not converted her group coverage to an individual policy. Plaintiff, in
contrast, contends that his wife continued her full-time employment up until her
death, and he argues that the Defendant concluded otherwise only through an
arbitrary reading of the record and a failure to conduct a proper investigation.
The parties’ cross-motions have been fully briefed and are ready for
decision. Upon reviewing the parties’ submissions, the pleadings, and the
administrative record, the Court finds that the relevant allegations, facts, and legal
arguments are adequately presented in these materials, and that oral argument
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would not significantly aid the decisional process. Accordingly, the Court will
decide the parties’ motions “on the briefs,” see Local Rule 7.1(f)(2), U.S. District
Court, Eastern District of Michigan, in accordance with the guidelines articulated
by the Sixth Circuit in Wilkins v. Baptist Healthcare System, Inc., 150 F.3d 609,
619 (6th Cir. 1998).1 This opinion and order sets forth the Court’s findings of fact
and conclusions of law. To the extent that any findings of fact constitute
conclusions of law, they are adopted as such. To the extent that any conclusions
of law constitute findings of fact, they are so adopted.
II. FINDINGS OF FACT
A.

The Parties
Defendant American General Life Insurance Company provides life

insurance coverage to employees of Property Loss Consultants, Inc. (“PLC”)
through a group life insurance policy (the “Policy”) issued to the company.
Plaintiff Ronald A. Kovacs is the sole shareholder, officer, and director of PLC,
and his wife, Terry A. Kovacs, was covered by the Policy as an employee of the

1

Specifically, Wilkins holds that neither an award of summary judgment nor a
bench trial is an appropriate procedural mechanism for resolving a claim to recover
benefits under an ERISA plan. Rather, the Sixth Circuit stated that district courts
generally should review challenged benefit denials “based solely upon the administrative
record, and [should] render findings of fact and conclusions of law accordingly.”
Wilkins, 150 F.3d at 619.
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firm owned by her husband.
B.

The Relevant Terms of the Policy
This case arises from Plaintiff’s request for life insurance benefits under the

Policy following his wife’s death on December 7, 2014. In order to be eligible for
benefits under the Policy, an individual must be a member of the “Eligible Class[]”
of “full-time employees” of PLC, and not a “temporary, part-time or seasonal”
employee. (Administrative Record (“AR”) at 9.) The Policy defines “full-time”
employment as “active work on [PLC’s] regular work schedule for the class of
employees to which you belong,” and further mandates that this “work schedule
must be at least 30 hours a week.” (Id. at 5.) “Active work,” in turn, is defined as
“performing normal duties for [PLC] at the usual place of employment, an
alternative work site at the direction of [PLC], or at a location to which [PLC]
requires the insured to travel.” (Id. at 6.)
Under the Policy, an employee’s life insurance coverage terminates “on the
earliest of” a number of dates, including (as relevant here) “at the end of the month
following the date the insured ceases to be a member of an Eligible Class,” (id. at
11) — i.e., the date that an individual is no longer a full-time employee of PLC. A
separate provision, however, establishes various “exceptions” to the termination of
coverage upon cessation of full-time employment; as pertinent here, if an
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employee “terminates Active Work due to Injury or Sickness, coverage under the
Policy may be continued in accordance with the Extension of Life Insurance
provision” set forth elsewhere in the Policy. (Id.) This “Extension of Life
Insurance” provision, in turn, states that “[i]f the insured becomes Totally
Disabled before reaching age 60, his or her Basic and Supplemental Life Insurance
under this Policy will continue for one year from the date the Insured becomes
Totally Disabled, provided that the Insured remains Totally Disabled, and
premiums are paid when due.” (Id. at 13.)
As another means of extending coverage, the Policy recognizes a
“Conversion Privilege” that allows an insured to “convert his or her Life Insurance
under the Policy to an individual policy” upon the termination of coverage under
the Policy. (Id. at 14.) As pertinent here, in order to be eligible for conversion to
an individual policy, an insured must have “cease[d] to be a member of an Eligible
Class,” and he or she must apply in writing to the Defendant insurer and pay the
first premium within 31 days after termination of coverage under the Policy. (Id.)
Finally, the Policy confers upon the Defendant insurer the “sole
discretionary authority to determine eligibility, make all factual determinations
and to construe all terms of this [P]olicy.” (Id. at 20.) If an insured’s claim for
benefits is “wholly or partially denied,” the insured “may appeal to [the Defendant
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insurer] for a full and fair review,” and the Policy further provides that an insured
may “file suit in a state or federal court” if his or her claim for benefits is “denied
or ignored.” (Id. at 25.)
C.

Plaintiff’s Claim for Life Insurance Benefits Under the Policy
Plaintiff’s wife, Terry A. Kovacs, passed away on December 7, 2014. On

December 22, 2014, Plaintiff contacted Defendant to provide notice of his claim
for life insurance benefits, and Defendant advised him of the process for filing a
claim and sent him the applicable forms. (See id. at 71.)
On January 1, 2015, Plaintiff executed a “Proof of Group Death Claim”
form, stating that his wife had died of cancer on December 7, 2014. (See id. at
31.) On the first page of this form, Plaintiff stated that his wife’s last full day of
active work was August 31, 2014, and that she stopped working due to illness.
(See id. at 30.) Plaintiff further indicated that his wife was a full-time employee
who averaged “35+” hours of work per week. (Id.) Finally, Plaintiff provided a
statement from his wife’s physician, Dr. Shalini Gupta, indicating that Mrs.
Kovacs had been treated for cancer in office visits spanning from June 21, 2013 to
October 8, 2014, and that she had died in the hospital from respiratory failure
brought about by cancer. (See id.)
By correspondence dated February 9, 2015, Defendant notified Plaintiff that
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his claim for life insurance benefits had been denied. (See id. at 26-29.) In
support of this decision, Defendant explained that Mrs. Kovacs “was not eligible
for insurance coverage on the date of her death,” since (i) the Policy provides that
this coverage terminates at the end of the month in which an employee ceases to
work, and (ii) the information submitted to Defendant disclosed that Mrs. Kovacs’
“last full day of active work was August 31, 2014.” (Id. at 26.) Defendant
advised Plaintiff that he could “elect to appeal [the insurer’s] decision . . . in
writing within 180 days,” and that “[f]ollowing any appeal with an adverse
decision,” he had “the right to bring [a] civil action under Section 502(a) of
ERISA.” (Id. at 29.)
Plaintiff did not pursue an administrative appeal of Defendant’s decision.
Instead, he commenced this suit in state court on or around March 18, 2015,
seeking to overturn Defendant’s denial of his claim for life insurance benefits
through a variety of state-law theories of recovery. Defendant removed the case to
this Court on May 1, 2015, contending that the various state-law claims asserted
by Plaintiff are completely preempted by ERISA.
III. CONCLUSIONS OF LAW
A.

The Standards Governing the Parties’ Cross-Motions
Defendant’s removal of this action to this Court rests upon the undisputed
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premise that Plaintiff seeks to recover benefits under a group life insurance policy
governed by ERISA, so that his state-law claims for policy benefits are completely
preempted by this federal statute and hence removable to federal court. See
Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 66-67, 107 S. Ct. 1542,
1548 (1987). More specifically, ERISA confers a right upon Plaintiff, as the
beneficiary of a employee benefit plan governed by ERISA, to bring suit in federal
district court to recover benefits allegedly due under the terms of the plan. 29
U.S.C. § 1132(a)(1)(B). Courts review de novo a denial of benefits challenged
under this provision, unless the benefit plan grants the Defendant plan or claims
administrator the discretionary authority to determine eligibility for benefits or to
construe the terms of the plan, in which case a more deferential “arbitrary and
capricious” standard applies. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S.
101, 115, 109 S. Ct. 948, 956-57 (1989); Yeager v. Reliance Standard Life Ins.
Co., 88 F.3d 376, 380 (6th Cir. 1996).
In this case, Defendant states without contradiction that the language of the
Policy triggers the more deferential “arbitrary and capricious” standard of review.
In particular, the Policy grants to Defendant the “sole discretionary authority to
determine eligibility, make all factual determinations and to construe all terms of
this [P]olicy.” (Admin. Record at 20.) The Sixth Circuit has recognized that plan
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language of this sort confers sufficient discretionary authority to warrant judicial
review under the “arbitrary and capricious” standard. See, e.g., Calvert v. Firstar
Finance, Inc., 409 F.3d 286, 292 (6th Cir. 2005) (holding that plan language
granting the plan administrator the “sole discretion” to “construe the terms of” a
policy governed by ERISA and “to determine eligibility” under the policy
triggered arbitrary and capricious review).
Accordingly, the Court will apply the “arbitrary and capricious” standard in
reviewing Defendant’s denial of Plaintiff’s claim for life insurance benefits. This
is the “least demanding form of judicial review,” under which the Court must
uphold a denial of benefits if it is “rational in light of the plan’s provisions.”
Monks v. Keystone Powdered Metal Co., 78 F. Supp.2d 647, 657 (E.D. Mich.
2000) (internal quotation marks and citations omitted), aff’d, 2001 WL 493367
(6th Cir. May 3, 2001). “When it is possible to offer a reasoned explanation,
based on the evidence, for a particular outcome, that outcome is not arbitrary or
capricious.” Davis v. Kentucky Finance Cos. Retirement Plan, 887 F.2d 689, 693
(6th Cir. 1989) (internal quotation marks and citations omitted). Rather, in order
to “conclud[e] that a decision was arbitrary and capricious, a court must be
confident that the decisionmaker overlooked something important or seriously
erred in appreciating the significance of evidence.” Marchetti v. Sun Life
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Assurance Co., 30 F. Supp.2d 1001, 1008 (M.D. Tenn. 1998). Even where “the
evidence may be sufficient to support [an award of benefits], if there is a
reasonable explanation for the administrator’s decision denying benefits in light of
the plan’s provisions, then the decision is neither arbitrary nor capricious.”
Schwalm v. Guardian Life Insurance Co., 626 F.3d 299, 308 (6th Cir. 2010).
B.

Defendant’s Denial of Plaintiff’s Claim for Life Insurance Benefits Was
Not Arbitrary or Capricious, But Instead Rested upon a Reasoned
Application of the Policy Language to the Facts in the Administrative
Record.
With these standards in mind, the Court turns to a review of Defendant’s

decision that Plaintiff’s wife, Terry Kovacs, was no longer eligible for life
insurance benefits at the time of her death on December 7, 2014. This decision, as
discussed above, was based on Defendant’s understanding that Mrs. Kovacs’ last
day of full-time employment was August 31, 2014. Under the plain language of
the Policy, Mrs. Kovacs’ life insurance coverage terminated “at the end of the
month following the date [she] cease[d] to be a member of [the] Eligible Class” of
full-time employees of PLC. (Admin. Record at 11; see also id. at 5 (defining the
“Eligible Class[]” as “[a]ll full-time employees”).) It follows, in Defendant’s
view, that Mrs. Kovacs’ coverage under the Policy “ended on September 30, 2014,
approximately ten weeks before her death on December 7, 2014.” (Defendant’s

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Motion, Br. in Support at 10.)
The Court cannot see how this decision could be deemed suspect in any
way, let alone arbitrary or capricious. In his application for life insurance benefits,
Plaintiff expressly identified his wife’s “Last Full Day of Active Work” as August
31, 2014. (Admin. Record at 30.) Although, as noted above, the Policy provides
mechanisms through which coverage may be extended beyond an employee’s last
day of full-time work or group life insurance may be converted to an individual
policy, (see id. at 11, 13, 14), Plaintiff does not contend that he or his wife invoked
any such mechanism to extend or convert the coverage granted to Mrs. Kovacs
under the Policy. Because Plaintiff himself stated that his wife’s last full day of
active work was August 31, 2014, and because the Policy provides that coverage
terminates “at the end of the month following the date the insured ceases to be a
member of an ‘Eligible Class,’” (id. at 11) — a class consisting of “[a]ll full-time
employees,” with “full-time” employment in turn defined as “active work on
[PLC’s] regular work schedule” of “at least 30 hours a week,” (id. at 5) — the
conclusion is inescapable that Mrs. Kovacs’ coverage under the Policy terminated
several weeks before her death.
Plaintiff suggests two means for avoiding this result, but neither withstands
even cursory scrutiny. First, while he concedes that his wife ceased working in
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PLC’s “formal” office as of August 31, 2014, he maintains that she continued to
work from an office at the Kovacs’ home up until her death on December 7, 2014.
(See Plaintiff’s Motion, Br. in Support at 2.)2 As his sole support for this
contention, Plaintiff points to an affidavit he has submitted in support of his
motion to reverse Defendant’s denial of his claim for benefits. (See Plaintiff’s
Motion, R. Kovacs 11/16/2015 Aff. at ¶¶ 6-9.) This affidavit, however, is not a
part of the administrative record, and it is well settled that in reviewing
Defendant’s challenged decision, the Court is “confined to the record that was
before the Plan Administrator” and “may not admit or consider any evidence not
presented to the administrator.” Wilkins, 150 F.3d at 615, 619.3 When
Defendant’s decision is reviewed in light of the facts and evidence in the

2

The Court notes that Plaintiff’s motion and brief lack page numbers, and also fail
in a variety of other respects to comply with the Local Rules of this District governing the
format of papers filed with the Court. See Local Rule 5.1(a), Local Rule 7.1(b)(1), Local
Rule 7.1(d)(1)-(2). Plaintiff’s counsel is cautioned to familiarize himself with these rules
before filing any further papers with the Court.
3

Wilkins itself recognizes an exception to this rule where evidence outside of the
administrative record “is offered in support of a procedural challenge to the
administrator’s decision, such as an alleged lack of due process afforded by the
administrator or alleged bias on its part.” Wilkins, 150 F.3d at 619. Plaintiff, however,
has advanced no such procedural challenge here, nor did he request an opportunity to
conduct discovery in support of any such challenge. In addition, while the pertinent
record that the Court may consider encompasses all materials considered during any
phase of the administrative review process, including administrative appeals, see Miller v.
Metropolitan Life Insurance Co., 925 F.2d 979, 986 (6th Cir. 1991), Plaintiff did not
pursue the administrative appeal that was available to him under the terms of the Policy.
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administrative record, there simply is no basis upon which Defendant could have
determined that Mrs. Kovacs continued her full-time employment with PLC after
August 31, 2014.
Plaintiff next suggests that the information he supplied to Defendant in his
application for life insurance benefits was either ambiguous or internally
inconsistent, thereby triggering Defendant’s obligation to further investigate Mrs.
Kovacs’ eligibility for life insurance benefits at the time of her death. Plaintiff
points, in particular, to a purported “discrepancy” in his statements (i) that his
wife’s last full day of active work was August 31, 2014, and (ii) that she was a
full-time employee who worked “35+” hours per week. (See Plaintiff’s Motion,
Br. in Support at 5 (citing Admin. Record at 30).)4 Plaintiff argues that if
Defendant had asked for more information in order to resolve this alleged
uncertainty, it would have learned that Mrs. Kovacs continued to work from home
until the date of her death.
The Court perceives no such inconsistency in the information Plaintiff

4

Plaintiff further suggests that the potential for ambiguity or inconsistency in these
two responses is increased by virtue of the Policy’s purported failure to define “active
work.” (See Plaintiff’s Motion, Br. in Support at 4.) As Defendant points out, however,
the Policy does in fact explicitly define “ACTIVE WORK/ACTIVELY AT WORK” as
“performing normal duties for [PLC] at the usual place of employment, an alternative
work site at the direction of [PLC], or at a location to which [PLC] requires the Insured to
travel.” (Admin. Record at 6.)
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provided to Defendant in support of his claim for life insurance benefits. The two
types of information requested in Defendant’s claim form — i.e., the last full day
of active work and the average number of hours worked per week — are directed
at two distinct criteria, both of which must be satisfied to obtain coverage under
the Policy. First, an individual must be in the eligible class of “full-time
employees” of PLC, which entails a showing that the individual performed “active
work on [PLC’s] regular work schedule” for “at least 30 hours a week.” (Admin.
Record at 5.) Second, the employee’s coverage must not have terminated, an
event that occurs on “the earliest of” a number of dates, including “at the end of
the month following the date the Insured ceases to be a member of an Eligible
Class.” (Id. at 11.)
The two allegedly inconsistent statements made by Plaintiff on the life
insurance claim form address these two distinct criteria for eligibility, and thus
need not be reconciled with each other. By stating that his wife was a full-time
employee who averaged more than 35 hours of work per week, (see id. at 30),
Plaintiff established that Mrs. Kovacs was within the class of full-time PLC
employees who were eligible for coverage under the Policy. But Plaintiff also was
asked to confirm that his wife retained this eligible status at the time of her death
— or, in other words, that her coverage under the Policy had not ceased under the
14

Policy’s termination clause. Thus, the form asks for the employee’s last full day
of active work, and Plaintiff identified this date as August 31, 2014. (See id.)
Under the express terms of the Policy, this meant that her coverage ceased at the
end of the following month. (See id. at 11.)
Even assuming the two pieces of information supplied by Plaintiff on the
claim form could be viewed as contradictory or inconsistent, it certainly was not
irrational or unreasonable for Defendant to construe this information as
establishing that Mrs. Kovacs was a full-time employee who ceased working on
August 31, 2014. As Defendant observes, given that the claim form at issue is
used to request life insurance benefits following an employee’s death, “[t]here will
necessarily be a date when the insured stopped working,” (Defendant’s Response
to Plaintiff’s Motion at 7), and this date must be disclosed in order for Defendant
to determine whether the employee remained eligible for coverage under the
Policy on the date of his or her death. Defendant further observes that if Plaintiff
meant to identify August 31, 2014 as the date that his wife relocated to a home
office, there was an “Other” space on the claim form where Plaintiff could have
provided this explanation, but he instead used this space to indicate that his wife

15

stopped working due to illness. (See Admin. Record at 30.)5 Consequently,
whatever latent ambiguities or uncertainties might arguably be lurking within
Plaintiff’s application for life insurance benefits, the Court finds no basis for
concluding that the Defendant insurer acted arbitrarily or capriciously by failing to
uncover and investigate these questions, and by instead adopting a straightforward
reading of Plaintiff’s application that was consistent with the terms of the Policy
governing eligibility for benefits.6

5

Indeed, given the Policy’s definition of “active work” as encompassing the
performance of “normal duties” at “an alternative work site at the direction of [PLC],”
(id. at 6), Plaintiff need not have provided any explanation regarding his wife’s relocation
to a home office, but could have simply identified her last full day of active work as the
date of her death (or some appropriate date shortly before that). If his failure to do so was
attributable to his misunderstanding of the questions asked and information sought on the
claim form, Defendant cannot be said to have acted arbitrarily or capriciously by failing
to perceive a claimant’s confusion or uncertainty that, so far as the record discloses, was
never brought to its attention.
6

In light of this conclusion that Defendant’s denial of Plaintiff’s claim for benefits
survives scrutiny under the deferential “arbitrary and capricious” standard of review, the
Court need not reach Defendant’s alternative contention that this case should be
dismissed due to Plaintiff’s failure to pursue the administrative appeal made available to
him under the Policy. See Fallick v. Nationwide Mutual Insurance Co., 162 F.3d 410,
418 (6th Cir. 1998) (recognizing that “[t]he application of the administrative exhaustion
requirement in an ERISA case is committed to the sound discretion of the district court”).
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IV. CONCLUSION
For the reasons set forth above,
NOW, THEREFORE, IT IS HEREBY ORDERED that Plaintiff’s
November 16, 2015 motion to reverse the denial of his claim for death benefits
(docket # 12) is DENIED, and that Defendant’s November 16, 2015 motion for
judgment affirming ERISA benefits determination (docket #10) is GRANTED.

s/Gerald E. Rosen
United States District Judge
Dated: January 9, 2017
I hereby certify that a copy of the foregoing document was served upon the parties
and/or counsel of record on January 9, 2017, by electronic and/or ordinary mail.
s/Julie Owens
Case Manager, [phone]

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