Federal Court Upholds Mich. OFIS Rules

Recently, the U.S District Court in West Michigan decided in favor of the Office of Financial and Insurance Services (OFIS), the defendant, in a case brought by plaintiffs American Council of Life Insurers, America’s Health Insurance Plans, and Life Insurance Association of Michigan. The court ruling upheld OFIS rules that prevent insurance companies from issuing insurance policies that contain “discretionary clauses.” A discretionary clause gives an insurance company the full and exclusive authority to determine and interpret a consumer’s eligibility and their entitlement to benefits and amount of benefits. Under the clauses, insurance company determinations would have the effect of binding courts reviewing insurer contract interpretations, effectively tying the hands of the judiciary by forcing a judge to give the insurer’s decision deferential treatment. “The court’s ruling represents a big win for Michigan consumers,” said OFIS Commissioner Ken Ross. “This decision prevents insurance companies from slipping clauses into their policies that unfairly disadvantage Michigan consumers.” On Feb. 23, 2007, OFIS promulgated administrative rules that barred insurers and nonprofit health care corporations from issuing insurance policies that contain discretionary clauses. The plaintiffs sued OFIS, arguing the rules attempt to govern the administration and enforcement of the terms of employee benefit plans subject to the Employee Retirement Income Security Act (ERISA). The court decided that the rules promulgated by OFIS prohibiting discretionary clauses in insurance policies sold in Michigan are valid. Specifically, the court found the rules constitute “law[s] . . . which regulate insurance’ under § 1144(b)(2)(A) of ERISA, because they are specifically directed toward entities engaged in insurance and substantially affect the risk pooling arrangement between the insurer and the insured.” Since the court found the rules are saved from preemption as laws regulating insurance under ERISA’s savings clause, OFIS will continue to implement and enforce the rules to protect Michigan consumers.