Diane Tonguette v. Sun Life And Health Insurance, et al

Filing

OPINION filed : The district court's judgment is REVERSED and the case REMANDED for proceedings consistent with this opinion, decision not for publication. Jeffrey S. Sutton (dissenting) and Raymond M. Kethledge (Authoring), Circuit Judges; and Lee H. Rosenthal, District Judge.

Case: 14-3095

Document: 34-1

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0941n.06
No. 14-3095

FILED

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
DIANE TONGUETTE,
Plaintiff-Appellant,
v.
SUN LIFE AND
COMPANY (U.S.),

HEALTH

Defendant-Appellee.

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INSURANCE )
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Dec 22, 2014
DEBORAH S. HUNT, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT
FOR
THE
SOUTHERN DISTRICT OF
OHIO

Before: SUTTON and KETHLEDGE, Circuit Judges; ROSENTHAL, District Judge.*
KETHLEDGE, Circuit Judge. Del Tonguette died during a 91-day period in which,
under the terms of an ERISA plan, he was entitled to convert his group life-insurance policy to
an individual one. His widow, Diane Tonguette, thereafter requested payment of Del’s lifeinsurance benefit. The plan’s administrator, Sun Life—which is also the insurer that would pay
the benefit—denied payment under its reading of the plan’s terms. Diane later brought this
lawsuit under ERISA, 29 U.S.C. § 1132(a), claiming that Sun Life’s denial was contrary to the
plan’s terms. The district court granted summary judgment to Sun Life. We reverse.
Del Tonguette began work at LoBue Associates in August 2009. LoBue maintains an
ERISA benefits plan administered by Sun Life. Under that plan, Del’s benefits package included
group life-insurance coverage in the amount of $95,000. Del left LoBue’s employ on October
*

The Honorable Lee H. Rosenthal, Judge for the Southern District of Texas, sitting by
designation.

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16, 2009, at which time, per the terms of the group policy, his coverage ended. But the plan gave
Del the option to convert his group life-insurance policy to an individual one. As a general
matter, under the plan, that option remains available only for 31 days. That period is extended to
91 days, however, if neither LoBue nor Sun Life provides a departing employee with notice of
the option.
Del Tonguette neither received notice of his conversion option nor exercised it before he
died. That Del did not receive notice of his conversion option means that his conversion period
ran for the full 91 days, until January 15, 2010. But Del died six days before then, on January 9,
2010. His widow, Diane Tonguette (whom we refer to as “Tonguette”), thereafter requested
payment of his death benefit under the group policy, citing a plan provision entitled “Death
within the Conversion Period.”

The plan’s administrator, Sun Life, read that provision

differently and denied payment. The district court agreed with Sun Life’s reading. Tonguette
appealed.
LoBue’s plan gives Sun Life discretion with respect to its determinations whether a plan
participant is eligible for benefits. To the extent a plan administrator exercises such discretion in
denying a claim for benefits, we uphold its decision so long as the decision is not arbitrary or
capricious. Kovach v. Zurich Am. Ins. Co., 587 F.3d 323, 328 (6th Cir. 2009). But a plan
administrator does not have discretion to adopt an interpretation of the plan contrary to its
unambiguous terms. Adams v. Anheuser-Busch Companies, Inc., 758 F.3d 743, 747–48 (6th Cir.
2014). And “[w]hether plan language is ambiguous is a legal question that we review de novo.”
Id. at 747. Finally, in determining whether plan language is ambiguous, “we apply federal
common law rules of contractual interpretation[.]” Perez v. AETNA Life Ins. Co., 150 F.3d 550,
556 (6th Cir. 1998) (en banc).

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The provision at the heart of the dispute here provides in full:
Death within the Conversion Period
Claim may be made for a death benefit if you die during the 31 day period during
which your insurance may be converted to an individual policy. (See section
“Conversion Privilege”.)
The terms of this benefit are as follows:
1. The amount of your Life Insurance that may be converted will be payable as a
claim under the group policy. No Accidental Death and Dismemberment
benefit, if any, will be paid under the terms of this section.
2. This benefit will apply whether or not you have:
a) applied for a conversion policy; or
b) paid the first premium.
3. If a conversion policy has been issued:
a) it must be given back to the insurer; and
b) no claim can be made under it other than for the return of premiums
paid.
(Italicization added.)
Under this provision, if a plan participant dies within the period described by the
italicized language, Sun Life will pay the participant’s death benefit (in Del’s case $95,000)
under the group insurance policy. The dispute here concerns the length of the period described
by the italicized language. Specifically, as the parties acknowledged at oral argument, the
question presented is whether the italicized language refers to the length of the applicable
conversion period under the plan (Tonguette’s view), or instead refers only to the first 31 days
following the termination of group coverage, even if the conversion period runs longer than 31
days (Sun Life’s view).

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The meaning of this language is straightforward in cases where the plan participant is
given notice of the conversion option: under either Tonguette’s view or Sun Life’s, the italicized
language refers to a single 31-day period that begins on the date the participant leaves the
company.

But—at least when considered in isolation—the italicized language becomes

grammatically incoherent in cases where, as here, the conversion period extends beyond 31 days.
The language refers to “the 31 day period during which your insurance may be converted to an
individual policy.” As used in this clause, “the” is a definite article, meaning there is only one
31-day period in which the participant can convert. In cases where the conversion period is more
than 31 days, however, there is more than one 31-day period in which the participant can
convert. For example, in a case where the period runs for 33 days, there are three such 31-day
periods: one from days 1-31, a second from days 2-32, and a third from days 3-33. In Del’s
case, where the conversion period ran for 91 days, there were 61 different 31-day periods—
starting as early as day 1 and as late as day 61—in which he could have converted. Thus, in
these cases, the grammatical premise of the italicized language—that there is only one 31-day
period in which the participant can convert—is absent.
The parties try to resolve this incoherency by, in effect, adding one word or subtracting
two, respectively, from the italicized language.

Sun Life would add a word, reading this

language to mean “the initial 31 day period during which your insurance may be converted to an
individual policy.” Tonguette would subtract the words “31 day”, reading the language to mean
“the [] period during which your insurance may be converted to an individual policy.”
Read in isolation, then, the italicized language appears ambiguous.

This ambiguity

recedes, however, when one looks at the language of the relevant “Part” of the plan as a whole.
That language includes two indications as to how to resolve the incoherency here—and both of

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them favor Tonguette’s interpretation. The first is the provision’s heading, which cannot be used
to create ambiguity, but can be used to resolve it. See, e.g., Int’l Multifoods Corp. v. Comm’l
Union Ins. Co., 309 F.3d 76, 85 (2d Cir. 2002). And here the provision’s heading resolves the
ambiguity cleanly, by making clear that the italicized language refers to, as the heading says,
“death within the conversion period.”
The second indication comes in a provision entitled “Notice of Conversion Period[,]”
which provides in relevant part: “Written notice of the Conversion Privilege and its duration will
be given to you at least 15 days before the end of the 31 day period following termination of
coverage under the Group Policy.” (Emphasis added). This italicized language—which comes
in the very next provision after the one at issue here—conveys exactly the same meaning that
Sun Life tries to give to “the 31 day period during which your insurance may be converted to an
individual policy” in the preceding provision.

And that the two provisions use markedly

different language, in such close proximity, is reason to read them differently. See, e.g., Smith v.
ABS Industries, Inc., 890 F.2d 841, 846 (6th Cir. 1989).
One might respond that Tonguette’s reading of the plan allows her to obtain a death
benefit even though Del paid no premiums for almost three months after his group coverage
terminated, rather than just one month. But that is an equitable point, not a textual one; and even
taken on its own terms, the equities of that point are offset by the greater dereliction of failing to
provide notice of the conversion option for three months, rather than just one. That dereliction is
significant in part because a person losing his insurance could easily overlook that his policy—
which he might have bought years earlier—even includes a conversion option.
In summary, when read in the broader context of the plan, there are two significant
reasons to favor Tonguette’s reading of the disputed language, and none to favor Sun Life’s.

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Moreover, there is a difference between vague terms—whose vagueness might give rise to
discretion—and poorly drafted terms that, after a careful reading, demonstrably favor one
interpretation over another. Here, a careful reading of the plan’s terms reveals that Tonguette’s
interpretation is demonstrably better than Sun Life’s.

As a plan fiduciary, Sun Life was

obligated to read the plan carefully; and it lacked discretion to reject Tonguette’s interpretation
of the disputed language here. Its interpretation therefore was arbitrary and capricious.
The district court’s judgment is reversed, and the case remanded for proceedings
consistent with this opinion.

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SUTTON, Circuit Judge, dissenting.

Sun Life and Tonguette share some common

ground in this case. They agree that Sun Life has interpretive authority over this group life
insurance plan, meaning that the courts will accept its interpretation so long as it is not arbitrary
and capricious. They agree that there is some facial ambiguity over whether the “death benefit”
provided by the life insurance plan applies only to a death that occurs within 31 days after
separation from the company or extends to a death that occurs up to 91 days after separation if
the employer or Sun Life fails to give written notice of the option to convert the group policy to
an individual policy. And they seem to agree that the search for meaning does not end merely
because a first reading of the relevant provisions suggests facial ambiguity.
In attempting to resolve this ambiguity, Tonguette focuses on the fault of Sun Life and
the employer in failing to give notice of the conversion option during the initial 31-day period
and the plan’s provision for a 60-day extension of the conversion period when no notice is given.
So long as the employer and Sun Life give notice of the conversion option within 15 days of an
employee’s separation from the company in the future, Tonguette points out, the death benefit
will apply only to deaths that occur within 31 days of a departure from the company. The
insurance company in short holds the key to any undue consequences caused by this
interpretation and next time around can simply turn the key—give notice—and avoid this
problem.
Tonguette’s reading, it seems to me, overstates the value of imposing the risk of a lack of
notice on the insurance company/employer and understates the nature of the death benefit. To
my mind, it is helpful to think about the relevant provisions as creating two things: (1) a death
benefit that is given no matter what happens and is free because it does not require a conversion
of the policy or the payment of any premiums (and indeed requires the return of any premiums
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paid) and (2) a life insurance conversion option (not unlike a COBRA medical insurance
conversion option) that contains a conversion period of at least 31 days and as many as 91 days if
no written notice of the conversion option is given.
Once we separate these two concepts, an uncomfortable reality of Tonguette’s
interpretation emerges. It reads “the 31 day” out of existence. Recall the language of the key
sentence: “Claim may be made for a death benefit if you die during the 31 day period during
which your insurance may be converted to an individual policy.” Under Tonguette’s reading, the
key phrase (“the 31 day”) does no work, an interpretive consequence we try to avoid where
possible. Loughrin v. United States, 134 S. Ct. 2384, 2390 (2014). Part 6 of Del’s policy, which
contains all of the provisions at issue here, mentions a 31-day time period six times. The other
five references concern the 31 days immediately following the date the policy terminates: the
date of separation from the company. It would not seem to be arbitrary to use that meaning here.
Nor is it obvious how best to account for the incentives of the parties in this setting. Best
I can tell, the employer has no skin in the game from a monetary perspective. Leaving the death
benefit window at 31 days or extending it to up 91 days would not affect the employer one way
or the other, as the insurance company pays the claim. Nor does it seem that Sun Life would
have any incentive to delay notifying a former employee of his conversion rights. The company
always has an incentive to provide notice: money. When an insured converts a lapsed group
policy into an individual policy, Sun Life collects a stream of new premium payments. Think of
notice of a conversion right as the most promising form of advertising an insurance company
ever provides. Any other approach to the issue assumes that Sun Life has a most unorthodox
business plan for an insurance company.

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No doubt, Tonguette’s widow suffered if the couple did not know about the conversion
option and if they would have converted the policy to an individual policy had they been told of
the option before he unexpectedly died. But even this perspective requires qualification. The
Tonguettes were not fault free. The employee handbook warns employees that all individual
coverage “terminates . . . when you leave your employment.” R. 31-1 at 24. And it warns
employees that “[i]f you cease active work, see your supervisor to determine what arrangements,
if any, may be made to continue your coverage beyond the date you cease active work.” Id.
The record confirms only that Del Tonguette did not receive “written notice” of the conversion
option—the triggering event for extending the conversion option window—not that he did not
have actual notice of the option.
Even if we assume Del Tonguette had no notice, whether actual or written, of the
conversion option, consider what Tonguette’s reading of the plan means in other settings.
Consider for example how this would play out for an employee who had actual notice of the
option, hardly an unusual scenario for a responsible employee who voluntarily leaves a
company, but no “written notice” of the option.

He or she could do one of two things:

(1) convert immediately and still receive a three-month free death benefit or (2) wait to convert
until day 91 but be covered before then anyway. As interpretive consequences go, neither one of
these possibilities seems like a probable way of capturing the point of this “death benefit.”
Adding to my doubts on this score is the reality that the provision says the death benefit will
apply “whether or not you have . . . paid the first premium.” As shown, more than one premium
could be paid in a 91-day window in this scenario. As I see it and as I think Sun Life could see it
without being arbitrary and capricious, the policy provides a 31-day free death benefit (no
questions asked, no premiums needed, no conversion needed) and a 91-day window to convert
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(if the employer or Sun Life fails to give written notice of the conversion option). The majority
seeing things differently, I respectfully dissent.

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