Michigan Court of Appeals; Docket #263303; Unpublished
Judges Sawyer, Neff, and White; 2-1 (Judge White concurring); per curiam
Official Michigan Reporter Citation: Not applicable, Link to Opinion 
STATUTORY INDEXING:
Not applicable
TOPICAL INDEXING:
Employee Retirement Income Security Act
CASE SUMMARY:
In this 2-1 unpublished per curiam opinion, the Court of Appeals found that between a no-fault insurer and an ERISA health benefit plan, the no-fault insurer was primarily liable for the injured person’s medical expenses, pursuant to the health benefit plan’s coordination of benefits clause.
This case involves a priority dispute between defendant Bristol West Insurance Company, a no-fault insurer, and plaintiff Parker Hannifin Corporation’s group health plan, a self-funded employee benefit plan under ERISA, for medical expenses incurred by Jason Smith who was catastrophically injured in a motor vehicle accident in 2002. At the time of the accident, Smith was 22 years old and was insured under the Parker Hannifin plan through his father, a Parker Hannifin employee. At that time, the plan provided coverage to unmarried dependent children between the ages of 19 and 23. However, effective January 1, 2003, the plan’s eligibility requirements were changed to provide coverage to unmarried 19- to 23-year-old dependents who were full-time students. Because Smith was not a student at the end of 2002, the plan determined he was no longer eligible for coverage. Smith elected to continue coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA) and defendant paid his premiums.
Effective January 1, 2004, the plan increased its COBRA premiums. Defendant was unaware of the premium increase and continued to remit the original amount. In March 2004, the plan terminated Smith’s coverage because the payments were late and insufficient. Plaintiff brought this action, seeking a declaration that defendant was primarily responsible for Smith’s medical expenses pursuant to the plan’s coordination of benefits clause. The plan’s coordination of benefits provision provided that “if the claimant is a COBRA participant in this plan, the plan will always be secondary.” However, the provision also provided that if other coverage is through any automobile insurance policy and that policy has a coordination of benefits provision, the plan will be primary. Plaintiff argued that if a priority issue involved a COBRA plan participant, the COBRA provision superceded any other coordination of benefits provision. The trial court agreed and defendant appealed.
The Court of Appeals affirmed, finding that plaintiff’s decision that the COBRA coverage was secondary to defendant’s coverage was not arbitrary or capricious. The court noted that the Parker Hannifin plan is a self-funded plan under ERISA and, therefore, it has discretionary authority to determine plan eligibility and construe the plan’s language. Because it had discretionary authority, its decisions that Smith’s COBRA benefits were secondary to the no-fault coverage is reviewed under the arbitrary and capricious standard. Based on that standard, the court determined that plaintiff’s decision was consistent with the coordination of benefits provision which provided that COBRA plans are always secondary. The Court of Appeals then rejected defendant’s argument that under the rule of contra proferentem, in which ambiguities are construed against the drafter, finding that this rule is only applicable when conducting de novo review of an ERISA plan, not reviewed under the arbitrary and capricious standard. In this regard, the court stated:
“The Parker Plan is a self-funded benefit plan under ERISA that grants discretionary authority to Parker Hannifin to determine claimant eligibility and construe the plan’s language. Therefore, Parker Hannifin’s decision that Smith’s COBRA coverage was only secondary is reviewed under the arbitrary and capricious standard, taking into consideration any conflict of interest it may have had as the plan administrator. . . . Parker Hannifin’s decision is consistent with the coordination of benefits provision in the Parker Plan, which states, in part, ‘If the claimant is a COBRA participant in this plan, this plan will always be secondary.’ ‘”When it is possible to offer a reasoned explanation based on the evidence, for a particular outcome, that outcome is not arbitrary or capricious.”’ Nonetheless, defendant asserts that the coordination of benefits provision, of which the COBRA clause is a part, is ambiguous and, therefore, should be construed against plaintiffs. Defendant contends that the trial court erroneously found that the provision was unambiguous. However, the trial court did not find the provision was unambiguous, but rather held that it was inappropriate to apply the rule of contra proferentem (ambiguities are construed against the drafter), and that Parker Hannifin offered a rational interpretation of the provisions. . . . Plaintiffs assert that the rule does not apply in this case, relying on Kimber v Thiokol Corp, 196 F3d 1092, 1100 (CA 10, 1999), in which the court stated that under the arbitrary and capricious standard, ‘[w]hen a plan administrator is given authority to interpret the plan language, and more than one interpretation is rational, the administrator can choose any rational alternative.’ . . . The Kimber court noted that the majority of other courts have held that the rule of contra proferentem is applicable only in the context of de novo review of ERISA plans, not arbitrary and capricious review. . . . The parties have presented no decision of the Sixth Circuit Court addressing this issue, and we find none. . . . In light of the foregoing case law, we agree that the rule of contra proferentem is inapplicable to ERISA plans where the standard of review is arbitrary and capricious. Thus, the trial court properly refused to apply the rule in this case. Accordingly, we conclude that Parker Hannifin’s determination that the COBRA coverage was secondary was not arbitrary and capricious.”
Defendant also argued that plaintiff improperly terminated Smith’s coverage because its payments were sufficient under 26 CFR 54.4980B-8 A-5(d) and, therefore, it was entitled to notice of the deficiency and an opportunity to cure. The court rejected this argument, noting that defendant’s payments were not sufficient under the regulation and, even if they were, defendant offered no evidence in support of its claim that the regulation applied to ERISA plans. In this regard, the court stated:
“Because defendant may not rely on the doctrine of substantial compliance, there is no dispute that its payments were insufficient under the law. Defendant was not entitled to notice of its deficiency and an opportunity to cure because those rights are only required if the payment is not ‘significantly less’ than the required amount. 26 CFR 54.4980B-8 A-5(d). Accordingly, we conclude that plaintiffs did not improperly terminate Smith’s COBRA coverage and the trial court did not err in finding that plaintiffs had no liability for Smith’s medical expenses incurred on or after January 1, 2004.”
