STATE OF MICHIGAN
COURT OF APPEALS
May 20, 2004
PAUL REVERE LIFE INSURANCE COMPANY,
Wayne Circuit Court
LC No. 00-004378-CK
Official Reported Version
Before: Fort Hood, P.J., and Bandstra and Meter, JJ.
Defendant appeals as of right, challenging the trial court's order overruling defendant's
claims representative's decision to discontinue disability benefits to plaintiff and ordering the
reinstatement of monthly benefits. We agree with the trial court that the disability policy at issue
is not governed by the Employee Retirement Income Security Act (ERISA), 29 USC 1001 et seq.
Moreover, although we believe that the "arbitrary and capricious" standard of review should
have applied to the evaluation of the claims representative's decision, we are bound to follow a
decision of this Court mandating a de novo standard of review under the circumstances.
Therefore, we affirm.
In 1968, plaintiff and a friend, Kent Seidman, began a vending machine supply company
while they were students at Eastern Michigan University; they formed a corporation, originally
known as Manimark Company, in 1970. After Seidman died in 1981, plaintiff continued the
business by himself as president and chief executive officer. In 1981, plaintiff formed two
corporations, Manimark Corporation and Manimark Associates. Manimark Corporation was
formed to handle the general vending machine business activities, while Manimark Associates
was created as a real estate holding company.
On March 20, 1987, defendant issued a disability policy to plaintiff. Plaintiff testified:
I believe that I purchased the Paul Revere policy personally on my own
behalf, not as any kind of company benefit, but as a personal purchase. It was
Manimark Corporation [that] received the bill and paid the premium because of
the huge amount of premium it was.
And in order for me to pay that check or that bill personally, I would have
had to take approximately 40 percent more out of the company in order to net
down to the premium that Paul Revere wanted. So it was easier for me to have
the company pay the bill and make a[n] end of the year tax adjustment on my
According to plaintiff, his employer, Manimark Corporation, paid one hundred percent of the
premiums for defendant's policy using checks drawn on the corporation's bank account.
Plaintiff also testified:
[I]t's as though I paid [the premium] myself with my own personal funds.
The corporate account was almost, not quite, but almost an extension of my
checking—my personal checking account. It was my company. I owned all of it.
I could do anything I want[ed] with it. If I wanted to buy something out of the
corporation, I'd buy something out of the corporation. I also did that with life
insurance for me. I mean, I don't know how else to explain it. I just took money.
It was a salary. It was my money. The corporate money is my money. It was my
money. It wasn't anybody else's. It was my money.
Plaintiff acknowledged that he did not reimburse Manimark Corporation for those payments. In
addition, plaintiff stated on his application for the policy that his occupation was "President—
CEO" and that Manimark Corporation was his "employer."
In the late 1980s, a steel hauler's union sought to unionize plaintiff 's company, and
plaintiff successfully resisted the unionization. However, a second attempt at unionization in
1990 proved successful. The initial contact by the union bargaining agent was apparently
unannounced. According to plaintiff, the agent came into his office, sat down in a chair, and
placed a handgun on the table. Plaintiff claimed that the unionization of his company and the
trauma of the contact with the union bargaining agent caused him to become agitated and
anxious. He testified that about six months before he sold the business in 1996, he began to
suffer chest pains, became despondent and anxious, and thought that he was going to have a
Plaintiff filed an application for disability benefits under defendant's policy on May 4,
1996, alleging that he was completely unable to perform his occupational duties because of
depression and "post-traumatic stress disorder," which plaintiff claimed were caused by the
incident with the union official in 1990. In his claim, plaintiff indicated that the policy was not
an employer-sponsored policy. After defendant conducted an initial investigation and plaintiff
submitted medical documentation in support of his claim, defendant paid benefits to plaintiff
monthly for three years, beginning in 1996. In its initial investigation, defendant concluded that
the policy was purchased individually and thus was not subject to ERISA.
Later, defendant1 had plaintiff examined by a psychiatrist who opined that plaintiff was
not "so depressed that he cannot work." Plaintiff 's original physician disagreed. Following a
final review of all the medical information, defendant denied plaintiff 's claim, concluding, on the
basis of the medical evidence, that plaintiff did not have a disabling condition. Defendant
subsequently discontinued the monthly disability payments to plaintiff.
Plaintiff filed a complaint in the Wayne Circuit Court on February 11, 2000, alleging
breach of contract, bad faith, and egregious conduct based on defendant's termination of his
monthly benefits under the policy. Although defendant did not seek to remove the action to
federal court by asserting that plaintiff 's claims were preempted by ERISA, the trial court
requested, as a preliminary matter, that the parties address (1) whether the policy was governed
by ERISA and (2) the appropriate standard of review to be applied in evaluating the decision of
defendant's claims representative to discontinue monthly benefits. The trial court subsequently
ruled that the policy did not fall within the scope of ERISA and that "de novo" was the correct
standard of review to be employed in evaluating the decision of defendant's claims
representative. The court then found "in favor of the plaintiff finding that they [sic] have borne
their burden of proof to show that Mr. Krochmal is entitled to benefits from Paul Revere under
the terms of [the] policy, and that this Court will overrule the decision of the Paul Revere
adjuster finding Mr. Krochmal should be discontinued from benefits."
II. Policy Not Governed by ERISA
Defendant argues that the trial court erred in determining that defendant's policy was not
governed by ERISA. Defendant claims that ERISA governs because plaintiff 's employer
established or maintained the policy. We disagree.
Whether the disability policy in question is part of an employee welfare benefit plan
governed by ERISA involves a certain amount of statutory interpretation. We review issues of
statutory interpretation de novo. Cruz v State Farm Mut Automobile Ins Co, 466 Mich 588, 594;
648 NW2d 591 (2002). Moreover, it appears that the trial court made its ruling as part of a
request for a declaratory judgment. This Court reviews de novo a trial court's decision with
regard to a declaratory judgment action. Taylor v Blue Cross & Blue Shield of Michigan, 205
Mich App 644, 649; 517 NW2d 864 (1994). However, we review any factual findings of the
trial court for clear error. Id.
Title I of ERISA applies to "'any employee benefit plan.'" Fugarino v Hartford Life &
Accident Ins Co, 969 F2d 178, 183 (CA 6, 1992), abrogated on other grounds by Raymond B
Yates, MD, PC Profit Sharing Plan v Hendon, ___ US ___; 124 S Ct 1330; 158 L Ed 2d 40
We note that the Paul Revere Life Insurance Company underwent some corporate merging and
restructuring and was known by different names throughout the instant proceedings. This
opinion uses the term "defendant" to refer to Paul Revere in its various forms.
(2004), quoting 29 USC 1003(a). An employee benefit plan includes "'an employee welfare
benefit plan or an employee pension benefit plan or a plan which is both . . . .'" Fugarino, supra
at 183, quoting 29 USC 1002(3). An employee welfare benefit plan is defined by ERISA, in
pertinent part, as "any plan, fund, or program . . . established or maintained by an employer . . .
for the purpose of providing for its participants or their beneficiaries, through the purchase of
insurance or otherwise . . . benefits in the event of . . . disability[.]" 29 USC 1002(1).
In Thompson v American Home Assurance Co, 95 F3d 429, 434 (CA 6, 1996), the court
stated that "[t]he existence of an ERISA plan is a question of fact, to be answered in light of all
the surrounding circumstances and facts from the point of view of a reasonable person." If an
insurance policy is an employee welfare benefit plan under ERISA, then plaintiff 's state-law
claims relating to that policy, with some exceptions, are preempted, and federal common law
will apply to determine any recovery. See, generally, Teper v Park West Galleries, Inc, 431
Mich 202, 207-214; 427 NW2d 535 (1988).
In Thompson, supra at 434-435, the Sixth Circuit Court of Appeals set forth a three-step
factual inquiry to determine whether a benefit plan is an ERISA plan:
First, the court must apply the so-called "safe harbor" regulations
established by the Department of Labor to determine whether the program was
exempt from ERISA. Second, the court must look to see if there was a "plan" by
inquiring whether from the surrounding circumstances a reasonable person
[could] ascertain the intended benefits, the class of beneficiaries, the source of
financing, and procedures for receiving benefits. Finally, the court must ask
whether the employer "established or maintained" the plan with the intent of
providing benefits to its employees. [Citations and some internal quotations
The court went on to state:
Department of Labor's ("DOL") regulations set out a "safe harbor"
provision that excludes an employee insurance policy from ERISA coverage if:
(1) the employer makes no contribution to the policy; (2) employee participation
in the policy is completely voluntary; (3) the employer's sole functions are,
without endorsing the policy, to permit the insurer to publicize the policy to
employees, collect premiums through payroll deductions and remit them to the
insurer; and (4) the employer receives no consideration in connection with the
policy other than reasonable compensation for administrative services actually
rendered in connection with payroll deduction. 29 C.F.R. § 2510.3-1(j). A policy
will be exempted under ERISA only if all four of the "safe harbor" criteria are
satisfied. [Thompson, supra at 435.]
In applying the three-part test set forth in Thompson, id. at 434-435, the first
consideration is whether the four "safe harbor" provisions exclude the plan in question from
ERISA coverage. Regarding the first safe harbor condition, whether the employer made a
contribution to the policy, the record indicates that Manimark Corporation paid the annual
premiums with corporate checks drawn on the corporation's own bank account. Although
plaintiff testified that he did not reimburse Manimark Corporation for those premium payments,
he testified that "my accountant at the end of the year put it on my taxes as though I had received
a bonus or draw from the company." According to plaintiff,
[t]here was no settling up. My accountant merely put it on my taxes like he
would my salary. There was no settling up. The bill came to Manimark
Corporation, Manimark Corporation paid the premium just as it would a draw or a
Thus, plaintiff acknowledged in his deposition testimony that, although Manimark Corporation
paid the premiums, the payment was reflected on his personal income tax form and he paid taxes
on the amount of the premiums.2
Plaintiff claims that Manimark Corporation made no contribution to the policy because
he paid the taxes on the premium payments, while defendant maintains that the record indicates
that Manimark Corporation established or maintained the insurance. Specifically, defendant
contends that "[s]imply paying the taxes on the premium payments in no way alters the fact that
Manimark Corporation made the annual payments, without reimbursement from Krochmal, to
maintain the Paul Revere Policy." In support, defendant relies on an unpublished federal district
court case from Arizona. We decline to find this unpublished case persuasive and instead rely on
B-T Dissolution, Inc v Provident Life & Accident Ins Co, 175 F Supp 2d 978 (SD Ohio, 2001).
In B-T Dissolution, the court addressed whether Steven Matthews's state-law claims for
breach of contract and bad faith were preempted by ERISA. Id. at 979. After Matthews resigned
his position as a managerial employee and minority shareholder in B-T Dissolution, Inc., he
sought to recover disability benefits under separate insurance policies issued by the defendants.
Id. Although the defendants initially paid Matthews's claims for benefits, they stopped making
the payments when they determined that Matthews was not "disabled" under their policies. Id.
Matthews then filed suit in state court, alleging breach of contract and bad faith. Id. The
defendant insurance companies removed the case to federal district court, seeking summary
dismissal of Matthews's state-law claims on the basis of ERISA preemption. Id.
Defendant points out that plaintiff submitted an affidavit in which he averred that he, not his
employer, paid the policy premiums. Defendant, citing Griffith v Brant, 177 Mich App 583,
587-588; 442 NW2d 652 (1989), claims that "a party cannot renounce by affidavit testimony that
he has unambiguously given by way of deposition." We note, however, that whether plaintiff or
his employer paid the policy premiums was not unambiguously clear during the deposition
In determining whether the insurance policies were part of an "employee welfare benefit
plan" governed by ERISA, the district court in B-T Dissolution determined that the defendant
insurance companies failed to establish the applicability of ERISA to Matthews's disability
insurance policies. Id. at 983. Specifically, the district court rejected the defendants' contention
that Matthews failed to satisfy the safe harbor criteria on the ground that his employer
contributed to the premium payments for his two disability insurance policies. Id. at 983-986. In
pertinent part, the court noted:
The evidence presented at the August 9, 2000, oral and evidentiary
hearing persuades the Court that B-T did not "contribute" to the payment of
Matthews' policy premiums, within the meaning of 29 C.F.R. § 2510.3-1(j), the
safe-harbor regulation. The Defendants insist that B-T plainly "contributed" to
the premiums because it "paid" them. In particular, the Defendants note that B-T
wrote the checks for the premiums and deducted them as business expenses.
Although these assertions are correct, the evidence also reflects that the full
amount of the premiums, at least in 1994, was included on Matthews' W-2 forms
as gross income. As a practical matter, then, the Court concludes that Matthews,
rather than B-T, actually paid the premiums. Although B-T wrote premium
checks directly to Provident and Guardian, those funds necessarily first "passed
through" Matthews, who was required to report the payments made by B-T as
gross income and to pay taxes on those amounts. As a result, despite the fact that
B-T wrote the checks, it is apparent that the company did so using Matthews'
money. Indeed, if the money used by B-T to pay the premiums were not his
money, then he would not have been required to report it on his W-2 forms or to
pay taxes on it. Given that B-T paid the premiums with Matthews' own income,
the Court rejects the argument that the company "contributed" to those payments.
In opposition to the foregoing conclusion, the Defendants repeatedly stress
that B-T deducted the premium payments for tax purposes. The Defendants
reason that B-T must have "paid" the premiums, or else it could not have taken
these deductions. Upon review, the Court finds this argument to be unpersuasive.
Without question, the premium payments cost B-T a substantial amount of
money, and the company properly deducted them as expenses. The flaw in the
Defendants' argument, however, is that the money for the premium payments
flowed from B-T to Matthews. This is evident from the fact that the cost of the
premiums appeared on his W-2 forms as taxable income. As a result, although BT actually wrote the checks, it did so with his money. The fact that B-T deducted
the cost of the premiums does not establish that the company "contributed" to
them. The Court harbors no doubt that Matthews' taxable salary also cost B-T a
substantial amount of money, which the company was entitled to deduct on its tax
returns. See, e.g., Eberl's Claim Service, Inc. v. Commissioner of Internal
Revenue, 249 F.3d 994, 998 (10th Cir. 2001) (recognizing that salaries paid by
closely held corporations are deductible expenses). If Matthews then used his
taxable salary to pay his mortgage, the Defendants could not seriously contend
that B-T "contributed" to his mortgage payment. By the same token, the premium
payments at issue were deducted by B-T and were taxable gross income to
Matthews. The fact that the money used to pay the Provident and Guardian
disability insurance premiums originated with B-T does not mean that the
company "contributed" to those premiums any more than it could be said to have
"contributed" to Matthews' mortgage payments if he used his salary income to
make those payments. An obvious difference in the two situations, of course, is
that B-T wrote the checks to pay the Provident and Guardian premiums, whereas
Matthews presumably would write his own check to make a mortgage payment.
This distinction is immaterial. In either case, the money used to pay the expense
was Matthews' own taxable gross income. As a result, the Court cannot agree that
B-T "contributed" to the premiums, within the meaning of the safe harbor
regulation. [B-T Dissolution, supra at 983-984 (emphasis in original).]
As pointed out in B-T Dissolution, the salient fact is that while the employer may have
written a check to make the premium payment, it used the employee's money to do so, even if
the employer deducted the premium payments for tax purposes. Applying the reasoning set forth
in B-T Dissolution to the facts of this case, we conclude that plaintiff, not his employer,
contributed to the payment of the insurance premiums. Specifically, the record indicates that
while Manimark Corporation was billed for the premiums and paid the premiums on its own
corporate account, and while plaintiff ostensibly did not reimburse the corporation for those
payments, the entire amount of the premium payments was accounted for on plaintiff 's annual
W-2 forms as taxable income, and plaintiff paid the taxes on it. Indeed, the reasoning set forth in
B-T Dissolution applies with greater force to the facts of this case because there is no indication
that Manimark Corporation deducted the premium payments for tax purposes. Accordingly,
plaintiff satisfied the first prong of the safe harbor criteria because his employer did not make
any contribution to the policy.
Regarding the second safe harbor condition, whether the employee's participation in the
policy is voluntary, the record indicates that plaintiff satisfied this condition because the
purchase of the policy was independent of any action by Manimark Corporation.
Regarding the third safe harbor condition, whether plaintiff 's employer endorsed the
policy in question, there is no indication in the record that Manimark Corporation was involved
in endorsing the policy. In Thompson, supra at 436-437, the Sixth Circuit Court of Appeals
noted that "endorsement" involves the absence of neutrality regarding an insurance plan or
policy. See also B-T Dissolution, supra at 986.3 In this case, there is nothing in the record to
Specifically, in a footnote, the district court in B-T Dissolution, supra at 986 n 12, stated:
[T]he Court notes that an employer does not "endorse" an insurance
program, within the meaning of the safe-harbor regulation, merely by collecting
premiums through payroll deductions and sending them to the insurer. 29 C.F.R. §
2510.3-1(j)(3). Although the Defendants contend that the payment process in the
show that Manimark Corporation was substantially involved in the creation and administration of
the program to support a finding of endorsement. Id.; Thompson, supra at 437. Thus, plaintiff
satisfied the third safe harbor condition.
Finally, plaintiff satisfied the fourth safe harbor condition because there was no
indication that his employer received any consideration in connection with the policy. Because
plaintiff satisfied all four of the safe harbor criteria, the insurance policy in question is not
governed by ERISA, and we need not reach the two additional steps in the Thompson three-part
analysis. See, generally, Thompson, supra at 437-438. The trial court did not clearly err in
determining that the disability policy in question was not part of an "employee welfare benefit
plan" that is governed by ERISA.4
Given our conclusion that plaintiff satisfied all four of the safe harbor criteria, we need
not address the next issue raised by defendant, namely, whether plaintiff "wholly owned"
Manimark Corporation in such a manner that the insurance policy in question was not governed
by ERISA. (As noted in Yates, supra at 1344 n 6, an insurance policy covering a sole
shareholder of a company and no other people is not subject to ERISA.) For the sake of
completeness, however, we note briefly that defendant's attempt to portray plaintiff as anything
other than a sole owner of Manimark Corporation is without merit. While plaintiff admitted that
he owned less than one hundred percent of the shares of Manimark Corporation because one
percent was held by Manimark Associates, plaintiff testified that he wholly owned Manimark
Associates. Moreover, plaintiff received all the stock of Manimark Corporation after his
business partner's death, and there is no evidence in the record of stock being transferred to
Manimark Associates. The trial court correctly noted that "[a]ll of the stock was in the name of
Mr. Krochmal even though there may have been some reference to one percent ownership for the
present case did not involve "payroll deductions," the Court concludes, based on
the reasoning set forth, supra, that it was sufficiently similar. B-T's role in the
process involved nothing more than sending a portion of Matthews' gross income
to Provident and Guardian on his behalf. Based upon its reading of the safeharbor regulation, the Court concludes that this limited level of employer
involvement does not constitute "endorsement" of an insurance program, and the
Defendants cite nothing to the contrary.
We have employed a clear error standard of review in reaching our ultimate conclusion here
because of the Thompson court's conclusion that "[t]he existence of an ERISA plan is a question
of fact," see Thompson, supra at 434, and because this Court generally reviews a trial's courts
factual findings for clear error. See Taylor, supra at 649. We note, however, that we would
reach the same conclusion even if we used the de novo standard of review advocated by the
parties on appeal.
purposes of a bond."5 ERISA did not govern the policy in question for the additional reason that
plaintiff was the sole owner of Manimark Corporation. Id.
III. Standard of Review Applicable to the Claims Adjustor's Decision
Defendant argues that the trial court should not have reviewed the decision of its claims
adjustor using a "de novo" standard of review but instead should have used an "arbitrary and
capricious" or abuse of discretion standard. We agree. Nevertheless, because we are bound to
follow the precedent established in Guiles v Univ of Michigan Bd of Regents, 193 Mich App 39,
47 n 4; 483 NW2d 637 (1992), we must reject defendant's argument.
This issue involves a question of law, and we review questions of law de novo. Sun
Communities v Leroy Twp, 241 Mich App 665, 668; 617 NW2d 42 (2000).
In Firestone Tire & Rubber Co v Bruch, 489 US 101; 109 S Ct 948; 103 L Ed 2d 80
(1989), the Supreme Court addressed the standard of review that is appropriate when reviewing
an administrator's decision denying benefits under 29 USC 1132(a)(1)(B). In Firestone Tire,
supra at 115, the Supreme Court held that review de novo is appropriate in reviewing a challenge
to the denial of benefits "unless the benefit plan gives the administrator or fiduciary discretionary
authority to determine eligibility for benefits or to construe the terms of the plan." If the plan
grants discretion to the administrator, then the court must apply the deferential "abuse of
discretion" or "arbitrary and capricious" standard. See id. at 114-115.
In this case, defendant relies on Perez v Aetna Life Ins Co, 150 F3d 550 (CA 6, 1998), in
which the Sixth Circuit Court of Appeals held that the arbitrary and capricious standard of
review was applicable to a review of the defendant's decision to terminate benefits because the
insurance policy in question vested discretion in the defendant, the plan administrator, by
requiring the insured to submit satisfactory evidence of disability. The Sixth Circuit Court of
[The Supreme] Court in Firestone . . . did not suggest that discretionary
authority hinges on incantation of the word discretion or any other magic word.
Rather, the Supreme Court directed lower courts to focus on the breadth of the
administrators' power—their authority to determine eligibility for benefits or to
construe the terms of the plan. While magic words are unnecessary to vest
discretion in the plan administrator and trigger the arbitrary and capricious
In his deposition, plaintiff explained that Manimark Associates owned one percent of
Manimark Corporation because "[i]t goes back to the financing on the front building was a . . .
bond and my partner died and we couldn't have just one shareholder or the . . . bond wasn't valid
so when he died we had to make . . . something . . . else a one percent and it was really
standard of review, this circuit has consistently required that a plan contain a clear
grant of discretion [to the administrator] to determine benefits or interpret the
plan. [Id. at 555 (citations and internal quotations and emphasis omitted).]
The defendant in Perez argued that "the Plan contains the requisite clear grant of discretion to the
plan administrator" by pointing to the following language contained in the policy:
"Written proof of total disability must be furnished to [Aetna] within
ninety days after the expiration of the [first twelve months of disability].
Subsequent written proof of the continuance of such disability must be furnished
to [Aetna] at such intervals as [Aetna] may reasonably require. . . .
"[Aetna] shall have the right to require as part of the proof of claim
satisfactory evidence . . . that [the claimant] has furnished all required proofs for
such benefits. . . ." [Id. (emphasis added by Perez).]
The Sixth Circuit Court of Appeals held that the language requiring "satisfactory evidence" to
establish "the proof of claim" vested discretion in the defendant. Id. at 557. The Perez court
noted that "[n]umerous federal courts, including our own, have held that language similar to that
contained in the Plan clearly grants discretion to the plan administrator." Id. at 556. The court
Because the Plan is governed by ERISA, we apply federal common law
rules of contract interpretation in making our determination. In developing
federal common law rules of contract interpretation, we take direction from both
state law and general contract law principles. The general principles of contract
law dictate that we interpret the Plan's provisions according to their plain
meaning, in an ordinary and popular sense. . . . In applying this plain meaning
analysis, we must give effect to the unambiguous terms of an ERISA plan.
Although many of our prior cases finding a clear grant of discretion
involved ERISA plans which explicitly provided that the evidence be satisfactory
"to the insurer," "to the company" or "to us," it does not automatically follow that
in the absence of such language discretion has not been granted to the plan
administrator. Both parties acknowledge that the Plan allows for Aetna to request
and receive satisfactory evidence of total disability before an individual is entitled
to receive continued benefits. We agree with Aetna that this "right to require as
part of the proof of claim satisfactory evidence" means, semantically, that the
evidence must be satisfactory to Aetna, the only named party with the right to
request such evidence. It naturally follows that Aetna, the receiver of the
evidence, would review that evidence to determine if it constitutes satisfactory
proof of total disability. It is simply implausible to think that Aetna would merely
hold the evidence as a safekeeper or depository for a third party unnamed in the
contract to review in making benefits determinations. This is all the more true
when one considers that an insurance contract, even one governed by ERISA, is
after all simply a contract—a mutual agreement between the two contracting
In short, reading the contractual language in an ordinary and popular sense
as we must, the only reasonable interpretation of the Plan is that Aetna requests
the evidence, reviews it, and then makes a benefits determination. To reach any
other conclusion would violate the basic principle of contract law that courts are
not permitted to rewrite contracts by adding additional terms. We therefore
conclude that the plan clearly grants discretion to Aetna because, under the only
reasonable interpretation of the language, Aetna retains the authority to determine
whether the submitted proof of disability is satisfactory. [Id. at 556-557 (citations
and some internal quotations omitted).]
Accordingly, the Sixth Circuit Court of Appeals in Perez held that "the arbitrary and capricious
standard should have been applied" and remanded "the case to the original panel to review
Aetna's decision to terminate benefits under the arbitrary and capricious standard." Id. at 558.
The Perez court noted that its decision reaffirmed the holding in Yeager v Reliance
Standard Life Ins Co, 88 F3d 376, 380-381 (CA 6, 1996), a case on which defendant also relies
in support of its position that its claims representative was vested with discretionary power in
determining plaintiff 's benefits claim. Perez, supra at 558. In Yeager, the Sixth Circuit held that
discretion was vested in the insurance company to determine whether the insured submitted
"'satisfactory proof of Total Disability to us.'" Yeager, supra at 380-381. As explained in
A determination that evidence is satisfactory is a subjective judgment that
requires a plan administrator to exercise his discretion. . . . [T]he Plan at issue in
this case requires "satisfactory proof of total disability." It would not be rational
to think that the proof would be required to be satisfactory to anyone other than
[the insurance company]. Even if the phrase "to us" is interpreted as defining to
whom the proof should be submitted, there is no reason to believe that someone
other than the party that received the proof would make a determination regarding
its adequacy. Furthermore, the district court's emphasis on the fact that the Plan
language could have been clearer is misplaced. The mere fact that language could
have been clearer does not necessarily mean that it is not clear enough.
Therefore, we conclude that the Plan language granted the administrator
discretion to determine eligibility for benefits, and the district court should have
applied an arbitrary and capricious standard of review. [Id. at 381.]
In the instant case, the policy provides, in pertinent part:
After we receive satisfactory written proof of loss:
a. We will pay any benefits then due that are not payable periodically; and
b. We will pay at the end of each 30 days any benefits due that are
payable periodically—subject to continuing proof of loss.
This language grants discretion to the plan administrator, just as did the pertinent language in
Perez and Yeager. We find those authorities persuasive. We acknowledge that Perez and
Yeager involved ERISA plans and that the instant case does not. Nevertheless, the reasoning
from these cases applies with equal force to the instant, non-ERISA policy. As noted in Perez,
supra at 556, "[t]he general principles of contract law dictate that we interpret the Plan's
provisions according to their plain meaning, in an ordinary and popular sense." We find no
salient reason why the general principles of contract law should not also apply to the provisions
of a non-ERISA plan. See Bianchi v Automobile Club of Michigan, 437 Mich 65, 71 n 1; 467
NW2d 17 (1991) (setting forth the general rule that courts should construe contractual language
according to its ordinary and plain meaning). The ordinary and plain meaning of the contract at
issue indicates that defendant has discretion to determine whether plaintiff has submitted
adequate proof of loss. We conclude that the arbitrary and capricious standard of review should
have applied to the evaluation of the claims adjustor's decision.6
However, in Guiles, supra at 47 n 4, this Court held, in evaluating a non-ERISA benefits
plan, that the requirement of "satisfactory proof" of loss was insufficient to trigger the arbitrary
and capricious standard of review. Specifically, the Guiles Court held:
Defendant submits that because the plan requires that a claimant submit
"satisfactory proof" of total disability, the university reserved to itself complete
discretion to determine eligibility. We find this argument disingenuous and
accordingly reject it. Under Firestone, discretion is the exception, not the rule.
Where an employer wishes to retain discretion, it may do so but it must do so
clearly. In this case, the language relied on by defendant does not clearly imply
that the university shall have the last word on entitlement to benefits. [Id.
We acknowledge that Guiles was decided before Perez and Yeager. Nevertheless, because it is a
Court of Appeals decision addressing an issue of state law, we are bound to follow its holding.
See MCR 7.215(J)(1). Therefore, we must conclude that the trial court did not err in rejecting
the arbitrary and capricious standard of review. Instead, according to Guiles, supra at 43, a de
novo standard of review applied.
IV. Application of the De Novo Standard of Review
We note that, in applying the arbitrary and capricious standard, courts may consider whether
the administrator of the benefit plan is operating under a conflict of interest. See Firestone,
supra at 115.
The court, employing the de novo standard of review, considered the available evidence
and determined that plaintiff was "unable to perform the important duties of [his] Occupation"
under the terms of the disability policy. While certain medical professionals concluded that
plaintiff was not disabled, two others concluded that he was disabled. Given that the evidence
did not significantly favor one conclusion over the other, we simply cannot say that the trial
court clearly erred in finding that plaintiff was entitled to disability benefits. See Taylor, supra
at 649 (this Court reviews a trial court's factual findings for clear error).7
/s/ Patrick M. Meter
/s/ Karen M. Fort Hood
/s/ Richard A. Bandstra
We note that defendant fails to argue on appeal that the trial court was not empowered to make
the factual finding concerning plaintiff 's disability. In other words, defendant does not make the
alternative argument that, if a de novo standard of review applied, the case should have
proceeded to a full trial. We further note that the application of the arbitrary and capricious
standard of review to this case would change the outcome, because it cannot be said, given the
available evidence and the considerable testimony that plaintiff could work, that the denial of
benefits by defendant was arbitrary and capricious, even if we were to apply the "heightened"
arbitrary and capricious standard (i.e., a standard less deferential to the insurance company)
advocated by cases such as Pinto v Reliance Standard Life Ins Co, 214 F3d 377 (CA 3, 2000), in
situations where a conflict of interest may exist (i.e., where the insurance company is both the
funder and the administrator of the plan). Because it is not necessary under the facts of this case,
we do not decide whether this "heightened" standard should be adopted in Michigan. We
conclude only that some form of the arbitrary and capricious standard should apply.