Smith v. Standard Life Insurance Company et al

Filing 51

ORDER denying 37 Plaintiff's Motion for Summary Judgment Against Standard Insurance Company on His Second Claim for Relief. Parties shall file their Joint Motion for a Second Scheduling Order regarding a second phase of briefing on Plaintiff's remaining claims within 7 days. Signed by Honorable Timothy D. DeGiusti on 2/2/2018. (mb)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
GREG SMITH,

)
)
Plaintiff,
)
)
v.
)
)
STANDARD INSURANCE COMPANY, )
et al.,
)
)
Defendants.
)

Case No. CIV-15-1126-D

ORDER
Before the Court is Plaintiff’s Motion for Summary Judgment Against Standard
Insurance Company on His Second Claim for Relief [Doc. No. 37], filed pursuant to Fed.
R. Civ. P. 56. Both Defendant Standard Insurance Company (“Standard”) and Defendant
Carlisle Corporation (“Carlisle”) have responded to the Motion, which is fully briefed. 1
Factual and Procedural Background
Plaintiff Greg Smith is the surviving spouse of Cheryl Smith, who was employed
before her death by a subsidiary of Carlisle. Plaintiff brought suit in the District Court of
Oklahoma County, Oklahoma, against Carlisle and its insurer, Standard, to recover life
insurance benefits allegedly due under an employee benefit plan sponsored by Carlisle and
funded by a group life insurance policy issued by Standard (the “Policy”). Defendants

1

Standard opposes the Motion; Carlisle generally supports it but argues additional matters
not raised by Plaintiff. Carlisle’s response drew a motion by Standard, asking the Court either to
strike Carlisle’s brief or to permit a reply. The motion was denied by a prior order. See 9/29/17
Order [Doc. No. 50]. Plaintiff has filed a reply brief that addresses only Standard’s response.

timely removed the case to federal court based on jurisdiction under 28 U.S.C. § 1331 due
to claims arising under the Employee Retirement Income Security Act of 1974 (ERISA”),
29 U.S.C. § 1001 et seq.
The case concerns Standard’s decision, as the claims administrator, to pay only the
basic life insurance coverage benefit provided by the Policy for all eligible employees and
to deny an additional coverage benefit that employees could elect to purchase under the
terms of the Policy. By agreement of the parties, Plaintiff’s claims have been bifurcated,
and the first phase of the case is limited to a ruling on the “Second Claim for Relief” in his
pleading. See Sched. Order [Doc. No. 34]; Pet. [Doc. No. 1-2], p.13. By this claim,
Plaintiff asserts that he is entitled to recover the additional life insurance benefit provided
by the Policy due to an “Incontestability Clause.” Standard refused to pay the benefit on
the ground that Mrs. Smith did not effectively enroll in the additional coverage. Plaintiff
claims, however, that Standard is precluded from relying on any flaw in the enrollment
process because the Incontestability Clause applies and “renders Plaintiff’s claim [for
benefits] incontestable for any reason other than non-payment of premiums.” See Pet. [Doc.
No. 1-2], ¶ 39. By the instant Motion, Plaintiff seeks a summary adjudication of this
“Incontestability Claim” in his favor as a matter of law.
Standard of Decision
Although Plaintiff has moved for summary judgment, Rule 56 plays a limited role
in an ERISA case. “[S]ummary judgment is merely a vehicle for deciding the case; the
factual determination of eligibility for benefits is decided solely on the administrative
record, and the non-moving party is not entitled to the usual inferences in his favor.”
2

LaAsmar v. Phelps Dodge Corp. Life, Accidental Death & Dismemberment & Dependent
Life Ins. Plan, 605 F.3d 789, 796 (10th Cir. 2010) (internal quotation omitted); Cardoza v.
United of Omaha Life Ins. Co., 708 F.3d 1196, 1201 (10th Cir. 2013).
Plaintiff concedes that the ERISA plan and the Policy gave Standard discretionary
authority to decide claims for benefits and interpret the Policy and, thus, judicial review of
Standard’s benefit decision is generally governed by a deferential arbitrary-and-capricious
standard of review. See Pl.’s Mot. Summ. J. [Doc. No. 37] at 5-6. Plaintiff argues, however,
that Standard’s determination that the Incontestability Clause does not apply to Plaintiff’s
claim “is a pure legal conclusion” and that legal conclusions are subject to de novo review.
Id. at 6 (emphasis omitted). Plaintiff provides no controlling legal authority for this
argument but relies primarily on federal appellate court decisions from other circuits.
In the Court’s view, the applicability of the Incontestability Clause under the
circumstances requires an interpretation of the Policy and not merely a legal ruling, as
discussed infra. The law of the Tenth Circuit is clear: “Under [ERISA’s] arbitrary-andcapricious standard, our review is limited to determining whether the interpretation of the
plan was reasonable and made in good faith.” LaAsmar, 605 F.3d at 796 (internal quotation
omitted); Cardoza, 708 F.3d at 1201. 2 Thus, the Court’s task in reviewing Standard’s
benefit decision is to determine whether Standard’s conclusion that the Incontestability
Clause did not apply “is predicated on a reasoned basis.” See Graham v. Hartford Life &
Accident Ins. Co., 589 F.3d 1345, 1357 (10th Cir. 2009) (internal quotation omitted). If

2

In this case, Plaintiff does not contend Standard failed to act in good faith.
3

Plaintiff demonstrates a mistake of law, however, this is one “indicia of an arbitrary and
capricious denial of benefits.” Cardoza, 708 F.3d at 1201-02; Graham, 589 F.3d at 1357;
Caldwell v. Life Ins. Co. of N. Am., 287 F.3d 1276, 1282 (10th Cir. 2002).
Undisputed Facts
The Policy was part of an “employee welfare benefit plan” as defined by ERISA,
29 U.S.C. § 1002(1), that was maintained by Carlisle to provide life insurance benefits for
salaried, fulltime employees of Carlisle and its subsidiaries. The Policy funded the life
insurance benefits provided by the plan beginning January 1, 2012. Carlisle was the
policyholder and the ERISA plan administrator. Standard was the insurer and the claims
administrator for the plan. The Policy provided two types of insurance coverage to eligible
employees: a) non-contributory, “Plan 1” or “basic life” coverage; and b) contributory,
“Plan 2” or “additional life” coverage. This case concerns only the latter type of coverage.
Mrs. Smith was a salaried, fulltime employee of Carlisle Food Service Products,
Inc., a wholly owned subsidiary of Carlisle, before her death in 2014. During open season
for the 2012 plan year (the time period during which eligible employees could make
changes in elected coverage), Mrs. Smith made the election to enroll in additional life
coverage by submitting an application for insurance in the amount of three times her annual
earnings, and agreeing to a payroll deduction for premium payments. Carlisle processed
Mrs. Smith’s application and, from January 2012 until her death (a period of 33 months),
deducted the amount of the required premium payments from her paychecks and remitted
the payments to Standard. Mrs. Smith died September 23, 2014.

4

Plaintiff was Mrs. Smith’s spouse and the designated beneficiary of all her life
insurance coverage. After her death, he timely submitted a claim for payment of both types
of life insurance benefits. Standard promptly paid Plaintiff the basic life benefit provided
by the Policy in the amount of $88,000.00 on November 12, 2014, but later denied the
additional life benefit that Mrs. Smith had elected and paid for during her employment.
Standard investigated the claim for additional life coverage and, by letter dated February 26,
2015, decided that Mrs. Smith’s enrollment for the coverage was incomplete and
ineffective because Standard had not received or approved medical evidence for her, as
required by the “Evidence of Insurability” (or “EOI”) provisions of the Policy. Specifically,
Standard’s written decision stated in pertinent part as follows:
Under the terms of the policy, Evidence Of [sic] Insurability is required for
members that were eligible but not insured under the prior plan. Therefore,
this election required Cheryl Smith to complete and submit a Medical History
Statement to Standard Insurance Company and gain approval from our
Medical Underwriting Department before the Plan 2 Additional Life
Insurance could become effective. The Standard has no record of receiving
and approving medical evidence for Cheryl Smith. Therefore, the claim for
$132,000 in Plan 2 (additional) Life Insurance must be denied.
Admin. R. (hereafter, “AR”) 361. Under this view, the insurance premiums paid by
Mrs. Smith were wrongly received, and with the letter, Standard remitted a check in the
amount of $2,218.32 as a refund of premium payments.
Plaintiff refused the premium refund check and, through counsel, initiated an appeal
of Standard’s decision regarding the additional life benefit, as provided by the Policy and
ERISA. Consistent with his Incontestability Claim in this case, Plaintiff first asserted that
an absence of EOI for Mrs. Smith, as well as the question of whether the Policy required

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EOI, were inconsequential because the Policy contained the following Incontestability
Clause applicable to individual insureds:
A.

Incontestability of Insurance
Any statement made to obtain or to increase insurance is a
representation and not a warranty.
No misrepresentation will be used to reduce or deny a claim unless:
1.

The insurance would not have been approved if we had known
the truth; and

2.

We have given you or any other person claiming benefits a
copy of the signed written instrument which contains the
misrepresentation.

We will not use a misrepresentation to reduce or deny a claim after
the insured’s insurance has been in effect for two years during the
lifetime of the insured.
AR 57. 3 Within the appeal deadline, Plaintiff also asserted as an additional ground for
reversal of the initial decision, that Standard had waived or was estopped to rely on any
EOI requirement as a basis to deny additional life coverage.
Upon Standard’s review of the benefit decision adverse to Plaintiff, Standard
rejected Plaintiff’s position regarding the Incontestability Clause of the Policy and upheld
the initial decision, stating as follows:
The crux of the Incontestability clause is that one’s insurance has to already
be in effect for two years for The Standard to not reduce, deny (or rescind)
coverage due to a misrepresentation. This would only have applied to
Ms. Smith’s claim had she submitted Evidence of Insurability, been
approved despite a misrepresentation on her part, and died after being insured
for two years or more since the approval of Evidence. This did not occur,
3

The ERISA plan contains a second incontestability provision that applies to the group
insurance policy as a whole, which is not at issue here.
6

because it has been established she never filed Evidence of Insurability.
Therefore your statement that the payment of premiums rendered the need
for Evidence of Insurability irrelevant is not correct.
AR 141. Standard also rejected Plaintiff’s waiver and estoppel arguments. In Standard’s
view, a failure of Carlisle to advise Mrs. Smith regarding EOI, Carlisle’s collection of
premiums, and any assurances to Mrs. Smith that she had additional life coverage, were
encompassed by provisions of the Policy regarding “Clerical Error and Misstatement,”
which provided that a clerical error by Carlisle or its employees “will not . . . [c]ause a
person to become insured.” AR 141-42; AR 31, 145. 4
Discussion
A.

Governing Law
Plaintiff argues both that his Incontestability Claim is governed by federal common

law as determined by federal courts guided by state law principles, and that it is governed
by state insurance laws regarding incontestability clauses, which are saved from ERISA
preemption by 29 U.S.C. § 1144(b)(2)(A). See Pl.’s Mot. Summ. J. [Doc. No. 37] at 17-18
(citing Ky. Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 341-42 (2003)). Carlisle
argues that Oklahoma insurance law – specifically, an incontestability statute applicable to
group life insurance policies, Okla. Stat. tit. 36, § 4103 – applies “by operation of federal
law” pursuant to “ERISA’s savings clause, 29 U.S.C. § 1144(b)(2)(A).” See Def. Carlisle’s
Resp. Br. [Doc. No. 40] at 11-13 (citing Ky. Ass’n of Health Plans v. Miller, Inc., 538 U.S.
329, 342 (2003), and UNUM Life Ins. Co. v. Ward, 526 U.S. 358, 360 (1999)). Indeed,
4

The parties disagree about whether the Policy required Mrs. Smith to provide EOI and,
if so, why EOI for Mrs. Smith is missing and who is at fault for its absence. The premise of
Plaintiff’s Motion is that these issues are immaterial to a decision of his Incontestability Claim.
7

Carlisle takes the position that the Oklahoma incontestability statute, which mandates the
inclusion of a particular incontestability provision in group life insurance policies, controls
“regardless of what the policy says” and renders Mrs. Smith’s coverage incontestable. Id.
at 11 n.9.
Standard’s position is unclear; it does not specifically address what law applies to
the Incontestability Claim. Standard appears to agree that Oklahoma law applies because
it relies on Oklahoma case law to argue that incontestability clauses cannot create coverage
(as purportedly sought by Plaintiff) and it distinguishes case authority on which Plaintiff
relies as based on California law rather than Oklahoma law. See Def. Standard’s Resp. Br.
[Doc. No. 41] at 11-12, 20. Standard also argues, however, that case law from other federal
courts supports its position. Id. at 12-14. In his reply brief, Plaintiff returns to his original
statement that this is “an ERISA case where common law of ERISA derives from state law
– ALL states.” See Pl.’s Reply Br. [Doc. No. 45] at 7.
Upon consideration of the parties’ positions, the Court notes that none of them
provides a citation to the administrative record that would support the application of
Oklahoma law, assuming Oklahoma’s incontestability statute survives ERISA preemption
under the savings provision of § 1129(b)(2)(A). The Policy plainly states that it was issued
in North Carolina, and it is accompanied by legal notices required by North Carolina law.
See AR 21-23, 27. The policyholder is Carlisle (AR 24), a North Carolina corporation.
See Pet. [Doc. No. 1-2], ¶ 10. The Oklahoma Insurance Code provisions governing group
life insurance policies, particularly the incontestability statute cited by Carlisle, expressly
apply to insurance policies “delivered in this state.” See Okla. Stat. tit. 36, §§ 4101, 4103.
8

Thus, the Court finds no basis in the record to support a determination that Oklahoma law
regarding incontestability clauses controls the resolution of Plaintiff’s Incontestability
Claim. 5
Because no party provides compelling authority on the issue of what law governs
the application of incontestability clauses to life insurance benefit decisions in ERISA
cases, the Court has conducted its own research but has uncovered few appellate court
decisions on this issue. This authority holds that the rule of decision is provided by federal
common law as developed by federal courts utilizing state law principles that are consistent
with the congressional policies underlying ERISA. See McDaniel v. Med. Life Ins. Co.,
195 F.3d 999, 1002 (8th Cir. 1999); see also Turner v. Safeco Life Ins. Co., 17 F.3d 141,
145 (6th Cir. 1994) (applying federal law; finding state incontestability statute did not
apply based on its terms). Although courts have not been entirely consistent in this regard,
the weight of authority, including Tenth Circuit case law, holds that federal courts
fashioning ERISA law should be guided by common law principles and congressional
policies rather than the law of a particular state. See Shipley v. Ark. Blue Cross & Blue
Shield, 333 F.3d 898, 902 (8th Cir. 2003); Alves v. Silverado Foods, Inc., 6 F. App’x 694,
701-02 (10th Cir. 2001) (unpublished); 6 see also Foster v. PPG Indus., Inc., 693 F.3d 1226,

5

The Court is aware of case law holding that an insurance policy can be constructively
delivered or issued for delivery in Oklahoma if the insurer has filed a form policy with the
Oklahoma Insurance Department. See Tillman ex rel. Estate of Tillman v. Camelot Music, Inc.,
408 F.3d 1300, 1303-04 (10th Cir. 2005). However, there is no evidence of such a filing in this
case. The parties also cite no evidence that a certificate of insurance under the Policy was delivered
to Mrs. Smith in Oklahoma. In fact, the parties appear to disagree about whether a certificate
should have been issued and who should have issued it.
6

Unpublished opinion cited pursuant to Fed. R. App. P. 32.1(a) and 10th Cir. R. 32.1(A).
9

1237 (10th Cir. 2012) (“federal common law, governed by principles of trust law, governs
the interpretation of an ERISA plan”) (internal quotations omitted).
B.

Incontestability of Mrs. Smith’s Insurance Coverage
The parties’ dispute regarding Plaintiff’s Incontestability Claim hinges on opposite

interpretations of the Incontestability Clause of the Policy. 7 Specifically, Plaintiff bases
his claim for benefits on the last sentence of the provision, which states: “[Standard] will
not use a misrepresentation to reduce or deny a claim after the insured’s insurance has been
in effect for two years during the lifetime of the insured.” (AR 56.) See Pl.’s Mot. Summ.
J. at 23.
Plaintiff argues that Mrs. Smith “became insured effective January 1, 2012,” for the
additional life insurance coverage in which she enrolled in December 2011, and remained
covered when she died on September 23, 2014, so “Standard is barred from denying or
reducing her claim.” Id. In Plaintiff’s view, the incontestability clause is triggered equally
by an insured’s failure to submit EOI as by an insured’s submission of false EOI because
an opposite reading “makes little sense;” it would “excuse express, outright, demonstrable
fraud” but “not come to the aid of one guilty of mere silence where disclosure is allegedly
required.” Id. at 24.
Standard argues that “[n]o additional life insurance coverage ever went into effect”
for Mrs. Smith. See Def. Standard’s Resp. Br. at 14. Standard relies on provisions of the

7

Carlisle advocates no view of the Incontestability Clause except to express agreement
with Plaintiff’s position. See Def. Carlisle’s Resp. Br. at 11 n.9. As discussed supra, Carlisle
instead relies on the Oklahoma incontestability statute to argue that Mrs. Smith’s “coverage
became incontestable after she had been enrolled in the Plan for two years.” Id. at 14.
10

Policy regarding the effective date of coverage and the requirement that some applicants
for additional life insurance were required to submit EOI. Under Standard’s view, the
controlling policy provision is one that states: “‘Life Insurance subject to Evidence of
Insurability becomes effective on the date we approve your Evidence of Insurability.’” Id.
at 3 (quoting AR 38). By operation of these provisions, Standard takes the position that
because Mrs. Smith was required to but did not submit EOI, and thus Standard never
approved her EOI, “Mrs. Smith failed to satisfy the Policy requirements for obtaining
additional life coverage” and it was never “in effect” for purposes of the Incontestability
Clause. Id. at 15, 17, 18-19. 8
In interpreting and applying the provisions of an ERISA plan, federal courts “‘apply
general principles of contract construction. In particular, the Supreme Court has directed
us to interpret an ERISA plan like any contract, by examining its language and determining
the intent of the parties to the contract.’” Fulghum v. Embarq Corp., 785 F.3d 395, 403
(10th Cir. 2015) (quoting Deboard v. Sunshine Min. & Ref. Co., 208 F.3d 1228, 1240 (10th

8

Standard makes an additional argument that the Incontestability Clause is inapplicable
according to its terms because Standard did not use a misrepresentation to deny Plaintiff’s claim.
Standard did not make its decision on this basis during the administrative process, and thus it
cannot raise the issue now. The Tenth Circuit has made clear that a claims administrator cannot
rely in litigation challenging a denial of plan benefits on a ground that it did not actually rely on in
making its benefits decision. See Spradley v. Owens-Illinois Hourly Emp. Welfare Benefit Plan,
686 F.3d 1135, 1140-41 (10th Cir. 2012); Kellogg v. Metro. Life Ins. Co., 549 F.3d 818, 828-29
(10th Cir. 2008); Flinders v. Workforce Stabilization Plan of Phillips Petroleum Co., 491 F.3d
1180, 1190 (10th Cir. 2007), abrogated on other grounds by Metro. Life Ins. Co. v. Glenn, 554
U.S. 105, 116 (2008) (“In reviewing a plan administrator’s decision, we may only consider the
evidence and arguments that appear in the administrative record. This means . . . we consider only
the rationale asserted by the plan administrator in the administrative record . . . .”) (citations
omitted). According to Plaintiff, Standard also did not rely during the administrative process on
the argument presented in its brief regarding the effective date of coverage. The Court disagrees.
11

Cir. 2000) (internal quotation omitted) (citing Firestone Tire & Rubber Co. v. Bruch, 489
U.S. 101, 112-13 (1989)). “In interpreting an ERISA plan, the court examines the plan
documents as a whole and, if unambiguous, construes them as a matter of law. In doing
so, we give the language its common and ordinary meaning as a reasonable person in the
position of the plan participant, not the actual participant, would have understood the words
to mean.” Admin. Comm. of Wal-Mart Assocs. Health & Welfare Plan v. Willard, 393 F.3d
1119, 1123 (10th Cir. 2004) (citations and internal quotation omitted); accord Miller v.
Monumental Life Ins. Co., 502 F.3d 1245, 1249 (10th Cir. 2007) (“[T]he proper inquiry is
not what [the insurer who issued the group insurance policy] intended a term to signify;
rather we consider the ‘common and ordinary meaning as a reasonable person in the
position of the [plan] participant . . . would have understood the words to mean.’”) (quoting
Willard, 393 F.3d at 1123); accord Rasenack ex rel. Tribolet v. AIG Life Ins. Co., 585 F.3d
1311, 1318 (10th Cir. 2009).
None of the words used in the Incontestability Clause are defined terms in the Policy.
Accordingly, focusing on the common and ordinary meaning of those words, the two-year
incontestability period runs when the insured’s insurance is “in effect.” The Policy has a
provision that determines “When Life Insurance Becomes Effective.” (AR 38.) This is
the provision on which Standard based its decision. (AR 138-39.) Plaintiff does not
identify any other provision of the Policy from which to determine when Mrs. Smith’s
additional life benefit coverage was “in effect.” Thus, the Court agrees with Standard that
the section of the Policy regarding “When Life Insurance Becomes Effective” contains the
operative provisions.
12

This section has separate provisions for life insurance “subject to [EOI]” and “not
subject to [EOI].” (AR 38.) The former provides that coverage “becomes effective on the
date we approve your [EOI].” Id. (¶ E.1.) The latter provides that coverage becomes
effective on a date that depends on whether the insurance is “contributory” or
“noncontributory” and, for contributory life insurance (like Mrs. Smith’s additional life
coverage), the date depends on when the required written application for coverage is made.
When an employee applies during the annual enrollment period or open season,
“Contributory Life Insurance not subject to [EOI] becomes effective on . . . [t]he beginning
of the next plan year following the date you apply.” Id. (¶ E.2.b.iv.) Plaintiff assumes this
is the operative date for Mrs. Smith.
As this discussion makes clear, the application of the Incontestability Clause of the
Policy to Plaintiff’s claim for benefits cannot be decided in a vacuum, separated from the
question of whether Mrs. Smith’s additional life insurance coverage was “subject to EOI”
or “not subject to EOI.” Thus, the Court finds that Plaintiff’s effort to bifurcate his
Incontestability Claim from contested issues is ineffectual. As presented in his current
briefs, Plaintiff bases his position on insurance principles and policy arguments; he does
not rely on the terms of the Policy. While the Court expresses no opinion on the ultimate
issue of whether Plaintiff is entitled to payment of the additional life coverage benefit that
Mrs. Smith applied and paid for, the Court finds no abuse of discretion by Standard in
basing its benefit decision as claims administrator on its interpretation of the terms of the
Incontestability Clause of the Policy.

13

Conclusion
For the reasons set forth above, the Court finds that the Incontestability Clause of
the Policy, standing alone, did not bar the denial of Plaintiff’s claim for additional life
insurance coverage.
IT IS THEREFORE ORDERED that Plaintiff’s Motion for Summary Judgment
Against Standard Insurance Company on His Second Claim for Relief [Doc. No. 37] is
DENIED.
IT IS FURTHER ORDERED that pursuant to the Scheduling Order [Doc. No. 34],
the parties shall file their Joint Motion for a Second Scheduling Order, regarding a second
phase of briefing on Plaintiff’s remaining claims, within 7 days from the date of this Order.
IT IS SO ORDERED this 2nd day of February, 2018.

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