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Michigan Anti-Discretion Statute Doesn’t Apply To Self-Funded Plans - E.D. Mich.

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  • Michigan Anti-Discretion Statute Doesn’t Apply To Self-Funded Plans - E.D. Mich.

    In Moskal v. Aetna Life Insurance Company, the plaintiff seeks short and long term disability benefits under plans sponsored by her employer, Bank of America. Bank of America’s short term disability plan is a self-funded plan which Aetna administers. Bank of America’s long term disability plan is both administered and insured by Aetna. As most readers of this Board realize, Michigan has an anti-discretionary language statute. Plaintiff argues that because of that fact the court should employ a de novo standard. The court succinctly holds that the Michigan statute does not apply for the self-funded short term disability plan.

    However, Moskal points out that, as of July 1, 2007, insurers are prohibited by Michigan administrative rules from including a discretionary clause in any policy or contract issued to any person in this State, and the inclusion of any such clause is void and without effect. See Mich. Admin. Code r. 500.2202(b), (c). This rule “does not apply to contract documents in use before that date, but does apply to any such document revised in any respect on or after that date.” Id.The Sixth Circuit has recently held that this rule is not preempted by ERISA. Am. Council of Life Insurers v. Ross, 558 F.3d 600 (6th Cir. 2009).

    Aetna argues that this provision is inapplicable to the short-term disability benefits at issue because they were not offered through an insurance policy. Rather, Aetna submits that they were funded and paid directly by the Bank. The administrative record before the Court confirms this assertion (Admin. Rec. at 642), and Moskal has not responded to this argument. Moreover, the few cases that have addressed this provision have not provided any basis for extending its requirements to non-insurance benefits. Thus, the discretionary clause is not rendered void by Mich. Admin. Code r. 500.2202 (c) with respect to the short-term disability benefits, and the arbitrary and capricious standard applies.
    The court indicates that the issue regarding the long term disability plan is more problematic, but the court holds that it need not decide the issue.

    However, the question is considerably more complicated with respect to the long-term disability benefits. These benefits are offered through a policy of insurance that was issued by Aetna. (Admin. Rec. at 417). However, Aetna argues that Mich. Admin. Code r. 500.2202 does not apply to this policy because it was issued in the State of Connecticut and expressly provides that it is “governed by applicable federal law and the laws of North Carolina.” (Admin. Rec. at 417-418). “In determining [whether to enforce a choice-of-law provision] in an ERISA case, this court’s analysis is governed by the choice of law principles derived from federal common law. In the absence of any established body of federal choice of law rules, we begin with the Restatement (Second) of Conflicts of Law.” DaimlerChrysler Corp. Healthcare Benefits Plan v. Durden, 448 F.3d 918, 922-28 (6th Cir. 2006) (citations and internal quotation marks omitted) (engaging in several page analysis and concluding that Michigan law, rather than contractually-chosen law, should apply). But see id. at 928-29 (Merritt, J., dissenting) (overriding policy of uniformity behind ERISA framework counsels against engaging lengthy, complex, convoluted, and unpredictable choice-of-law analysis and in favor of enforcing the parties’ choice-of-law provision); Morrison v. Unum Life Ins. Co. of Am., 730 F. Supp. 2d 699 (E.D. Mich. 2010) (enforcing Maine choice-of law provision and therefore finding Mich. Admin. Code r. 500.2202 to be inapplicable). However, the Court need not engage in such a choice-of-law analysis here because, as will be seen, the standard of review is not outcome determinative in this case. The Court will assume - without deciding - that the de novo standard of review applies to Aetna’s determination to deny Moskal’s request for long-term disability benefits.
    What the court ultimately does is hold that Aetna did not abuse its discretion in denying the short term disability benefits and, therefore, plaintiff cannot be entitled to long term disability benefits.

    Because the Court has affirmed Aetna’s determination with respect to the short-term disability benefits, it follows that the denial of long-term disability benefits cannot be disturbed where the disability did not continue throughout the 180-day elimination period. (Admin. Rec. at 335, 355). Therefore, the Court need not address the issue of whether Moskal’s failure to exhaust her administrative remedies is excused on the grounds of futility.
    Quite frankly, I disagree with the court’s ultimate holding regarding the long term disability plan. If a different standard of review applied then I believe the outcome could theoretically be different even on the identical record. Obviously, the District Court Judge in Michigan does not agree with me. A copy of the decision is attached.
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