Krase v. Life Insurance Company Of North America et al

Filing 38

MEMORANDUM OPINION Signed by the Honorable John F. Grady on September 27, 2012. Mailed notice(cdh, )

11-7659.121-RSK

Sept. 27, 2012

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
KENNETH M. KRASE, as Special
Administrator for the ESTATE of
DONALD KRASE,
Plaintiff,
v.
LIFE INSURANCE COMPANY OF NORTH
AMERICA and OCÉ-USA HOLDINGS,
INC.,
Defendants.

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No. 11 C 7659

MEMORANDUM OPINION
Before the court is defendant Life Insurance Company of North
America’s (“LINA”) motion to dismiss.

For the reasons explained

below, we grant LINA’s motion in part and deny it in part.
BACKGROUND
Donald Krase filed this lawsuit on behalf of his deceased
wife, Sandra Hansen-Krase, pursuant to the Employee Retirement
Income Security Act of 1974 (“ERISA”).1
full-time

by

defendant

Océ-USA

Hansen-Krase was employed

Holdings,

Inc.

(“Océ”)

for

approximately 14 years. (Compl. ¶ 9.) As an Océ employee, HansenKrase was covered under separate long-term disability (“LTD”) and
life-insurance policies underwritten by LINA. (Id. at ¶¶ 9-10; see

1/

Donald Krase died after filing this lawsuit and Kenneth M. Krase, as
special administrator for his estate, has been substituted as plaintiff.

- 2 -

also Policy Number FLX 0961910, attached as Ex. A to Compl.
(Hansen-Krase’s
“Policy”).)
disability

group

On

July

leave

pancreatic cancer.”

life

insurance

18,

because

2008,
she

Hansen-Krase

was

(Id. at ¶ 10.)

policy,

diagnosed

hereinafter
was
with

placed

the
on

“terminal

Under the Policy, an insured

who provides LINA with evidence establishing that he or she has
been diagnosed with a “Terminal Illness” — i.e., “a prognosis of 12
months or less to live” — is entitled to a “Terminal Illness
Benefit.”2

(See Policy at 23-24.)

In order to determine the

existence of a Terminal Illness, the Policy requires the insured to
submit to LINA: (1) “a written diagnosis and prognosis by two
Physicians licensed to practice in the United States;” and (2)
“[s]upportive evidence satisfactory to the Insurance Company,
including

but

not

limited

to

radiological,

histological

or

laboratory reports documenting the Terminal Illness.” (Id. at 24.)
Krase does not allege that Hansen-Krase provided this information
to LINA or otherwise attempted to claim the Terminal Illness
Benefit during her lifetime.

Instead, he alleges that LINA was

aware of Hansen-Krase’s condition based upon communications related
to her claim for LTD benefits, which LINA approved on January 15,
2009. (Compl. ¶ 11.) In connection with Hansen-Krase’s LTD claim,

2/

The Terminal Illness Benefit is equal to “50% of Life Insurance
Benefits in force on the date the Insured is determined by the Insurance Company
to be Terminally Ill, subject to a Maximum Benefit of $250,000.” (Policy at 3,
23.)

- 3 -

“LINA regularly monitored the state of [her] health and received
periodic updates from her attending physicians.”

(Id.)

On or around January 19, 2009, Océ attempted to send HansenKrase

a

letter

explaining

that

her

employment

and

insurance

coverage would be terminated effective January 31, 2009.
¶

13.)

The

letter

also

explained

her

right

to

(Id. at

apply

for

“conversion insurance,” essentially continuing her life insurance
coverage on an individual basis in exchange for paying premiums.
(Id.)

Océ gave the letter to DHL for delivery, but it was

“misdirected.”

(Id.)

Consequently, neither Hansen-Krase nor her

husband received the letter before her conversion rights expired
under the Policy’s terms.3
pancreatic cancer.

On April 9, 2009, Hansen-Krase died of

(Id. at ¶ 15.)

Approximately three months

later, on July 8, 2009, Krase submitted a claim for life insurance
benefits under the Policy as Hansen-Krase’s designated beneficiary.
(Id. at ¶ 18.)

Océ denied Krase’s claim because it concluded that

Hansen-Krase was not covered by the Policy when she died.

(Id.)

On appeal of that decision, LINA affirmed Océ’s decision to deny
benefits. (Id. at ¶¶ 19-20.) In this lawsuit, Krase contends that
LINA and Océ breached their duty to inform Hansen-Krase of her
rights under the Policy, causing her insurance coverage to lapse.

3/
Hansen-Krase apparently did receive a letter entitled "COBRA
Continuation Coverage Election Notice" from ADP Benefit Services, a third-party
benefits administrator retained by Océ. (Compl. ¶ 14.) However, this letter did
not notify Hansen-Krase of her conversion rights or of her eligibility for the
Terminal Illness Benefit. (Id.)

- 4 -

His one-count complaint seeks to recover “life insurance benefits
owed to him in the amount of $226,000" pursuant to 29 U.S.C. §§
1132(a)(1)(B) and (a)(3).

(Id. at 9 (“Relief Sought”).)
DISCUSSION

LINA has moved to dismiss Krase’s complaint on the grounds
that: (1) “equitable relief” under § 1132(a)(3) is unavailable; and
(2) it had no duty to inform Hansen-Krase about her conversion
rights or her eligibility to receive the Terminal Illness Benefit.
A.

Legal Standard
The purpose of a 12(b)(6) motion to dismiss is to test the

sufficiency of the complaint, not to resolve the case on the
merits.

5B Charles Alan Wright & Arthur R. Miller, Federal

Practice and Procedure § 1356, at 354 (3d ed. 2004).

To survive

such a motion, “a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on
its face.’

A claim has facial plausibility when the plaintiff

pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570, 556 (2007)).

When evaluating

a motion to dismiss a complaint, the court must accept as true all
factual allegations in the complaint.
However,

we

need

not

accept

as

Iqbal, 129 S. Ct. at 1949.

true

its

legal

conclusions;

“[t]hreadbare recitals of the elements of a cause of action,

- 5 -

supported by mere conclusory statements, do not suffice.”

Id.

(citing Twombly, 550 U.S. at 555).
B.

Whether Krase’s § 1132(a)(3) Claim is Proper
Under 29 U.S.C. § 1132(a)(1)(B), a plan beneficiary may file

a civil action “to recover benefits due him under the terms of his
plan, to enforce his rights under the terms of the plan, or to
clarify his rights to future benefits under the terms of the plan.”
Subsection (a)(3) of that same provision authorizes civil actions
“(A) to enjoin any act or practice which violates any provision of
this subchapter or the terms of the plan, or (B) to obtain other
appropriate equitable relief (i) to redress such violations or (ii)
to enforce any provisions of this subchapter or the terms of the
plan.” 29 U.S.C. § 1132(a)(3) (emphasis added). The Supreme Court
has described this “catchall” provision as a “safety net, offering
appropriate equitable relief for injuries caused by violations that
[§ 1132] does not elsewhere adequately remedy.”
Howe, 516 U.S. 489, 512 (1996).

Varity Corp. v.

“[W]here Congress has elsewhere

provided adequate relief for a beneficiary’s injury, there will
likely be no need for further equitable relief, in which case such
relief normally would not be ‘appropriate.’”

Id. at 515.

“[A]

majority of the circuits are of the view that if relief is
available to a plan participant under subsection (a)(1)(B), then
that relief is un available under subsection (a)(3).”

Mondry v.

American Family Mut. Ins. Co., 557 F.3d 781, 805 (7th Cir. 2009).

- 6 -

Although Mondry did not squarely decide the issue, it concluded
that the appellant in that case had given the Court “no reason to
depart from the holdings of those circuits.” Id.; see also Schultz
v. Prudential Ins. Co. of America, 678 F.Supp.2d 771, 778 (N.D.
Ill. 2010) (“The Court reads Mondry as a strong indicator that the
Seventh Circuit, like several other circuits, would find that if
relief

is

available

pursuant

to

Section

1132(a)(1)(B),

then

equitable remedies under Section 1132(a)(3) are unavailable.”).
Consistent with the majority view, and Mondry’s dicta, judges in
this District have consistently dismissed claims for “equitable
relief” under subsection (a)(3) where relief is available under
subsection (a)(1)(B) for denial of benefits.

See Schultz, 678

F.Supp.2d at 778 (collecting cases).
Krase argues that he may pursue claims under both subsections
in the alternative at this stage of the case.

(See Pl.’s Resp. at

5-7); see also Fed. R. Civ. P. 8(a)(3) (authorizing litigants to
plead claims for relief in the alternative). There is some support
in the case law for Krase’s position.

See, e.g., Donaldson v.

Pharmacia Pension Plan, 435 F.Supp.2d 853, 869 n.5 (S.D. Ill.
2006); Parente v. Bell Atlantic Pennsylvania, No. CIV. A. 99–5478,
2000 WL 419981, *3 (E.D. Pa. Apr. 18, 2000).

However, we agree

with the court in Zuckerman v. United of Omaha Life Ins. Co., No.
09-CV-4819, 2010 WL 2927694, *6-7 (N.D. Ill. July 21, 2010), which
concluded

that

dismissing

a

duplicative

claim

for

“equitable

relief” does not violate Rule 8: “the dismissal of Plaintiff’s

- 7 -

equitable

claims

under

Varity

would

not

bar

Plaintiff

from

asserting inconsistent legal theories, as Rule 8 allows, but from
asserting the same legal theory twice under separate labels.” This
interpretation of Varity leaves the door open for plaintiffs to
pursue
(a)(3).

truly

distinct

claims

under

subsections

See id. at *5 (collecting cases).4

(a)(1)(B)

and

At the same time, it

prevents plaintiffs from “repackaging” their denial-of-benefits
claims as subsection (a)(3) claims for equitable relief consistent
with Varity’s admonition that this catchall provision only applies
when relief is otherwise unavailable. See id. (collecting cases).
Here, Krase seeks the same relief for the same injury under both
subsections: “life insurance benefits owed to him in the amount of
$226,000.”

(Compl. at 9); see Zuckerman, 2010 WL 2927694, *8 (“In

Plaintiff’s case, her alleged injury came solely because of the
denial of her benefits; absent the denial of benefits, there would
be no injury.”); see also Hakim v. Accenture United States Pension
Plan, 656 F.Supp.2d 801, 812 (N.D. Ill. 2009) (the fact that the
plaintiff’s subsections (a)(1)(B) and (a)(3) claims were supported
by

“identical”

allegations

supported

the

conclusion

plaintiff’s subsection (a)(3) claim was duplicative).

that

the

Moreover,

4/
See also Biglands v. Raytheon Employee Savings and Inv. Plan, 801
F.Supp.2d 781, 786 (N.D. Ind. 2011) (“[A] plaintiff can seek relief under both
[subsections] when the plaintiff alleges that a plan’s fiduciaries: (1)
improperly encouraged participants to invest in company stock that they knew was
inflated and overpriced; (2) failed to disclose material facts affecting the
interests of beneficiaries; (3) failed to exercise due care in hiring, retaining,
or training non-fiduciary agents; or (4) unilaterally awarded salary raises to
the fiduciary himself or his family members.”) (citations omitted).

- 8 -

neither party has suggested that Krase cannot pursue under §
1132(a)(1)(B) his theory that the defendants wrongfully failed to
inform Hansen-Krase of the benefits that were available to her.
See Zuckerman, 2010 WL 2927694, *8 (“Dismissal of [the plaintiff’s
subsection (a)(3) claim] does not foreclose Plaintiff from pursuing
the theory that APP’s misrepresentation prevented her from filing
a timely claim for benefits (and that consequently a denial of LTD
benefits on that basis was wrong).”).
Krase also argues that it would be premature to dismiss his §
1132(a)(3) claim because we may ultimately find that he is not
entitled to relief under § 1132(a)(1)(B).

(See Pl.’s Resp. at 7

(“[E]ven if Plaintiff’s claim under 29 U.S.C. § 1132(a)(1)(B) is
unsuccessful, that would only further strengthen the propriety of
him bringing an alternate claim under 29 U.S.C. § 1132(a)(3).”).
In Parente, the district court construed Varity to preclude a
plaintiff from “seeking equitable relief under § 1132(a)(3) [only]
when a court determines that plaintiff will certainly receive or
actually

receives

adequate

relief

for

her

1132(a)(1)(B) or some other ERISA section.”

injuries

under

§

See Parente, 2000 WL

419981, *3 (emphasis in original); accord Black v. Long Term
Disability Ins., 373 F.Supp.2d 897, 902 (E.D. Wis. 2005). However,
this appears to be the minority view.

The majority view is that

the plaintiff’s ultimate success is “irrelevant; the pertinent
inquiry is whether [the plaintiff] can state a claim under [that
provision].”

Zuckerman, 2010 WL 2927694, *6 (collecting cases);

- 9 -

see also Crummett v. Metropolitan Life Ins. Co., Civil Action No.
06-01450(HHK), 2007 WL 2071704, *3 (D.D.C. July 16, 2011) (“Whether
judgment may be entered on the pleadings is a question informed by
the facts and injuries alleged (as well as by the remedies sought),
and where the pleadings make it apparent that the plaintiff has
adequate

remedies

dismissed.”);

elsewhere,

Schultz,

678

[§

1132(a)(3)]

F.Supp.2d

at

780

claims
(“[T]he

may

be

relevant

inquiry under Varity and its progeny is not whether she can
actually

recover,

but

rather

whether

an

available under Section 1132(a)(1)(B).”).
cases.

adequate

remedy

is

We agree with these

The relief that Krase seeks — life insurance benefits that

the defendants allegedly wrongfully denied — is available under §
1132(a)(1)(B).

Therefore, LINA’s motion to dismiss Krase’s claim

for equitable relief under § 1132(a)(3) is granted.5
C.

The Plaintiff’s Claim for Denial of Benefits
It is undisputed that Hansen-Krase ceased to be an “Eligible

Employee” on July 18, 2008 when she left work due to her illness.
(See Policy at 1 (defining as “Eligible Employees” “[a]ll active,
Full-time and part-time Employees of the Employer regularly working
a minimum of 30 hours per week including United States payroll

5/

As Krase points out, there is dicta in the Supreme Court’s decision in
CIGNA Corp. v. Amara, 131 S.Ct. 1866, 1880 (2011) indicating that the equitable
relief available under § 1132(a)(3) encompasses certain forms of monetary relief.
However, we do not read Amara to alter the rule announced in Varity and its
progeny. Even if the relief that Krase is seeking can accurately be called an
equitable “surcharge,” it does not change the fact that relief is available under
subsection (a)(1)(B) and therefore unavailable under subsection (a)(3). See,
e.g., Biglands v. Raytheon Employee Savings and Inv. Plan, 801 F.Supp.2d 781, 786
(N.D. Ind. 2011) (concluding that Amara does not alter the rule announced in
Varity).

- 10 -

Employees on the payroll and excluding independent contractors,
temporary and seasonal workers.”).)

Her coverage continued for

another six months after she stopped working, ending on January 18,
(See id. at 2, 20-21.)6

2009.

Hansen-Krase died approximately

three months after her coverage terminated.

Krase concedes that

“Hansen-Krase’s coverage under the Policy had lapsed by the time of
her death, and that coverage was a ‘condition precedent’ to an
entitlement to life insurance proceeds . . . .”
14.)

(Pl.’s Resp. at

He argues, however, that Hansen-Krase would have elected to

accept her Terminal Illness Benefit and/or elected conversion
insurance if LINA had informed her of those rights.

See, e.g.,

Swaback v. Amer. Information Tech. Corp., 103 F.3d 535, 542-43 (7th
Cir. 1996) (“It is basic contract law that a party who prevents the
occurrence

of

a

condition

precedent

may

not

stand

on

that

condition’s non-occurrence to refuse to perform his part of the
contract.”).

LINA

provide notice.

contends that it did not have any duty to

However, as we discuss below, we believe that

LINA’s arguments stray too far into the merits of Krase’s claim.
1.

Conversion Rights

6/
Krase suggests that her coverage may have ended on January 31, 2009,
the date that her termination became effective. (See Compl. ¶ 12; Pl.’s Resp.
at 3.) The Plan states that insurance terminates on the “earliest” of several
potential termination events. (See Plan at 20 (“Termination of Insurance”).)
Hansen-Krase was “no longer in Active Service” on the day that she ceased working
for Océ due to her illness, approximately six months before her employment was
formally terminated. But as far as we can tell, even if Hansen-Krase’s coverage
expired on the later date, it would not affect Krase’s claims or LINA’s defenses
in this case.

- 11 -

LINA argues that the following Policy provision makes it clear
that Océ (not LINA) was responsible for notifying Hansen-Krase of
her conversion rights:
Extension of Conversion Privilege
If an Insured is eligible for conversion insurance and is
not notified of this right at least 15 days prior to the
end of the 31 day conversion period, the conversion
period will be extended. The Insured will have 15 days
from the date notice is given to apply for conversion
insurance. In no event will the conversion period be
extended beyond 90 days. Notice, for the purpose of this
section, means written notice presented to the Insured by
the Employer or mailed to the Insured’s last known
address as reported by the Employer.
(Policy at 24.)

The Policy puts the onus on the employer to

“present” notice to the insured, but it does not specify which
party is responsible for “mailing” the notice if for some reason
the employer did not present notice to the insured directly.

LINA

asks us to construe this provision to read, “[n]otice means written
notice . . . mailed to the Insured’s last known address by the
Employer.”

Perhaps that was the parties’ practice, but it is not

what the Policy says.

Instead, it says that one form of notice is

“written notice . . . mailed to the Insured’s last known address as
reported by the Employer.”

On the one hand, the “Extension of

Conversion Privilege” section does not mention LINA by name.

On

the other hand, it is awkward to read this provision to require Océ
to mail written notice to the insured at his or her “last known
address as reported by [itself].”

If Océ is not to report to

itself, to whom is the address to be reported?
employee, who knows her address.

Certainly not the

That seems to leave only one

- 12 -

party — LINA. And arguably the purpose of reporting the address to
LINA would be to enable it to mail the notice.

The weight of

authority appears to support LINA’s contention that ERISA does not
impose on insurers a general duty to notify insureds about their
rights after coverage is terminated.

See, e.g., Russo v. B & B

Catering, Inc., 209 F.Supp.2d 857, 862 (N.D. Ill. 2002); P.I.A.
Michigan City, Inc. v. National Porges Radiator Corp., 789 F.Supp.
1421, 1425-26 (N.D. Ill. 1992).

But that does not prevent an

insurer from voluntarily undertaking that responsibility in a given
policy. See Canada Life Assur. Co. v. Estate of Lebowitz, 185 F.3d
231, 233-34, 235-36 (4th Cir. 1999) (enforcing a policy provision
that the court construed to require an insurer to provide written
notice of the insured’s right of conversion). So, at least at this
stage of the case, we reject LINA’s argument that Océ was solely
responsible under the Policy for notifying Hansen-Krase of her
conversion rights.

Whether LINA’s alleged omission entitles Krase

to the relief he seeks is beyond the scope of LINA’s Rule 12(b)(6)
motion.
2.

Terminal Illness Benefit

Krase also alleges that LINA should have informed Hansen-Krase
that she was eligible to receive the Terminal Illness Benefit
because it knew that she was terminally ill from her communications
with LINA regarding her LTD benefits.

See Eddy v. Colonial Life

Ins. Co. of America, 919 F.2d 747, 752 (D.C. Cir. 1990) (“Once Eddy
indicated his predicament to Chubb representatives, Chubb bore a

- 13 -

fiduciary duty under ERISA to convey to Eddy complete and correct
material

information

as

to

his

status

and

his

conversion

options.”); see also Kenseth v. Dean Health Plan, Inc., 610 F.3d
452, 466-81 (7th 2010) (“Fiduciaries must not only refrain from
misleading plan participants . . . but they ‘must also communicate
material

facts

affecting

the

interests

of

beneficiaries.’”)

(quoting Anweiler v. American Elec. Power Service Corp., 3 F.3d
986, 991 (7th Cir. 1993)); Krohn v. Huron Memorial Hosp., 173 F.3d
542, 547-51 (6th Cir. 1999) (“Huron Memorial continued to breach
its fiduciary duties to plaintiff by remaining silent in the face
of

subsequent

eligible

for

notification
long-term

that

plaintiff

disability

would

benefits.”).

need

and

be

Whether

an

insured’s communications with a fiduciary trigger an obligation to
completely disclose material information relevant to the insured’s
circumstances is a fact-intensive question.

The circumstances of

Hansen-Krase’s communications with LINA about her condition may
suggest that its silence concerning the Terminal Illness Benefit
was misleading, or they may not.
further factual development.

That question will have to await

We conclude that Krase has alleged

sufficient facts to state a plausible claim for relief concerning
the Terminal Illness Benefit.
CONCLUSION
LINA’s motion to dismiss Krase’s complaint [16] is granted in
part and denied in part.

The motion is granted as to Krase’s claim

- 14 -

for “equitable relief” under § 1132(a)(3), but denied as to his
claim for benefits under § 1132(a)(1)(B).

DATE:

September 27, 2012

ENTER:

___________________________________________
John F. Grady, United States District Judge