American Council of Life Insurers v. Ross: A Victory for Consumers

Earlier this week the Sixth Circuit affirmed that Michigan’s Commissioner of Insurance has the regulatory power to ban discretionary authority clauses and that ERISA does not preempt that action. The case is American Council of Life Insurers v. Ross, 2009 U.S. App. LEXIS 5748, ___ F.3d ___ (6^th Cir. 2009).

Ross is important. Say you are about to enter a financial transaction involving a significant amount of your money. You are dealing with someone who knows a lot more about the ins and outs of finance than you do. He asks you to let him insert language in the contract that gives him alone the ability to interpret the terms of that contact and determine whether you and he have performed the obligations under it. He also tells you that if a dispute arises, that same language will allow a court to reverse his decision only if the Judge determines he has been completely unreasonable in his interpretation of the contract or his determination about whether the contract has been performed as required.

Would you agree to do a deal with that person? Of course not. Yet that is what insurance companies do every day with employee benefits. Fortunately, the Sixth Circuit decision makes it clear that the state insurance commissioners in Michigan, Ohio, Kentucky and Tennessee can prohibit these types of overreaching discretionary authority clauses in an insurance contract.