Eastern District Of Michigan Holds Michigan's Administrative Rules Preclude Denials Based On Discretionary Clauses In Disability Benefits Plans

In Gray v Mutual of Omaha Life Ins Co, 2012 US Dist LEXIS 101682 (ED Mich July 23, 2012) (published), the United States District Court of the Eastern District of Michigan held that Michigan regulations prevented a disability plan administrator from relying on a discretionary clause in denying short-term disability benefits to a plan participant.

The plaintiff in Gray had been deemed ineligible to receive short-term disability benefits under her employer-offered disability insurance plan. Though her psychiatrist and primary care physician both supported a recommendation that the plaintiff stop working due to a variety of ailments (including a diagnosed mood disorder), the plan administrator, Mutual of Omaha Life Insurance Company ("MUO") denied the plaintiff's benefits claim. Under the plan's plain language, benefits were to be paid only after MUO Üreceive[d] acceptable proof of loss." Id. at *9. MUO considered this language to confer discretion on the plan administrator, and it conducted a file review, after which MUO denied the plaintiff's claim on the basis that there was inadequate objective support for the diagnoses given by the plaintiff's physicians. The plaintiff subsequently sued MUO in Michigan state court, and the case was removed to the Eastern District on MUO's motion.

In its decision, the court explained that, where a plan confers discretionary authority on its administrator, the court generally applies an "arbitrary and capricious" standard in reviewing a denial of benefits. Id. at *9 (citing Jones v Metro Life Ins Co, 385 F3d 654, 660 (6th Cir 2004)). However, in 2007, Michigan's Office of Financial and Insurance Services promulgated administrative rules...