Opinion
Civil Action No. 99-1875, Section "N".
April 5, 2001
ORDER AND REASONS
Before the Court is Defendants Tenet Healthcare Corporation's and Tenet HealthSystem Memorial Medical Center, Inc.'s Motion for Summary Judgment. For the following reasons, the Motion is GRANTED.
A. BACKGROUND
On January 26, 1998, Howard Oskar Levine drowned in the Mississippi River. His wife, Plaintiff Annie Joy Levine, subsequently filed a claim for life insurance benefits with Transamerica Life Insurance and Annuity Company ("Transamerica"). On June 9, 1998, Transamerica denied Ms. Levine's claim based on the policy's suicide exclusion.
Ms. Levine and her husband originally obtained a Transamerica life insurance policy through the employee benefit plan offered by Ms. Levine's employer, Defendant Tenet HealthSystem Memorial Medical Center, Inc., a subsidiary of Defendant Tenet Healthcare Corporation (collectively, "Tenet"). Although Ms. Levine's employment with Tenet ended on November 7, 1997, several months before her husband's death, the Tenet group policy contained a provision which allowed insureds to convert their group policy into an individual policy after their employment terminated. According to Ms. Levine, when she decided to leave Tenet, she "immediately sought to convert her group policy to an individual policy", but the conversion had to be processed "through . . . Tenet's offices." See Supp. Amending Cplt. ¶ IV. From November 9, 1997 through March of 1998, Ms. Levine alleges that she "was in constant contact and correspondence with . . . Tenet's personnel responsible for the conversion of her policy to individual coverage." Id. Despite her vigilance, she alleges that "Tenet delayed and neglected to make a proper conversion of her policy until March, 1998." Id.
The validity of these allegations is not at issue in the present motion. They are, however, material to deciding whether Ms. Levine's claim for damages is preempted by ERISA.
On April 20, 1999, Ms. Levine filed a petition in Louisiana state court against, inter alios, Transamerica, alleging that Transamerica had arbitrarily and capriciously denied her life insurance claim. On June 17, 1999, Transamerica removed the case to this Court, alleging both ERISA preemption and diversity of citizenship. It does not appear that Ms. Levine disputed either contention.
On December 16, 1999, Transamerica filed its answer. In addition to alleging that it properly denied Ms. Levine's claim pursuant to the suicide exclusion, Transamerica, apparently for the first time, claimed that the life insurance coverage had expired on November 7, 1997, when Ms. Levine left Tenet.
Following several rounds of discussion with Transamerica and a United States Magistrate Judge, Ms. Levine decided to bring Tenet into the suit as a defendant for allegedly failing to process her conversion request. In April of 2000, Ms. Levine filed a Supplemental and Amending Petition for Damages in order to assert a non-specific, Louisiana state law tort claim against Tenet. Ms. Levine claims that Tenet should be found through its "omissions, errors, and neglect" to be the actual cause in fact of her not having a life insurance policy in effect at the time of her husband's death. See Supp. Amending Cplt. ¶ IV; see also Opp'n Mem. p. 6 ("The plaintiff's claim against the Tenet defendants, set forth in her amended petition, is . . . grounded in Louisiana tort law . . . ."). Although she eventually settled with Transamerica, Ms. Levine claims that the settlement amount "came nowhere near the benefits due her under the policy because she had no life insurance policy in effect on the date of the loss — solely because it was not timely converted by the Tenet defendants." Opp'n Mem. p. 3 (emphasis in original).
B. LAW AND ANALYSIS
In the present motion, Tenet asserts three grounds as to why summary judgment is appropriate. The Court finds that genuine issues of material fact exist with respect to two of these grounds. See FED. R. CIV. P. 56(c) (summary judgment appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law"); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (genuine issue of fact exists where the evidence is such that a reasonable fact finder could return a verdict for the non-moving party); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam) (factual controversies resolved in favor of the nonmoving party). First, although Transamerica initially based its denial of benefits on the suicide exclusion, the Court cannot conclude as a matter of law that this was the ultimate reason for denial because, as noted above, Transamerica later asserted that Ms. Levine's claim was barred by the expiration of the policy. Thus, a fact issue exists as to the reason for the denial. Second, although Ms. Levine has recovered some amounts from Transamerica, the Court cannot conclude as a matter of law that she recovered the same amount she would have absent Tenet's alleged negligence. Tenet's third ground for summary judgment presents more difficulty, as it involves questions of ERISA preemption.
For summary judgment purposes, this finding pretermits consideration of Tenet's argument that Transamerica did not abuse its discretion in denying benefits after determining Howard Levine had committed suicide.
Tenet argues that ERISA preempts Ms. Levine's state law tort claim because it "relates to" an ERISA-covered employee benefit plan. Given the extreme complexity of ERISA jurisprudence, see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987) (noting "the `statutory complexity' of ERISA's three preemption provisions, as well as the wide variety of state statutory and decisional law arguably affected by the federal pre-emption provisions"), the sparsity of briefing by both parties makes resolution of this issue difficult.
The first step in addressing an ERISA preemption question is to determine whether an ERISA plan exists, and, if so, whether the benefit program at issue was part of that plan. Neither party has addressed this issue in their briefs, and the Court has never had an opportunity to rule on it. The fact that Ms. Levine never moved to remand her case to state court could imply that she acquiesced to Transamerica's contention that her state law claims against Transamerica were actually claims for benefits within the enforcement provision of ERISA § 502. However, as noted above, Transamerica also alleged diversity of citizenship, and Ms. Levine might simply have assented to that conclusion.
Moreover, even if Ms. Levine's original group policy were part of an ERISA-covered plan, it does not automatically follow that the conversion policy was also covered by ERISA, since the conversion policy was an individual policy made available to her only after her employment with the ERISA plan sponsor ended. In other words, does an individual conversion policy remain governed by ERISA merely because of its historical ties to an ERISA group policy? If it does not, may a claim that involves a conversion provision in an ERISA policy nonetheless be considered "related to" the ERISA plan, or is it related solely to the conversion policy? These questions implicate the second step of ERISA preemption analysis: determining whether the state law claim in question "relates to" an employee benefit plan and therefore falls under ERISA's express preemption clause, § 514(a). Pilot Life, 481 U.S. at 47, 107 S.Ct. at 1552.
Without analysis of either issue, Tenet simply argues that Ms. Levine's claim relates to an ERISA policy. The Court's independent research reveals that several appellate courts have concluded that certain conversion policies are governed by ERISA, while several other appellate courts seem to have assumed that continuation policies are governed by ERISA without expressly addressing the issue.
Painter v. Golden Rule Insurance Co., 121 F.3d 436 (8th Cir. 1997) is an example of the former. In Painter, the plaintiff exercised her "health insurance conversion privilege" under a group policy governed by ERISA and purchased an individual conversion policy from the defendant insurance company following the termination of her employment with the benefit plan sponsor and the termination of her continuation rights. After her claims for benefits under the conversion policy were denied, the plaintiff filed suit in state court against her insurer, asserting several state law theories of recovery which the federal district court, after removal, found preempted by ERISA. On appeal, the plaintiff argued that because the conversion policy was an individual contract that did not implicate administration of the ERISA group policy her state law claims did not relate to an ERISA plan and should not be preempted. The Eighth Circuit was unpersuaded, concluding that the plaintiff's claims for benefits under the conversion policy were preempted. The court first noted that ERISA provides plan "participants" a right to sue for benefits, and, by definition under the statute, a former employee could be a "participant." Id. at 439. The court then held:
[T]he Conversion Policy came into being as a result of Painter exercising her right under the group policy to obtain this specific insurance policy. Thus, the right to a Conversion Policy was part of the plan or program "established" by [her former employer] to provide medical benefits for its current and former employees. As such, the Conversion Policy is a component of [her former employer's] ERISA plan. A suit to recover Conversion Policy benefits is governed by § 1132(a)(1)(B).Id. at 439-40.
The Ninth Circuit reached a similar conclusion in Greany v. Western Farm Bureau Life Insurance Co., 973 F.2d 812 (9th Cir. 1992). In Greany, the plaintiffs originally obtained health insurance through an ERISA employee benefit plan. When Mr. Greany decided to change employers, he was told, correctly, that he had the option of converting the group plan to an individual policy. He was also told, incorrectly, by both his former employer and the benefit plan's insurer, that his coverage under the group plan would last for thirty days following the end of his employment, which happened to coincide with the start of his new job. Believing that he had time to decide, Mr. Greany decided to put off choosing between the conversion policy and the health insurance offered by his new employer. Unfortunately, just days before he began his new job, his wife gave birth prematurely, resulting in massive medical expenses. Because Mr. Greany's coverage under the group plan had actually expired the day his employment terminated, the insurer refused to pay benefits under the group plan.
The Greanys filed suit against both the former employer and the group plan insurer to recover medical expenses incurred during the time when they were mistakenly uninsured. The district court found that ERISA preempted several of the Greanys' state law claims, granted a motion for directed verdict or dismissal on the Greanys' claim that the defendants had violated state law regulating conversion policies, and allowed the Greanys' state law negligence claim to go to the jury, which returned a verdict in favor of plaintiffs and awarded compensatory and punitive damages. Both sides appealed.
On appeal, the Greanys' argued that the conversion policy was separate from the group policy and therefore not governed by ERISA. Although this theory had prevailed with the district court, the Ninth Circuit disagreed. The Court held:
The group plan in this case, which the Greanys admit is an ERISA plan, provides for the conversion benefit. Because the Greanys would not be eligible for a conversion policy without first belonging to the class of beneficiaries covered by the ERISA group plan, we conclude that the individual conversion benefits are part of the ERISA plan and are thus governed by ERISA. Had the Greanys not received health benefits pursuant to the ERISA group plan, they would not have been eligible to receive conversion benefits, and would have no cause of action arising from the conversion policy. Despite the Greanys' attempts to recharacterize their relationship with [Mr. Greanys' former employer] to create a duty independent of the group plan, "[t]here would be no relationship or cause of action . . . without the Plan." Therefore, any of the Greanys' claims that arise from facts surrounding the conversion benefit are to be analyzed with reference to ERISA.Id. at 817 (citations omitted). The court then held that the Greanys' state law negligence claim was preempted because it was in reality a "challenge [to] the administration of ERISA plan benefits, specifically the conversion rights." Id. at 818.
The court also held that the state law regulating conversion rights for group health plans was preempted because ERISA establishes conversion rights for beneficiaries of group health plans. However, the court expressly declined to address whether "state insurance conversion laws other than for health benefits may be `saved' from ERISA preemption." Id. at 820.
In Glass v. United of Omaha Life Insurance Co., 33 F.3d 1341 (1994), the Eleventh Circuit reached a similar conclusion where a former employee converted a group life insurance policy for active employees into a group policy for former employees. After the employee's death, his beneficiary brought state law claims against the insurer, which had denied her claim for life insurance benefits. The district court held that the beneficiary's state law claims were preempted by ERISA and granted summary judgment in favor of the insurer. On appeal, the beneficiary argued that the life insurance policy was not governed by ERISA because it was converted into an individual policy at the insured's request after his employment was terminated. The Eleventh Circuit framed the issue as "whether ERISA follows the policy after it has been removed from the plan and established as an individual policy, or put another way, whether a policy that is initially governed by ERISA can undergo a transformation such that it is no longer part of an ERISA plan." Id. at 1346. The court held that ERISA governed the conversion policy because the insured's "ability to obtain the converted life insurance policy arose from the ERISA plan, and the converted policy itself continued to be integrally linked with the ERISA plan", id. at 1347, since the conversion effectively created a new group policy for former employees. On this basis, the court distinguished Mimbs v. Commercial Life Insurance Co., 818 F. Supp. 1556 (S.D. Ga. 1993), in which a federal district court concluded that conversion to an individual policy removed the conversion policy from the scope of ERISA.
The Glass opinion is somewhat confusing in its discussion of whether the conversion created a group or individual policy. Several times in its decision, the court stated that the conversion provision "allowed the policy to be converted into an individual policy when the employee left" the employer. 33 F.3d at 1344. In distinguishing Mimbs, the court for the first time stated that the conversion in the case before it "did not actually create an individual policy", but instead created a new group policy for former employees. Id. at 1347.
In several other cases, appellate courts seem to have assumed without expressly addressing the issue that claims concerning continuation rights or continuation policy benefits are governed by ERISA. For example, in Nerney v. Valente Sons Repair Shop, 66 F.3d 25 (1995), the Second Circuit held that the plaintiff could amend his complaint to assert an ERISA breach of fiduciary claim against his former employer for failure to inform him of his continuation rights under an ERISA medical plan. Similarly, in Kidder v. HB Marine, Inc., 932 F.2d 347 (1991) (per curiam), the Fifth Circuit upheld a judgment against a former employer which had failed to notify the plaintiff of his continuation rights under an ERISA group health policy. The plaintiff was awarded the difference between what he would have received under the continuation policy and what he actually received under the less generous conversion policy he had purchased. The Fifth Circuit did not specify the precise cause of action, other than to say that it was brought under the Comprehensive Omnibus Budget Reconciliation Act of 1985, or "COBRA," 29 U.S.C. § 1161-68, which is part of ERISA. See Glass, 33 F.3d at 1346 (noting that COBRA amended ERISA); Greany, 973 F.2d at 812 (health and disability conversion rights provided by COBRA section of ERISA).
In Ramsey v. Colonial Life Insurance Co. of America, 12 F.3d 472 (1994), the Fifth Circuit held that the plaintiff was entitled to continued coverage under an ERISA health insurance policy and therefore was entitled to a refund of the conversion policy premiums he had unnecessarily paid. While the former holding clearly involved a claim for benefits under ERISA § 502, it is unclear whether the refund of the conversion policy premiums was also an ERISA claim or a pendent state law claim. See also Sippel v. Reliance Standard Life Ins. Co., 128 F.3d 1261 (8th Cir. 1997) (implying that claim for benefits under accidental death conversion policy falls within ERISA).
None of the cases discussed above are squarely on point with the present case. Nevertheless, assuming that the original Transamerica policy was governed by ERISA, the Court concludes that ERISA preempts Ms. Levine's state law tort claim, which appears to be a claim of negligence pursuant to Louisiana Civil Code article 3215. Although life insurance conversion rights are not expressly covered by COBRA, see Glass, 33 F.3d at 1346, Ms. Levine's claim against Tenet relates to conversion rights contained within an ERISA life insurance policy and to Tenet's duties under the ERISA plan. See Painter, 121 F.3d at 440 ("the right to a Conversion Policy was part of the [ERISA] plan"); Greany, 973 F.2d at 817 ("individual conversion benefits are part of the ERISA plan and are thus governed by ERISA");Howard v. Gleason Corp., 901 F.2d 1154, 1158 (2d Cir. 1990) ("The conversion option is a benefit of the [ERISA] Plan."). Her claim therefore "relates to" an ERISA employee benefit plan within the meaning of ERISA § 514(a).
See Opp'n Mem. p. 6 ("Plaintiff admits here that if the claims against Transamerica were still in litigation, those claims would probably be preempted by the ERISA statute.").
Finding that Ms. Levine's claim relates to an ERISA plan does not end the inquiry, however, because she and Tenet are non-diverse. As the Fifth Circuit noted in Copling v. The Container Store, Inc., 174 F.3d 590, 595 (1996), preemption under § 514(a) alone "simply fails to establish federal question jurisdiction." This type of preemption, also known as conflict or ordinary preemption, merely serves as a defense to a state action, to be litigated before a state court absent an independent ground for federal jurisdiction. Id. In order for the Court to maintain jurisdiction over the instant case, Ms. Levine's claim must be completely preempted such that it is "necessarily federal in character." Id. at 594 (quotingMetropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 66, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987)). Although the parties have not addressed this issue, the Court finds that complete preemption exists.
Following the Second Circuit's example in Nerney, the Court finds that Ms. Levine's claim is, in reality, a claim for benefits and/or a claim of breach of fiduciary duty under ERISA § 502. See Nerney, 66 F.3d at 28 ("Under 29 U.S.C. § 1132 (a)(1)(B), a participant of a plan governed by ERISA may bring an action `to recover benefits due to him under the terms of his plan, [or] to enforce his rights under the terms of the plan.'") (brackets in original); see also Kidder v. HB Marine, Inc., 734 F. Supp. 724, 726 728 (E.D. La. 1990) (plaintiffs claimed benefits they would have received under continuation policy; court also discusses breach of fiduciary duty). Thus, her claim is completely preempted. See Copling, 174 F.3d at 594 (ERISA § 502, "by providing a civil enforcement cause of action, completely preempts any state cause of action seeking the same relief, regardless of how artfully pled as a state action.").
The parties have not addressed whether Ms. Levine's claim is nonetheless "saved" from preemption by § 514(b)(2)(A). Quite clearly it is not. See generally Pilot Life, 481 U.S. 41, 107 S.Ct. 1549.
For these reasons, the Court GRANTS Tenet's Motion for Summary Judgment. However, this ruling does not foreclose recovery by Ms. Levine because the Court will allow her to amend her complaint to assert ERISA claims against Tenet.
In addition, Ms. Levine may be able to assert a pendent state law claim under LA. R.S. 22:176 (10), which mandates that each group life insurance policy contain a conversion provision. In Robin v. Metropolitan Life Insurance Co., 147 F.3d 440 (1998), the Fifth Circuit assumed without deciding that ERISA does not preempt this portion of the Louisiana Insurance Code. Dicta inGreany suggests that this assumption is correct. See 973 F.2d at 820 ("state insurance conversion laws other than for health benefits may be `saved' from ERISA preemption."). Cf. Howard, 901 F.2d at 1156-59 (holding state statute requiring notice of conversion privilege preempted because of ERISA notice provisions).
C. CONCLUSION
For the reasons set forth above,IT IS ORDERED that Defendants Tenet Healthcare Corporation's and Tenet HealthSystem Memorial Medical Center, Inc.'s Motion for Summary Judgment is GRANTED. Ms. Levine has thirty days to amend her complaint.