Estate of Kirk Anthony Foster et al v. American Marine SVS Group Benefit Plan et al
Filing
23
ORDER denying 8 Motion to Dismiss; granting in part and denying in part 11 Motion to Dismiss. Claims I and II are DISMISSED. Claims III and V will go forward and United is dismissed as a defendant from Claim VI. Signed by Judge Dana L. Christensen on 11/6/2018. (ASG)
FILED
NOV 0 6 2018
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
Cl"o~st~cfo~~~~~~urt
MISSOULA DIVISION
Missoula
ESTATE OF KIRK ANTHONY
FOSTER, through KELLY M.
FOSTER, Personal Representative for
the Estate of Kirk Anthony Foster, and
KELLY M. FOSTER, as an individual,
CV 17-165-M-DLC
ORDER
Plaintiffs,
vs.
AMERICAN MARINE SVS GROUP
BENEFIT PLAN, UNITED OF
OMAHA LIFE INSURANCE
COMPANY, AMERICAN MARINE
CORP., and JOHN DOES 1-3,
Defendants.
Before the Court is American Marine SVS Group Benefit Plan and
American Marine Corporation's ("American Marine") Motion to Dismiss (Doc. 8),
and Defendant United of Omaha Life Insurance Company's ("United") Motion to
Dismiss (Doc. 11). The Estate of Kirk Anthony Foster and Kelly M. Foster ("Mr.
Foster" and "Ms. Foster," together "Plaintiffs") bring this action pursuant to 29
U.S.C. § 1132(a), the Employee Retirement Income Security Program's
("ERISA") civil enforcement provision and 28 U.S.C. § 1331. Plaintiffs allege
that Defendants wrongfully denied Ms. Foster life insurance benefits owed to her
1
as Mr. Foster's named beneficiary. For the reasons explained below, the Court
denies American Marine's Motion (Doc. 8) and grants in part and denies in part
United' s Motion (Doc. 11 ).
BACKGROUND
Ms. Foster and the estate of Mr. Foster claim that United wrongfully denied
payment under Mr. Foster's life insurance policy after his death in June of 2016.
Mr. Foster was an employee of American Marine and was enrolled in a group
benefits plan with United. (Doc. 4 at 3--4.) The Plan provided Mr. Foster with
both long term disability and life insurance. (Id. at 4.) On February 1, 2016, Mr.
Foster became permanently disabled from esophageal cancer. (Id. at 5.) United
paid the long term disability policy in full on February 15, 2016. Mr. Foster died
at the end of June and United subsequently denied to pay Ms. Foster's claim. (Id.
at 2, 13-14.)
United contends that it denied Ms. Foster's claim because American Marine
terminated Mr. Foster's coverage and ceased paying premiums as of May 1st.
(Doc. 12 at 8.) In early July, American Marine produced a document it claims to
have sent Mr. Foster on April 19, 2016, explaining Mr. Foster's option to convert
his group coverage into an individual life insurance policy and an application for
doing so. Plaintiffs maintain that Mr. Foster never received any word that his
employment had been terminated or that his life insurance policy would soon
2
expire.
(Doc. 4 at 7.) Nor did Mr. Foster receive a copy of American Marine's
April 26th notification sent to United, terminating Mr. Foster's coverage. (Doc. 4
at 8.)
Nevertheless, United charged and received a premium payment for Mr.
Foster's life insurance on May 1st. (Doc. 4 at 8.) Plaintiffs claim that through the
month of June, United recognized Mr. Foster as a participant in the Plan, but
sometime in June credited back payment to American Marine and recorded a
"retroactive change to 05/01/2016." (Doc. 4 at 9.) United claims it is "standard
procedure" whenever it receives notice of cancellation late in the billing cycle to
charge the policyholder as planned and then "credit back" any surplus payment.
(Doc. 12 at 10.) Plaintiffs claim that American Marine unilaterally terminated his
life insurance coverage without explanation or notification, failed to inform Mr.
Foster of his right to convert his group policy into an individual policy, and that
United recognized his status as a plan participant throughout the month of June.
For these reasons, Plaintiffs argue that United wrongfully denied payment of Ms.
Foster's claim.
LEGAL STANDARD
Rule 12(b)(6) motions test the legal sufficiency of a pleading. Under Rule
8(a)(2) of the Federal Rules of Civil Procedure, a pleading must contain "a short
and plain statement of the claim showing that the pleader is entitled to relief."
3
Rule 8 "does not require detailed factual allegations, but it demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (internal citations and quotations omitted). "To 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 Bell At!.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when
the court can draw a "reasonable inference" from the facts alleged that the
defendant is liable for the misconduct alleged. Id. On a Rule 12(b)(6) motion to
dismiss, the court must accept all factual allegations in the complaint as true and
construe the pleadings in the light most favorable to the nonmoving party. Kneivel
v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).
Legal conclusions, on the other hand, are not entitled to the same
presumption of truth. Dismissal is proper where there is either a "lack of a
cognizable legal theory" or "the absence of sufficient facts alleged under a
cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699
(9th Cir. 1990); Graehling v. Village ofLombard, Ill., 58 F.3d 295, 297 (7th Cir.
1995).
When ruling on a motion to dismiss, a court generally cannot consider
material outside the complaint. Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir.
1994), overruled on other grounds by Galbraith v. County ofSanta Clara, 307
4
F.3d 1119 (9th Cir. 2002). Nevertheless, a court may consider exhibits submitted
along with the complaint where the exhibits are: (1) specifically referred to in the
complaint; (2) central to the plaintiffs claim; and (3) no party questions the
authenticity of the attached documents. Marder v. Lopez, 450 F.3d 445, 448 (9th
Cir. 2006). This rule is designed to prevent plaintiffs from "deliberately omitting
reference to documents upon which their claims are based." Parrino v. FHP, Inc.,
146 F.3d 699, 706 (9th Cir. 1998).
DISCUSSION
Plaintiffs' Amended Complaint raises five claims. The first three allege that
Defendants failed to provide a benefit under the plan. (Doc. 4 at 11-1 7.) Count
V 1 arises under a Hawaii statute that regulates notice of a conversion right, and
Count VI alleges a breach of fiduciary duty. American Marine moves to dismiss
claims five and six, arguing that these claims arise under Hawaii law and are
therefore preempted by ERISA. (Doc. 9 at 8.) United moves to dismiss all claims,
arguing that claims one through three are contrary to the clear terms of the policy
and the latter two are preempted by ERISA. As explained more fully below, the
Court will dismiss claims one and two, and will dismiss claim six as it applies to
1
The fourth claim raised by Plaintiffs is labelled as Count V. Plaintiffs' Amended
Complaint (Doc. 4) does not contain a Count IV. Nevertheless, to avoid confusion, when the
Court refers to the claims individually, the Court will refer to each claim as it appears in the
Amended Complaint.
5
United. The Court will discuss each count separately.
I.
Count I: Failure to Provide a Plan Benefit-Waiver
Plaintiffs argue that Mr. Foster's life insurance policy should not have been
terminated, because he was entitled to a continuation of his life insurance benefits
due to his total disability, and that any nonpayment from American Marine is
irrelevant because he was entitled to the premium waiver. (Doc. 4 at 12-13.)
United argues that this claim should be dismissed because Mr. Foster did not
qualify for the premium waiver because he did not complete the nine-month
disability elimination period, and because American Marine' s nonpayment
terminated his coverage. (Doc. 20 at 3.) The Court agrees.
The premium waiver is a benefit conditioned upon four predicate
requirements, one of which is the completion of a nine-month disability
elimination period. 2 (Doc. 1-1 at 13.) A plan participant gains the benefit of
2
The premium waiver clause provides:
Continuation of Life Insurance Benefits Due to Total Disability (Waiver of Premium)
If You are Totally Disabled, Your Life Insurance Benefits will be continued without payment of premium provided:
(a) the Total Disability began while You were insured under this Policy;
(b) the Total Disability began before you reached age 60;
(c) You have completed Your disability elimination period (described below); and
(d) Proof of the Total Disability is given to Us as described in the following paragraphs.
Disability Elimination Period
Subject to continued payment of premium, Your insurance will continue during the disability elimination period as
long as You remain Totally Disabled. The disability elimination period is the 9 consecutive months of Total
Disability beginning on the date You first become Totally Disabled.
If You die during the disability elimination period, and We determine that You were Totally Disabled on the day
6
ongoing coverage during the disability elimination period, "[ s]ubject to continued
payment of premium." (Id. at 14.) Elsewhere, the policy explains that coverage
terminates "the day any premium contribution for Your insurance is due and
unpaid." (Id. at 13.)
Even though the parties dispute whether Mr. Foster was covered for the
month of May, the parties agree that American Marine did not pay a premium on
Mr. Foster's behalf for the month of June. Construing the facts in the light most
favorable to Mr. Foster, this indicates that his policy lapsed on June 1st at the
latest. According to the terms of the policy, at the time of Mr. Foster's death he
was not entitled to a premium waiver, was no longer within his "disability
elimination period," and no longer held a valid insurance policy, regardless of
whether United recognized him as a plan participant elsewhere in its record
keeping. Therefore, Plaintiffs' claim that United denied Mr. Foster a benefit is
inapposite.
Plaintiffs make two additional arguments-neither of which is persuasive.
Plaintiffs argue first that United's allegations that Mr. Foster did not have
coverage because American Marine stopped paying Mr. Foster's premium does
not preclude Mr. Foster from coverage, rather, it gives rise to a crossclaim
between Defendants. This argument is foreclosed by the terms of the Plan. (See
before the date of Your death, benefits under this Policy will be paid to Your beneficiary.
7
Doc. 1-1 at 13.) Plaintiffs argue next that United had a fiduciary duty to interpret
the waiver clause in Mr. Foster's best interests. United responds that its fiduciary
duties impose only an obligation to act "in accordance with the documents and
instruments governing the plan." (Doc. 20 at 3 (quoting 29 U.S.C. § 1104).) The
Court agrees. The terms of the plan are clear: when American Marine failed to
make a June payment, Mr. Foster's coverage lapsed. Accordingly, the Court will
dismiss this claim.
II.
Count II: Failure to Provide a Plan Benefit-Grace Period
Plaintiffs argue that United wrongfully denied Ms. Foster's claim in June
because the policy provides a 31-day grace period in the event of nonpayment.
(Doc. 4 at 14--15.) United argues that the grace period is inapplicable to individual
plan participants because plan participants are under no obligation to pay
premiums. (Doc. 12 at 16.) The Court agrees.
The summary plan description ("SPD") contains no "grace period"
provisions. (See Doc. 1-1.) The SPD otherwise explains the rights and obligations
of the insurer, the policyholder, and the plan participant. (See, e.g., Doc. 1-1 at
13.) The SPD also contains no information about how and when payments shall be
made. (See Doc. 1-1.) However, the Group Policy that exists between United and
American Marine does contain terms concerning payment of premiums and
contains a clause that offers a grace period in event of nonpayment for the policy
8
as a whole. (See Doc. 12-1 at 2-3.) The Policy also provides that payments are
made on behalf of individual plan participants by American Marine as a single
monthly payment. (Id.) Therefore, United' s reading of the policy is correct.
Because Mr. Foster had no individual obligation to make a payment on his policy
to keep it active--only American Marine had this obligation-Mr. Foster cannot
claim the benefit of the grace period. For this reason, the Court concludes that
Plaintiffs have not stated facts that adequately support a plausible claim to relief,
and will dismiss this claim.
III.
Count III: Failure to Provide a Plan Benefit-Conversion Privilege
Plaintiffs claim that United wrongfully denied Mr. Foster the option of
converting his policy from the group policy to an individual policy, by failing to
notify him of this right. (Doc. 4 at 16-17.) United claims that Mr. Foster was not
entitled to any notice above and beyond the notice provided in the SPD (see Doc.
1-1 at 16-1 7), and to the extent that BRISA imposes any additional disclosure and
communication requirements, these obligations rest with the Plan Administrator
rather than the insurer. (Doc. 12 at 18-19.) United also asserts that even though
no notice was required, American Marine did inform Mr. Foster of his rights in
April. (Doc. 12 at 18, n.6.) Because this is a question of fact, and the Court must
construe the allegations in the Complaint as true, the Court assumes at this stage of
litigation that Mr. Foster did not receive any notice of his conversion right.
9
The Conversion Privilege is triggered when coverage under the group life
policy ends. (Doc. 1-1 at 20.) To exercise the privilege, the former plan
participant must submit a written application and first conversion premium "within
31 days after your life group insurance ends." (Doc. 1-1 at 21.) However, ifthe
former plan participant dies "within the 31-day period after insurance ends," the
policy states that United "will pay the amount of group life insurance" the
participant would have been entitled to receive. (Id.)
Here, construing the facts in the light most favorable to Mr. Foster, Mr.
Foster's conversion privilege began-and his 31-day conversion window started
ticking-on June 1st. This was the first date his portion of the premium was due
and unpaid, effectively ending his coverage. (Doc. 1-1 at 13.) When Mr. Foster
died on June 24th, he was within the window provided to him to exercise this
privilege. United's assertion that Mr. Foster failed to exercise the privilege is
immaterial-the policy clearly provides that it will pay any benefits to which a
participant is entitled in the event that the plan participant dies during the 31-day
conversion window. Arguably, when Ms. Foster's claim was denied in July,
United failed to provide this benefit. For this reason, Plaintiffs have stated a claim
to relief, and Defendants' motion to dismiss this claim is denied.
IV.
Count V: Hawaii Right to Notice Claim
Plaintiffs allege that Mr. Foster was entitled to notice of his right to convert
10
his life insurance policy under the Plan into an individual life policy at the time he
became ineligible for continued enrollment in the group Plan. He alleges that he
never received notice of this right and is entitled to an extension under Hawaii
law. 3 Hawaii law provides that where an individual is entitled to a conversion right
under a group plan and does not receive notice of his or her conversion right within
fifteen days of the policy's expiration, an insurer must provide "an additional
period within which to exercise the right." Hawaii Rev. Stat. Ann. § 431: 1OD214. This extension period will continue for fifteen days after notice is given but
will not exceed sixty days after the expiration period provided in the policy. 4
Defendants argue that this statute does not apply to the Plan because federal
BRISA law preempts a Hawaii statute as it "relates to" an BRISA welfare plan.
3
4
The life policy is governed by Hawaii law. (Doc. 12-1 at 12.)
The full text of the statute provides:
§ 431:10D-214. Notice to insured regarding conversion right
If any individual insured under a group life insurance policy delivered in this State becomes
entitled under the terms of the policy to have an individual policy of life insurance issued to the
individual without evidence of insurability, subject to making of application and payment of the
first premium within the period specified in the policy, and if the individual is not given notice of
the existence of such right at least fifteen days prior to the expiration date of such period, then, in
such event the individual shall have an additional period within which to exercise the right, but
nothing herein shall be construed to continue any insurance beyond the period provided in the
policy. This additional period shall expire fifteen days next after the individual is given such
notice but in no event shall the additional period extend beyond sixty days next after the
expiration date of the period provided in the policy. Written notice presented to the individual or
mailed by the policyholder to the last known address of the individual or mailed by the insurer to
the last known address of the individual as furnished by the policyholder shall constitute notice
for the purposes of this section.
11
(Doc. 9 at 8; 12 at 22-23.) Additionally, United claims that Mr. Foster did receive
notice of this right in the SPD, never exercised this right, and that the Hawaii
statute expressly provides that it does not "continue any insurance beyond the
period provided in the policy." United argues that American Marine submitted
payment until April 30th which is when coverage concluded. (Doc. 12 at 25-26.)
United's final three arguments confuse the issue: whether the Hawaii statute
applies to Mr. Foster's case is a question of law. How the Hawaii statute applies to
the particulars-whether Mr. Foster actually received notice, and when the
statute's 15 or 60-day window should have kicked in-is a question of fact that
this Court cannot resolve at this stage of litigation. The only question before the
Court is whether a Hawaii notice statute that imposes a requirement on an ERISA
insurance policy is preempted by federal law. For the reasons explained below, the
Court concludes that the statute is not preempted.
Employee benefit plans are governed by ERISA. 29 U.S.C. § 1002(3);
Winterrowdv. Am. Gen. Annuity Ins. Co., 321F.3d933, 939--40 (9th Cir. 2003).
ERISA preempts any state law action that "relates to" an employee benefit plan.
29 U.S.C. § 1144(a); Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 875
(9th Cir. 2001). "ERISA contains one of the broadest preemptive clauses ever
enacted by Congress." Greany v. Western Farm Bureau Life Ins. Co., 973 F.2d
812, 817 (9th Cir. 1992); see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 4512
46 (1987) (stating that ERISA's preemption clause is deliberately expansive). Its
purpose is to "ensure[ ] that the administrative practices of a benefit plan will be
governed by only a single set of regulations." Golden Gate Rest. Ass 'n v. City &
Cty. of San Francisco, 512 F.3d 1112, 1120 (9th Cir. 2008) (quoting Fort Halifax
Packing Co. v. Coyne, 482 U.S. 1, 11 (1987)).
Nevertheless, certain regulatory laws are exempt from ERISA's broad
preemptive scope. ERISA contains a saving clause that permits states to retain
regulatory authority over "insurance, banking, or securities." Id. § 1144(b)(2)(A).
To "regulate insurance" and fall within the saving clause, the Supreme Court has
established a two-prong test: first, the state law must be specifically directed
towards entities engaged in insurance; second, the state law must substantially
affect the risk pooling arrangement between the insurer and the insured. Ky. Ass 'n
ofHealth Plans v. Miller, 538 U.S. 329, 341-42 (2003). "So, although ERISA has
broad preemptive force, its 'saving clause then reclaims a substantial amount of
ground."' Orzechowski v. Boeing Co. Non-Union Long-Term Disability Plan, 856
F .3d 686, 692 (9th Cir. 2017) (quoting Rush Prudential HMO, Inc. v. Moran, 536
U.S.355,365(2002».
American Marine argues that the Hawaii statute does not fall within the
saving clause, because it fails the first prong of Miller. (Doc. 21 at 3.) American
Marine cites to Howard v. Gleason Corp., 901 F .2d 1154 (2d Cir. 1990), which
13
held that a similar New York notice statute was preempted by ERISA because it
related to an employee benefit plan and did not satisfy the pre-Miller McCarranFerguson test, id. at 1161, which was overruled in Miller. Kentucky Ass 'n of
Health Plans, Inc., 538 U.S. at 339-40. United similarly urges the Court to follow
Howard and a number of district courts that have concluded that similar state
notice laws are preempted. See Haymaker v. Reliance Standard Life Ins. Co., 2016
WL 3258439 (E.D. Pa. June 14, 2016); Terry v. Northrop Grumman Health Plan,
989 F. Supp. 2d 401, 408-10 (M.D. Pa. 2013); Estate ofTravato v. Marca/ Mfg.
LLC, 2011WL4550169, at *4 (D.N.J. 2011); Noel v. Laclede Gas Co., 612 F.
Supp. 2d 1051, 1059-60 (E.D. Mo. 2009); Rogers v. Rogers & Partner, 2009 WL
5124652, at *9-10 (D. Mass. 2009); Strohmeyer v. Metropolitan Life Ins. Co., 365
F. Supp. 2d 258, 260-61 (D. Conn. 2005).
Howard dealt with a nearly identical right-to-notice statute and concluded
that the statute was not preempted by ERISA, but on grounds that are not relevant
under today's test. See Howard, 901 F.2d at 1156, n.l. In Howard, the plaintiff
argued that New York's notice requirement was not preempted by ERISA because
it did not conflict with any ofERISA's own notice requirements. Id. at 1158.
According to the plaintiff, there was no reason to "disable[e] it from attempting to
address uniquely local social and economic problems." Id. (citing Fort Halifax
Packing Co., 482 U.S. at 19). The Second Circuit first observed ERISA's
14
expansive preemption provision. Id. at 1156. BRISA preempts any state laws that
"relate to an employee benefit plan." Id. at 1157. The court noted that "the term
'relate to' is to be given its broad common-sense meaning." Id. (citing Pilot Life
Ins. Co. v. Dedeaux, 481 U.S. 41, 47 (1987)). The court determined that a state
statute providing notice relates to the group benefit plan because it created rights
and obligations with respect to the insured, the insurer, and the policyholder (here,
the employer). Id. The court also observed that without preemption "employers
with multi-state operations would be faced with different notice obligations in
different states" and that this was "precisely the 'patchwork scheme of regulation' .
. . that BRISA was designed to avoid." Id. at 1158.
Having concluded that the statute triggered BRISA preemption, the court
then turned to whether it fell within the narrow saving clause. See id. Applying
the pre-Miller criteria, the Court first looked at whether the law was "specifically
directed toward [the insurance] industry" and next looked at whether statutory
notice imposed practices constituting "the business of insurance." Id. Specifically,
"whether the practice has the effect of transferring or spreading a policyholder's
risk[,] ... whether the practice is an integral part of the policy relationship between
the insurer and the insured[,] ... [and] whether the practice is limited to entities
within the insurance industry." Id. (quoting Pilot Life, 481 U.S. at 48-49)). The
court concluded first that the statute was not directed specifically toward entities
15
engaged in insurance because it created an obligation (notifying the employee of
their right to convert) that could be fulfilled by the policyholder (the employer)
who was not engaged in the business of insurance. As to the next step, the court
observed that the first factor was "arguably satisfied" because "notice of the
conversion option can play an important role in the employee's decision whether to
exercise the option," thereby having at least an indirect impact "in determining
who will bear the risk upon termination of the group policy." Id. at 1158-59.
However, the court observed that the final two factors were not present, and
determined that the statute was not saved from BRISA preemption. Id. at 1159.
Citing to Howard, a number of district courts post-Miller have concluded
that similar notice statutes are likewise preempted. Trovato relied on Howard's
reasoning to determine that New Jersey's notice statute was not specifically
directed at insurers, and concluded-without justification or explanation-that
notice statutes "cannot be said to substantially affect the risk pooling" relationship.
Estate a/Trovato, 2011 WL, at *4. Another court determined that a
Massachusetts notice statute was preempted, again, relying on Howard's reasoning
under Miller's first prong, and concluding that a notice statute does not alter the
risks for which the insurer and the insured have contracted. Rogers, 2009 WL, at
* 10 (emphasis added) (citing to Smith v. Jefferson Pilot Life Ins. Co., 14 F .3d 562,
569-70 (11th Cir 1994) (concluding that a "statute requiring notice proper to
16
cancellation of insurance policy does not affect the apportionment of risk among
the parties to the contract." (emphasis added)).) A Pennsylvania court determined
that a Pennsylvania notice statute was not saved from preemption, citing to Trovato
as persuasive because the two statutes were "nearly identical." Terry, 989 F. Supp.
2d at 410. Though the court recognized Miller's two-part test, the court failed to
apply it, and instead concluded that if claims under a state notice statute "were not
preempted by BRISA, the potential would exist for inconsistent and conflicting
results in the regulation of employee benefit plans." Id. As to Miller's second
prong, a subsequent Pennsylvania court recognized that a statute requiring notice
"may require the insurer to insure a person for longer than the policy provides," but
concluded that "a statute which may require an extension of the policy does not
substantially affect the insurer-insured relationship." Haymaker, 2016 WL, at *3
(citing to Meyers v. Metro. Life Ins. Co., 2013 WL 820591 (B.D. Pa. Mar. 6, 2013)
(concluding that Pennsylvania's notice statute was saved from preemption)).
For a multitude of reasons, the cases cited by United and American Marine
are unpersuasive. While there is universal agreement that a notice statute "relates
to" an BRISA benefits plan and therefore triggers preemption, Defendants fail to
cite a single case that employs a thorough analysis of Miller's test consistent with
the Ninth Circuit's articulation of it. Instead, these cases engage in cursory
analysis, see Estate a/Trovato, 2011 WL, at *4, irrelevant reasoning, see Terry,
17
989 F. Supp. 2d at 410; Noel, 612 F. Supp. 2d at 1060 (concluding that a notice
statute was not saved from preemption but failing to apply Miller); Strohmeyer,
365 F. Supp. 2d at 260 (the same), arguments foreclosed in the Ninth Circuit, see
Estate of Trovato, 2011 WL, at *4, or confuse risk pooling, risk transfer, and risk
allocation, see Rogers, 2009 WL, at * 10. Setting these cases aside, the Court is left
with Haymaker's bare assertion that a similar notice statute is not saved from
preemption because notice has only an insubstantial effect on the risk pooling
relationship. 2016 WL, at *3.
Notwithstanding, the Court is more persuaded by another Pennsylvania
court's thorough treatment of Miller. See Meyers, 2013 WL, at *4. In Meyers, the
court concluded that Miller's first prong was satisfied because both the statutory
language and legislative purpose indicate that it "applies only in the insurance
context, and imposes notice requirements only on policyholders or insurers of
group life insurance policies; that is, it bestows rights only on insured parties as it
pertains to their insurance policies." Id. at *3. As for Miller's second prong, the
court concluded that the notice statute "substantially affects the risk pooling
arrangement," because:
The statute essentially writes an additional term into insurance
policies that may require the insurer to insure a person for longer than
the policy provides. The effect of the statute is to lessen the risk
associated with an insured not knowing her conversion rights, and
distribute some of that risk to the insurer or policyholder. The Court
finds that a statute which extends the time period in which an insured
18
must pay benefits substantially affects the risk pooling arrangement
between the insurer and the insured. Therefore, the second Miller
requirement is also fulfilled.
Id. at *4.
With this persuasive guidance in mind, the Court will turn now to Hawaii's
notice statute.
A. Is Hawaii's Notice Statute Specifically Directed Towards Entities
Engaged in Insurance?
"A law is specifically directed toward entities engaged in insurance if it is
grounded in policy concerns specific to the insurance industry." Orzechowski, 856
F.3d at 693 (quoting UNUM Life Ins. Co. ofAm. v. Ward, 526 U.S. 358, 372
(1999). In Orzechowski, the Ninth Circuit expressly rejected the argument that this
requirement was to be read "literally." Boeing had argued that a California statute
invalidating discretionary clauses did not fall within the saving clause because it
applied to Boeing, "a leading aerospace company" (and non-insurance entity) and
its Master Plan was not "insurance." Id. at 693. While the court noted that this
argument was not "without some logic" the court concluded that this reasoning
was inconsistent with Miller and with the Ninth Circuit's opinion in Standard
Insurance Company v. Morrison, 584 F.3d 837, 842 (9th Cir. 2009) ("That an
insurance rule has an effect on third parties does not disqualify it from being a
regulation of insurance."). Id. Orzechowski reiterated that "[r]egulations directed
toward certain entities will almost always disable other entities from doing, with
19
the regulated entities, what the regulations forbid; this does not suffice to place
such regulation outside the scope ofERISA's saving clause." Id. (quoting Miller,
538 U.S. at 332) (internal quotation marks omitted). Thus, the pivotal inquiry is
not the nature of the business with which the entity is engaged, but the object of its
regulation: "ERISA's saving clause saves laws that regulate insurance, not
insurers." Id. (quoting Miller, 538 U.S. at 334) (internal quotation marks omitted,
emphasis in original). Citing to Morrison, Orzechowski concluded that Boeing's
"too clever," hairsplitting argument misses the point. Id.
Hawaii's notice statute "regulates insurance" because it places an additional
obligation upon an insurer and policyholder which is triggered when an individual
under a group life insurance policy becomes eligible to convert their group policy
to an individual life insurance policy. For this reason, Defendants' argument that
the statute fails the first prong of Miller because it obligates American Marine, a
non-insurance entity, is not a viable argument in the Ninth Circuit.
A. Does Hawaii's Notice Statute Substantially Affect the Risk Pooling
Relationship?
"Risk pooling involves spreading losses over all the risks so as to enable the
insurer to accept each risk." Morrison, 584 F.3d at 844. Risk transfer, risk
allocation, and risk pooling are related but distinct concepts. Risk pooling-()r
diversification-transforms uncertain and unpredictable risks into a "highly
predictable" set of obligations, based on the law of large numbers. Kenneth S.
20
Abraham, Insurance Law and Regulation 4 (6th ed. 2015). "By receiving a large
number of relatively small premiums, the insurer can afford to compensate the few
insureds who suffer losses. In this way, the insured no longer bears more than a
small amount of his own risk-it has been transferred into a common pool into
which all members of the pool contribute by paying premiums." Morrison, 584
F .3d at 844. Therefore, a statute effects risk pooling relationship where it
"target[ s] ... insurance practices, not merely insurance companies." Orzechowski,
856 F.3d at 694 (citing Morrison, 584 F.3d at 844). For example, Morrison
concluded that the second prong of Miller was satisfied because "removing the
deferential standard of review would lead to a greater number of claims being
paid," thereby significantly impacting the risk pooling relationship. Id. (citing to
Morrison, 584 F .3d at 844-45).
Similarly here, the notice statute significantly affects the risk pooling
relationship because notice is essential to an individual's ability to exercise their
rights. The right created under the statute-the right to notice or an extension of
time to convert a group policy into an individual policy-protects a significant
benefit. Without notice an individual's policy may unwittingly lapse. Without an
extension, an individual may miss the opportunity to elect to continue the
relationship with the insurer. The longer the relationship, the greater the likelihood
that the insured will reap the benefits under his or her policy, thus benefitting the
21
insured. The longer the relationship, the larger the pool becomes, assuming other
factors remain the same. And, the greater the pool, the more predictable the rate of
loss, thus benefitting the insurer. This exchange of risk and "spreading [of] loss
over all the risks ... enable the insurer to accept each risk," Morrison, 584 F.3d at
844. Therefore a notice statute significantly affects the risk pooling relationship.
This reasoning is consistent with Howard's determination that "notice of the
conversion option can play an important role in the employee's decision whether to
exercise the option" which impacts the risk relationship. Howard, 901 F .2d at
1158-59.
Having found that the Hawaii statute satisfies both prongs of Miller, the
Court now concludes that right-to-notice statute applies to Plaintiffs' case and is
not preempted by ERISA.
V.
Count VI: Breach of Co-Fiduciary Duty
Plaintiffs claim that Defendants breached fiduciary duties owed to Mr.
Foster by failing to provide notice pursuant to state law, and by generally denying
certain benefits under the policy. (Doc. 4 at 20.)
United claims that it is not a co-fiduciary with American Marine, because its
fiduciary duties extend no farther than making eligibility determinations, benefit
decisions, and policy interpretations. (Doc. 12 at 27.) The policy itself indicates
that United is a fiduciary only for the purpose of "determining the amount and type
22
of benefits payable to any Insured Person in accordance with the Policy." (Doc.
21-1 at 6.) United claims that Plaintiffs offer nothing but conclusory allegations to
the contrary. (Doc. 12 at 26-27.) The Court agrees.
"A person is a fiduciary with respect to a plan, and therefore subject to
ERISA fiduciary duties, 'to the extent' that he or she 'exercises any discretionary
authority or discretionary control respecting management' of the plan, or 'has any
discretionary authority or discretionary responsibility in the administration' of the
plan." Varity Corp. v. Howe, 516 U.S. 489, 498 (1996). These duties include an
obligation to discharge [the fiduciary's] responsibility 'with the care, skill,
prudence, and diligence' that a prudent person 'acting in a like capacity and
familiar with such matters' would use." Tibble v. Edison Int'/, 135 S. Ct. 1823,
1828 (2015) (citing§ 1104(a)(l)). However, an entity is not "an ERISA fiduciary
merely because it administers or exercises discretionary authority over its own
[insurance] business." Pegram v. Herdrich, 530 U.S. 211, 223 (2000). Nor is
there any fiduciary obligation that requires a favorable coverage determination.
See 29 U.S.C. § 1002(21 )(A)(iii).
After dismissing Counts I and II, what remains are Plaintiffs allegations that
United failed to extend the Conversion Privilege and make a favorable coverage
decision under the policy. This does not state a plausible claim for breach of a
fiduciary duty. Plaintiffs have not alleged any facts that United failed its duty to
23
act with care, skill, and prudence. It was not unreasonable for United to terminated
Mr. Foster's coverage after it had received notice from American Marine that Mr.
Foster was no longer an employee. Nor was it unreasonable for United to rely on
its retroactive billing policy to determine the extent of coverage. Nor do Plaintiffs
adequately allege that United exercised sufficient discretion or authority in the plan
administration to obtain fiduciary duties beyond those imposed by the Plan. For
this reason, United's motion to dismiss this claim is granted.
In contrast, there is no argument that American Marine is not a fiduciary.
As the Plan Administrator, American Marine is designated a fiduciary by the plain
terms of the Plan. The question here is whether Mr. Foster adequately stated facts
to support a plausible claim for breach.
Plaintiffs complain that American Marine unilaterally terminated Mr.
Foster's insurance without providing him an inkling of notice. (Doc. 4 at 7-9, 17.)
Plaintiffs allege that American Marine sent United a fax, instructing the company
to terminate coverage for Mr. Foster because Mr. Foster was no longer an
employee, but failed to provide any notice to Mr. Foster concerning his status
within the company. (Doc. 4 at 14.) Even ifthere is no general duty to warn
individual plan participants beyond the notice provided in the SPD (Doc. 21 at 56), Plaintiffs have adequately alleged a breach of fiduciary duty in American
Marine's unilateral decision to stop making payments pursuant to the terms
24
contained in the "disability elimination period" in order for Mr. Foster to obtain the
benefit of the premium waiver. (See Doc. 1-1 at 14.) This states a plausible claim
for a breach of a fiduciary duty and the Court will allow the claim to go forward.
IT IS ORDERED that American Marine's Motion to Dismiss (Doc. 8) is
DENIED.
IT IS FURTHER ORDERED that United's Motion to Dismiss (Doc. 11) is
GRANTED in part and DENIED in part. Claims I and II are DISMISSED.
Claims III and V will go forward and United is dismissed as a defendant from
Claim VI.
DATED this c;, .'£,day of November, 2
Dana L. Christensen, Chief Judge
United States District Court
25
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?