Dietz-Clark v. HDR, Inc. et al

Filing 18

ORDER granting 11 Motion to Dismiss for Failure to State a Claim. Signed by Judge John W. Sedwick on 10/14/15. (NKD, COURT STAFF)

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UNITED STATES DISTRICT COURT

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DISTRICT OF ALASKA

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VIVIAN DIETZ-CLARK,

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Plaintiff,
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vs.
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HDR, INC.; HDR LTD INC. PLAN; and )
UNITED OF OMAHA LIFE
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INSURANCE CO.,
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Defendants.
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3:15-CV-00035 JWS
ORDER AND OPINION
[Re: Motion at docket 11]

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I. MOTION PRESENTED
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At docket 11, Defendants HDR, Inc. (“HDR”), HDR LTD Inc. Plan (“LTD Plan”),
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and United of Omaha Life Insurance Co. (“United of Omaha”; collectively, “Defendants”)
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filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
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Procedure. Plaintiff Vivian Dietz-Clark (“Dietz-Clark” or “Plaintiff”) responds at
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docket 12. Defendants reply at docket 17. Oral argument was not requested and
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would not assist the court.
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II. BACKGROUND
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Dietz-Clark worked as a right-of-way specialist for HDR. She alleges that
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beginning on July 30, 2012, she suffered from various medical conditions that affected

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her ability to work. She underwent surgery for a pacemaker on August 12, 2012.

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Afterwards, she had difficulty keeping up with her work. She received short-term

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disability benfits for a few months, and then in late October of 2012, she applied for

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long-term disability benefits with United of Omaha under HDR’s long-term disability

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plan, the LTD Plan. The LTD Plan is an employee benefits plan governed by the

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Employee Retirement Income Security Act of 1974 (“ERISA”).1 By letter dated

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February 28, 2013, United of Omaha denied her claim for long-term disability benefits

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and informed her that she had 180 days to appeal the decision. She did not f ile an

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appeal because, according to the complaint, she had hoped to rehabilitate herself .

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On January 16, 2015, Dietz-Clark, through her attorney, requested that United of

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Omaha reopen her claim. She conceded that she had not appealed the denial w ithin

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180 days, but argued that the missed deadline was not fatal to her request because of

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Alaska’s “notice-prejudice rule,” which is not preempted by ERISA based on UNUM Life

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Insurance Co. v. Ward.2 United of Omaha declined to reopen the claim. This lawsuit

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followed.

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III. STANDARD OF REVIEW
Rule 12(b)(6) tests the legal sufficiency of a plaintiff’s claims. In reviewing such

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a motion, “[a]ll allegations of material fact in the complaint are taken as true and

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construed in the light most favorable to the nonmoving party.”3 To be assumed true,

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the allegations “may not simply recite the elements of a cause of action, but must

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contain sufficient allegations of underlying facts to give fair notice and to enable the

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opposing party to defend itself effectively.”4 Dismissal for failure to state a claim can be

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based on either “the lack of a cognizable legal theory or the absence of sufficient facts

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29 U.S.C. §§ 1001 et seq.

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526 U.S. 358 (1999).
Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1997).
Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

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alleged under a cognizable legal theory.”5 “Conclusory allegations of law . . . are

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insufficient to defeat a motion to dismiss.”6

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To avoid dismissal, a plaintiff must plead facts sufficient to “‘state a claim to relief

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that is plausible on its face.’”7 “A claim has facial plausibility when the plaintiff pleads

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factual content that allows the court to draw the reasonable inference that the

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defendant is liable for the misconduct alleged.”8 “The plausibility standard is not akin to

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a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant

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has acted unlawfully.”9 “Where a complaint pleads facts that are ‘merely consistent

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with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility

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of entitlement to relief.’”10 “In sum, for a complaint to survive a motion to dismiss, the

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non-conclusory ‘factual content,’ and reasonable inferences from that content, must be

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plausibly suggestive of a claim entitling the plaintiff to relief.”11

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IV. DISCUSSION
Defendants argue that Plaintiff’s lawsuit should be dismissed because of her

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failure to exhaust the LTD Plan’s administrative remedies. Indeed, as a general rule an

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ERISA “claimant must avail himself or herself of a plan’s own internal review

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Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

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Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001).

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Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007)).

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Id.
Id. (citing Twombly, 550 U.S. at 556).

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Id. (quoting Twombly, 550 U.S. at 557).

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Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009); see also Starr, 652 F.3d

at 1216.

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procedures before bringing suit in federal court.”12 An ERISA claimant’s failure to file a

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timely administrative appeal from a denial of benefits constitutes a failure to exhaust

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administrative remedies.13 Here, in accordance with ERISA regulations, Plaintiff had

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180 days from the denial of her claim in which to file an appeal. 14 It is undisputed that

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she failed to do so, and thus, her 2015 request to appeal her claim was untimely.

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However, Plaintiff argues that her appeal should not be considered late or at least

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should be excused because Alaska’s “notice-prejudice rule” applies to override the

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contractual time limit set forth in the LTD Plan unless United of Omaha can

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demonstrate prejudice as a result of her delay. Thus, she argues that her attempted

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appeal in 2015, which United of Omaha unduly refused to consider, sufficiently

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exhausted her administrative remedies.

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ERISA supercedes any state laws relating to employee benefit plans,15 but it

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does not preempt state laws that regulate the insurance industry.16 In UNUM, the

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Supreme Court held that California’s notice-prejudice rule—under which an insurer

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cannot deny a claim based on an untimely notice or proof of claim unless the insurer

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shows it suffered actual prejudice from the delay—was in fact a law that regulated

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insurance and thus escaped preemption under ERISA. The Court noted that the

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California notice-prejudice rule, established through case law, “effectively creates a

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mandatory contract term that requires the insurer to prove prejudice before enforcing a

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Diaz v. United Agric. Emp. Welfare Benefit Plan and Trust, 50 F.3d 1478, 1483 (9th
Cir. 1995).
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See Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355, 362 (7th Cir. 2011).

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29 C.F.R. § 2560.503-1(h)(3)(I); Complaint, Doc. 1 at p. 4, ¶ 17.
29 U.S.C. § 1144(a).
29 U.S.C. § 1144(b)(2)(A).

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timeliness-of-claim provision.”17 It then stressed that “state laws mandating insurance

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contract terms are saved from preemption [under ERISA].” 18

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Alaska has a notice-prejudice rule that has developed through case law.

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Alaska’s notice-prejudice rule, like California’s rule, has been applied to extend

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contractual notice of claim deadlines absent a showing of prejudice by an insurer.19

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Alaska has also applied the notice-prejudice rule to insurance policy provisions other

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than claim notice deadlines. In Estes v. Alaska Insurance Guaranty Association,20 the

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Alaska Supreme Court held that the notice-prejudice rule applied to prov isions placing

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time limits on the commencement of lawsuits that are shorter than the statute of

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limitations. That is, the court held that a contractual modification of the statute of

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limitations is only enforced upon a showing of prejudice. Based on Estes then, in order

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for an insurance company to base its defense on the insured’s failure to bring suit in a

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timely manner under the contract, but within the statute of limitations, it must show that

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the delay caused prejudice that the time limit sought to avoid.21 The notice-prejudice

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rule also applies to an insurer’s attempt to use the breach of a cooperation clause in an

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insurance contract as a defense to a lawsuit. The insurer must show that the breach of

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the cooperation clause caused it prejudice. 22

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Plaintiff argues that because Alaska’s notice-prejudice rule has been applied
beyond just notice of claim time limitations and particularly to commencement of lawsuit

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UNUM, 526 U.S. at 374 (internal quotation marks omitted).

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Id. at 375.

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See Weaver Bros., Inc. v. Chappel, 684 P.2d 123 (Alaska 1984).

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774 P.2d 1315 (Alaska 1989).

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Id. at 1317-18.

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Id. at 1318; see also Allstate Ins. Co. v. Herron, 634 F.3d 1101 (9th Cir. 2011)
(stressing that under Alaska law an insured needs to be prejudiced before relying on a breach
of a cooperation clause to avoid liability).

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time limitations, it also applies to any time limitations in insurance policies. Thus, she

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argues, Alaska’s law would apply to this ERISA case pursuant to UNUM. The court

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disagrees that Alaska’s notice-prejudice rule is as broad as Plaintif f asserts. While

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Alaska has an extended notice-prejudice rule that has been applied to com mencement

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of suit time limitations, the rule has only been applied when the insurance policy

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shortens the applicable statute of limitations. It has not been extended so far as to

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cover contractual administrative appeal deadlines, particularly in ERISA cases where

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the appeal deadline is required under federal regulation to be no less than 180 days, as

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it was here. That is, the Alaska cases “simply do not support application of the notice-

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prejudice rule to a deadline of a post-denial appeals process that is mandated by

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federal regulation.”23

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Plaintiff argues that even if the cases are distinguishable, this court must predict

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how the Alaska Supreme Court would apply the notice-prejudice rule to the situation

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presented here. She then argues that the Alaska Supreme Court would likely extend

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the notice-prejudice rule to an appeal deadline, because it is a deadline that w as not

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actually bargained for but rather imposed by the insurer. As noted by Defendants, the

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Alaska cases developing the notice-prejudice rule involved individual insurance

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contracts, not ERISA group plans. The Alaska cases stressed the fact that such

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individual contracts are not typically bargained for but rather are unilaterally imposed by

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the insurer, and the cases stressed the importance of the notice-prejudice rule in

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protecting reasonable consumer expectations in relation to an individual insurance

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policy. ERISA plans, however, are different. The Supreme Court indicated in

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Heimeshoff v. Hartford Life & Accident Insurance Co., 24 that ERISA plans should be

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enforced as written because “employers have large leeway to design disability and

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Doc. 17 at p. 3.
134 S.Ct. 604 (2013).

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other welfare plans as they see fit.”25 That is, the employer actually bargains for the

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plan’s terms. Thus, the rationale behind the Alaska Suprem e Court’s notice-prejudice

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rule is inapplicable.26 Also, there has been no contractual shortening of any typical

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deadline here. As noted above, pursuant to federal regulations, the appeal deadline

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cannot be shorter than 180 days, and therefore, the appeal deadline provided in the

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LTD Plan met any reasonable expectation of the employee.

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That said, the court need not predict whether the state notice-prejudice rule

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would apply here. As noted by Defendants, in ERISA cases “[t]he federal court is not

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tasked with predicting how a state court might create insurance common law.”27 The

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ERISA savings clause only exempts existing state laws that regulate insurance from

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preemption, not hypothetical ones. In ERISA cases, the court is required to rely on

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federal common law.28 As noted by the Ninth Circuit, “[t]here is no . . . federal case that

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has applied a notice-prejudice rule outside the initial review context. To extend the

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notice-prejudice rule to ERISA appeals would extend the rule substantially beyond its

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previous uses.”29 The court is “not inclined to make such a significant and

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unprecedented extension of the rule.”30

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Id. at 611-12.

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Moreover, based on the Supreme Court’s decision in Heimeshoff, which held
that “[a]bsent a controlling statute to the contrary, a participant and a plan may agree by
contract to a particular limitations period, even one that starts to run before the cause of
action accrues, as long as the period is reasonable,” it is likely that a notice-prejudice
rule that applies to a contractually shortened limitations period would be preempted in
the ERISA context. 134 S. Ct. at 610.

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Doc. 17 at p. 4 n.3.

LeGras v. AETNA Life Ins. Co., 786 F.3d 1233, 1236 (9th Cir. 2015) (noting that courts
are to supplement explicit provisions and general provisions set out in ERISA with a body of
federal common law).

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Chang v. Liberty Life Assurance Co. of Boston, 247 Fed. App’x 875, 878 (9th Cir.

2007).
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Id.

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V. CONCLUSION
Based on the preceding discussion, Defendants’ motion at docket 11 is
GRANTED.
DATED this 14th day of October 2015.

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/s/ JOHN W. SEDWICK
SENIOR UNITED STATES DISTRICT JUDGE

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