Wallace v. Oakwood Hospital LTD Plan et al
OPINION and ORDER Granting In Part and Denying In Part Defendant Reliance Standard Life Insurance Company's 22 Motion to Dismiss Plaintiff's Amended Complaint. Signed by District Judge Linda V. Parker. (RLou)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
CHERYL L. WALLACE,
Civil Case No. 16-10625
Honorable Linda V. Parker
BEAUMONT HEALTHCARE EMPLOYEE
WELFARE BENEFIT PLAN f/k/a
OAKWOOD HEALTHCARE, INC.
EMPLOYEE WELFARE BENEFIT
PLAN, HARTFORD LIFE AND ACCIDENT
INSURANCE COMPANY, and
RELIANCE STANDARD LIFE INSURANCE CO.,
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT RELIANCE STANDARD LIFE INSURANCE COMPANY’S
MOTION TO DISMISS PLAINTIFF’S AMENDED COMPLAINT
In this action brought pursuant to the Employee Retirement Income Security
Act of 1974 (“ERISA”), Plaintiff Cheryl L. Wallace claims she was wrongfully
denied long term disability benefits and that one or more defendants engaged in
procedural due process violations and breached its fiduciary duties while handling
her long term disability claim. Defendants are the Beaumont Healthcare Employee
Welfare Benefit Plan (f/k/a the Oakwood Healthcare, Inc. Employee Welfare
Benefit Plan) (“Plan”), Hartford Life Insurance Company (“Hartford”), and
Reliance Standard Life Insurance Company (“Reliance”). Presently before the
Court is Reliance’s motion to dismiss Plaintiff’s Amended Complaint. The parties
have fully briefed the motion. Finding the facts and legal arguments sufficiently
presented in the parties’ briefs, the Court is dispensing with oral argument pursuant
to Eastern District of Michigan Local Rule 7.1(f). For the reasons that follow, the
Court is granting Defendants’ summary judgment motion. For the reasons that
follow, the Court is granting in part and denying in part Reliance’s motion.
Standard for Motion to Dismiss
A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of
the complaint. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134
(6th Cir. 1996). Under Federal Rule of Civil Procedure 8(a)(2), a pleading must
contain a “short and plain statement of the claim showing that the pleader is
entitled to relief.” To survive a motion to dismiss, a complaint need not contain
“detailed factual allegations,” but it must contain more than “labels and
conclusions” or “a formulaic recitation of the elements of a cause of action . . ..”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not
“suffice if it tenders ‘naked assertions’ devoid of ‘further factual enhancement.’ ”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557).
As the Supreme Court provided in Iqbal and Twombly, “[t]o survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’ ” Id. (quoting Twombly,
550 U.S. at 570). “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.” Id. (citing Twombly, 550 U.S. at 556). The
plausibility standard “does not impose a probability requirement at the pleading
stage; it simply calls for enough facts to raise a reasonable expectation that
discovery will reveal evidence of illegal [conduct].” Twombly, 550 U.S. at 556.
In deciding whether the plaintiff has set forth a “plausible” claim, the court
must accept the factual allegations in the complaint as true. Erickson v. Pardus,
551 U.S. 89, 94 (2007). This presumption is not applicable to legal conclusions,
however. Iqbal, 556 U.S. at 668. Therefore, “[t]hreadbare recitals of the elements
of a cause of action, supported by mere conclusory statements, do not suffice.” Id.
(citing Twombly, 550 U.S. at 555).
Ordinarily, the court may not consider matters outside the pleadings when
deciding a Rule 12(b)(6) motion to dismiss. Weiner v. Klais & Co., Inc., 108 F.3d
86, 88 (6th Cir. 1997) (citing Hammond v. Baldwin, 866 F.2d 172, 175 (6th Cir.
1989)). A court that considers such matters must first convert the motion to dismiss
to one for summary judgment. See Fed. R. Civ. P 12(d). However, “[w]hen a
court is presented with a Rule 12(b)(6) motion, it may consider the [c]omplaint and
any exhibits attached thereto, public records, items appearing in the record of the
case and exhibits attached to [the] defendant’s motion to dismiss, so long as they
are referred to in the [c]omplaint and are central to the claims contained therein.”
Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th Cir. 2008).
Factual and Procedural Background
Plaintiff worked at Oakwood Healthcare, Inc. Health System (“Oakwood”)
as a registered nurse. (Am. Compl. ¶ 11, ECF No. 16.) Incident to her
employment, Plaintiff was a participant in the Oakwood Healthcare, Inc. Employee
Welfare Benefit Plan, which afforded long term disability benefits to its eligible
employees.1 (Id. ¶¶ 4, 5.) Hartford served as the plan’s insurer until Oakwood
cancelled its contract with Hartford, effective January 1, 2013. (Id. ¶ 25.) On that
date, Reliance became the plan’s insurer. (Id. ¶ 34.)
In the interim, on October 8, 2012, Plaintiff stopped working at Oakwood
due to a serious and worsening health condition. (Id. ¶ 11.) Plaintiff remained off
work from October 8, 2012 through April 7, 2013. (Id. ¶ 27.) Plaintiff returned to
work on April 7, 2013, but found it necessary to take a medical leave of absence
again starting May 12, 2013. (Id. ¶¶ 28, 29.) Plaintiff was not able to return to
work thereafter. (Id. ¶ 30.) Plaintiff therefore filed a claim for long term disability
benefits with Hartford and Reliance. (Id. ¶ 31.)
Subsequent to the events relevant to this litigation, Oakwood merged with
Beaumont Health System and all names were changed to Beaumont, including the
employee welfare benefit plan under which Plaintiff received benefits.
Hartford denied Plaintiff’s claim on the basis that she failed to satisfy the
eligibility requirements in Hartford’s insurance policy-- specifically the 180-day
Elimination Period. (Id. ¶ 32.) In making this determination, Hartford maintained
that Plaintiff’s first date of actual disability was October 12, 2012, rather than
October 8, 2012. (Id.)
Reliance denied Plaintiff’s claim based on the pre-existing condition
exclusion in its contract. (Id. ¶ 36.) Reliance maintained that, pursuant to the
terms of its insurance contract, Plaintiff did not become insured under its group
insurance policy until April 7, 2013, when she returned to active work from her
medical leave and then left her employment again on May 21, 2013. (Pl.’s Resp.,
Ex. 5, ECF No. 25-6.) In its denial letter, Reliance informed Plaintiff that she
“may request a review” of its determination by submitting a written request. (Id.,
Ex. 6, ECF No. 25-7.) The letter further advised in pertinent part:
The written request for review must be sent within 180
days of your receipt of this letter. Your request should
state any reasons why you feel this determination is
incorrect, and should include any written comments,
documents, records, or other information relating to your
claim for benefits. Only one review will be allowed, and
your request must be submitted within 180 days of your
receipt of this letter to be considered.
In the event that your claim is subject to the Employee
Retirement Income Security Act of 1974 (“the Act”), you
have the right to bring a civil action under section 502(a)
of the Act following an adverse benefit determination on
a review. Your failure to request a review within 180
days of your receipt of this letter may constitute a failure
to exhaust administrative remedies available under the
Act, and may affect your ability to bring a civil action
under the Act.
(Id.) Plaintiff did not submit a written request seeking review of Reliance’s
Plaintiff alleges that on at least four separate occasions during Reliance’s
direct dealings with Plaintiff or her representatives, Reliance failed to disclose the
existence of a “transition agreement or transfer of coverage rider which rendered
the pre-existing condition limitation in her coverage inapplicable as applied to
her.” (Am. Compl. ¶ 83, ECF No. 16.) In an email to Plaintiff’s counsel, dated
March 22, 2016, Reliance’s in-house counsel stated that this provision would not
have changed its decision to deny Plaintiff’s claim for benefits because it does not
apply to Plaintiff as she “was not ‘an Eligible Person on the Effective Date of [the
Reliance] Policy,’ or 1/1/2013.” (Pl.’s Resp., Ex. 9, ECF No. 25-10.) Plaintiff
claims she did not appeal Reliance’s denial decision due to the representations of
Reliance’s representatives. (Am. Compl. ¶ 87.)
Based on the above facts, Plaintiff asserts the following claims in an
(I) Action under ERISA Section 502(a)(1)(B), 29 U.S.C.
§ 1132(a)(1)(B), to recover full employee benefits
against Defendants Hartford and Reliance;
(II) Violation of Procedural Due Process Under ERISA
Section 503, 29 U.S.C. § 1133, against Defendants
Hartford and Reliance; and
(III) Action under ERISA Section 502(a)(3), 29 U.S.C.
§ 1132(a)(3), against Defendants Beaumont EBP [the
Plan] and Reliance for appropriate equitable relief.
(ECF No. 16.) In a stipulated order entered July 27, 2016, Plaintiff dismissed
Count II against Hartford, only. (ECF No. 26.)
In support of its motion to dismiss Plaintiff’s Amended Complaint, Reliance
asserts several arguments. First, Reliance maintains that all of Plaintiff’s claims
must be dismissed because she failed to exhaust her administrative remedies prior
to filing this lawsuit—to wit, she failed to seek review of the initial denial of her
claim. Reliance next seeks dismissal of Count II of Plaintiff’s Amended
Complaint, arguing that “ERISA does not recognize a stand alone claim [under
§ 1133].” (Reliance Br. in Supp. of Mot. at 8, ECF No. 22 at Pg ID444.)
According to Reliance, Plaintiff’s claim for benefits under § 1132 (Count I)
provide the exclusive mechanism for relief.
Reliance similarly seeks dismissal of Plaintiff’s breach of fiduciary duties
claim (Count III) because Plaintiff has an adequate avenue for relief for her injuries
under § 1132. Reliance argues that Plaintiff’s claim that it breached its fiduciary
duties by failing to disclose the insurance contract’s “Transfer of Insurance
Coverage Provision” is simply another way of claiming Reliance’s denial decision
was arbitrary and capricious. According to Reliance, Plaintiff alleges no separate
and distinct injury other than the denial of benefits and, as such, her breach of
fiduciary claim fails. Reliance further argues that allowing Plaintiff to proceed
with the claim is contrary to the purpose of ERISA. Lastly, Reliance seeks
dismissal of Plaintiff’s breach of fiduciary claim, arguing that Plaintiff fails to
plead a plausible claim for relief.
ERISA itself does not require a participant or beneficiary to exhaust
administrative remedies prior to bringing a civil action. See Coomer v. Bethesda
Hosp., Inc., 370 F.3d 499, 504 (6th Cir. 2004); see also 29 U.S.C. § 1132.
Nevertheless, many circuit courts, including the Sixth Circuit Court of Appeals,
have “held that ‘the administrative scheme of ERISA requires a participant to
exhaust his or her administrative remedies prior to commencing suit in federal
court.’ ” Id. (quoting Miller v. Metro. Life Ins. Co., 925 F.2d 979, 986 (6th Cir.
1991)). As the Ninth Circuit has stated, “an ERISA plaintiff claiming a denial of
benefits ‘must avail himself or herself of a plan’s own internal review procedures
before bringing suit in Federal court.’ ” Vaught v. Scottsdale Healthcare Corp.
Health Plan, 546 F.3d 620, 626 (2008) (quoting Diaz v. United Agric. Employee
Welfare Benefit Plan & Trust, 50 F.3d 1478, 1483 (9th Cir. 1995)). ERISA
requires that those procedures “be included in the plan’s written documents ….”
Montoya v. Reliance Standard Life Ins. Co., No. 14-cv-02740, 2015 WL 884643,
at *3 (N.D. Cal. Mar. 2, 2015) (citing 29 U.S.C. §§ 1102(a)(1), 1022); see also
Holmes v. Colorado Coal. for Homeless Long Term Disability Plan, 762 F.3d
1195, 1199-1200 (10th Cir. 2014) (explaining that the documents controlling a
participant or beneficiaries obligations under ERISA, including the duty to exhaust
administrative remedies, are the plan document and, in some instances, the
summary plan description); Vaught, 546 F.3d at 627 (“Under ERISA, an employee
benefit plan’s internal review procedures must be included in the plan’s written
documents, which include the plan instrument … and a summary of the plan
instrument, called the “summary plan description.”) (citing 29 U.S.C.
§§ 1102(a)(1), 1022).
The exhaustion requirement “must be ‘written in a manner calculated to be
understood by the average plan participant,’ and must be ‘sufficiently accurate and
comprehensive to reasonably apprise such participants and beneficiaries of their
rights and obligations under the plan.’” Vaught, 546 F.3d at 627 (quoting 29
U.S.C. § 1022(a)). “Where plan documents could be fairly read as suggesting that
exhaustion is not a mandatory prerequisite to bringing suit, claimants may be
affirmatively misled by language that appears to make the exhaustion requirement
permissive when in fact it is mandatory as a matter of law.” Spinedex Physical
Therapy USA, Inc. v. United Healthcare of Arizona, Inc., 770 F.3d 1282, 1298 (9th
Cir. 2014). In that instance, courts have held that the failure to exhaust those
remedies does not a bar the claimant from bringing his or her claims in a civil
lawsuit. Id. at 1298-99 (citing Kirkendall v. Halliburton, Inc., 707 F.3d 173, 181
(2d Cir. 2013); Watts v. BellSouth Telecomms., Inc., 316 F.3d 1203, 1209-10 (11th
Reliance does not identify an exhaustion requirement in its insurance policy.
Instead, it relies on the discussion of the review process in the denial letter it sent
Plaintiff. Reliance fails to explain to the Court why the terms of this letter should
be construed as being part of the plan documents. In Vaught, the Ninth Circuit
concluded that the internal review procedures set forth in the insurer’s explanation
of benefits form were part of the contract; but this conclusion was based on the fact
that the summary plan description expressly “stated that ‘a description of the plan’s
appeal procedures’ would be included in the notices denying benefits (i.e., the
EOBs).” 546 F.3d at 627. In comparison, the district court in Montoya held that
the exhaustion requirement stated in the denial of benefits letter could not impose
an exhaustion requirement where the plan itself neither expressly required nor
otherwise incorporated one. 2015 WL 884643, at *4. “In general, benefits
determination notices are themselves not plan documents. Explicit incorporation
based on general rules of contract interpretation is the only way the Ninth Circuit
has accepted an extraneous description of claims procedures to be incorporated
into an ERISA plan document.” Id. (citing Vaught, 546 F.3d at 622, 627).
Having reviewed the Reliance policy, which Plaintiff attached to her
Amended Complaint, this Court finds no discussion of an exhaustion requirement.
The only requirement for bringing a legal action set forth in the policy reads: “No
legal action may be brought against us to recover on this Policy within sixty (60)
days after written proof of loss has been given as required by this Policy.” (Pl.’s
Resp., Ex. 4 at 6.0, ECF No. 25-4 at Pg ID 556.) The policy does not incorporate
the terms of any other document. To the contrary, it expressly states that the policy
represents “[t]he entire contract[.]” (Id. at 5.0, ECF No. 25-4 at Pg ID 555).
Nevertheless, even if this Court construed the denial of benefits letter as a plan
document, it would hold that the letter did not mandate exhaustion as a prerequisite
to bringing suit.
The letter advises Plaintiff that she “may” request a review of Reliance’s
determination. (Pl.’s Resp., Ex. 6, ECF No. 25-7, emphasis added.) The letter
further provides that the “failure to request a review within the 180 days of [her]
receipt of th[e denial of benefits] letter may constitute a failure to exhaust the
administrative remedies available under the Act, and may affect [her] ability to
bring a civil action under the Act.” (Id., emphasis added.) Such optional language
has been construed as failing to establish an exhaustion requirement. See Spinedex
Physical Therapy USA, Inc. , 770 F.3d at 1299; Watts, 316 F.3d at 1209-10 (“If a
plan claimant reasonably interprets the relevant statements in the summary plan
description as permitting her to file a lawsuit without exhausting administrative
remedies, and as a result she fails to exhaust those remedies, she is not barred by
the court-made exhaustion requirement from pursuing her claim in court.”);
Montoya, 2015 WL 884643, at *5 (finding the identical language in Reliance’s
denial letter to the plaintiff in that case “at best, ambiguous as to exhaustion. The
letters only permit, but do not require, an administrative appeal[.]”).
For these reasons, this Court concludes that Plaintiff was not required to
exhaust any administrative remedies prior to filing this lawsuit.
B. Procedural Due Process Claim
As stated earlier, Reliance contends that “ERISA does not recognize a stand
alone claim for” a procedural due process claim under Section 503, 29 U.S.C.
§ 1133. Yet the Sixth Circuit has recognized such a claim in several of its
decisions, including cases issued after the Supreme Court decisions Reliance cites
in its briefs. See, e.g., Univ. Hosps. of Cleveland v. South Lorain Merchants Ass’n
Health & Welfare Benefit Plan & Trust, 441 F.3d 430 (6th Cir. 2006) (recognizing
§ 1133 claim, but concluding that any violations were remedied by the district
court); Wenner v. Sun Life Assur. Co. of Canada, 482 F.3d 878, 881-82 (6th Cir.
2007); McCartha v. Nat’l City Corp., 419 F.3d 437, 444 (6th Cir. 2005);
VanderKlok v. Provident Life & Acc. Ins. Co., 956 F.2d 610, 618-19 (6th Cir.
1992). Nevertheless, and what Reliance instead seems to be arguing, is that the
facts alleged in Plaintiff’s Amended Complaint state a wrongful denial of benefits
claim rather than a violation of § 1133.
Section 1133 provides:
In accordance with regulations of the Secretary, every
employee benefit plan shall-1) provide adequate notice in writing to any participant or
beneficiary whose claim for benefits under the plan has
been denied, setting forth the specific reasons for such
denial, written in a manner calculated to be understood
by the participant, and
(2) afford a reasonable opportunity to any participant
whose claim for benefits has been denied for a full and
fair review by the appropriate named fiduciary of the
decision denying the claim.
29 U.S.C. § 1133. The Secretary’s regulations are codified at 29 C.F.R.
§ 2560.503-1 and “set forth minimum requirements for employee benefit plan
procedures pertaining to claims for benefits ….” 29 C.F.R. § 2560.503-1(a). The
conduct Plaintiff alleges to support her § 1133 claim do not violate any of the
provision of the statute or the Secretary’s regulations.2 For this reason, the Court is
dismissing Count II of her Amended Complaint.
Breach of Fiduciary Duties Claim
An ERISA plan participant can seek equitable relief under Section 502(a),
29 U.S.C. § 1132(a)(3), if he or she has been harmed by a breach of a fiduciary
duty. Varity Corp. v. Howe, 516 U.S. 489, 512 (1996). The Supreme Court has
held, however, that a participant cannot seek equitable relief for a breach of
fiduciary duty under the catchall provision of Section 502(a)(3) if the alleged
violations are adequately remedied under other provisions of Section 502. Id.;
In Count II of her Amended Complaint, Plaintiff alleges that she “was denied the
right to full and fair review” because:
a. Defendants’ agents engaged biased reviewers and
claims examiners drafted the appeal letters in a certain
manner unduly hampering a legitimate claim of benefits;
b. Defendants failed to abide by U.S. Department of
Labor (“DOL”) Regulations governing the proper and
lawful administration of Plaintiff’s claims by selectively
reviewing the claims materials and requiring “proof” of
limitations over and above that required by the contract;
c. Exploiting the financial hardship caused by its own
denials and its own inequitable conduct making
disgorgement of profits an appropriate remedy; and
d. Using an unlawful discretionary proof clause against
Plaintiff in violation of the State of Michigan’s insurance
laws after 2007.
(Am. Compl. ¶ 75, ECF No. 16.)
Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 615 (6th Cir.1998) (noting
that “[t]he Supreme Court clearly limited the applicability of § 1132(a)(3) to
beneficiaries who may not avail themselves of § 1132’s other remedies.”). In
Wilkins, the Sixth Circuit concluded that the plaintiff could not bring a cause of
action for breach of fiduciary duty pursuant to Section 502(a)(3) where
Section 502(a)(1)(B) provided a remedy for his alleged injury, that being the
administrator’s denial of his claim for benefits. Plaintiff contends in response to
Reliance’s motion that the injury for which she is seeking relief under
Section 502(a)(3) is not Reliance’s denial of her claim for disability benefits.
As clarified in Plaintiff’s response brief, her breach of fiduciary claim is
premised on her assertion that Reliance failed to disclose the Transfer of Insurance
Coverage provision in its Policy, leading her to focus her claim efforts on
Hartford’s liability when “Reliance Standard may well have full liability for her
claim.” (Pl.’s Resp. Br. at 20, ECF No. 25 at Pg ID 492.) Plaintiff states further:
But for Reliance Standard’s failure to disclose that fact
the pre-existing condition limitation was vitiated by a
“transfer in coverage” provision and its affirmative
misstatements that the “claim was recurrent under
Hartford,” the plaintiff would have prosecuted her claim
against Reliance Standard.
(Id., emphasis in original.) Plaintiff is prosecuting her claim for benefits against
Reliance in this action, however. To the extent Plaintiff means that she did not
pursue further administrative review because of Reliance’s alleged omissions, she
has suffered no independent injury in light of the Court’s conclusion that she was
not required to exhaust further administrative remedies before filing suit. Any
arguments she could have made in an administrative appeal with respect to the
transfer of insurance coverage provision in support of her claim for benefits can be
made in this civil action.
For these reasons, the Court is dismissing Count III of Plaintiff’s Amended
IT IS ORDERED that Defendant Reliance Standard Life Insurance
Company’s Motion to Dismiss Plaintiff’s Amended Complaint (ECF No. 22) is
GRANTED IN PART AND DENIED IN PART in that Counts II and III of
Plaintiff’s Amended Complaint are DISMISSED WITH PREJUDICE.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: January 18, 2017
I hereby certify that a copy of the foregoing document was mailed to counsel of
record and/or pro se parties on this date, January 18, 2017, by electronic and/or
U.S. First Class mail.
s/ Richard Loury
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