Custer v. Pan American Life Ins. Co.

• Decision Date: 17 December 1993
• Docket Number: No. 92-2570,92-2570
• Citation: 12 F.3d 410
• Parties: Kimberly A. CUSTER, Individually and as natural guardian and next friend of Marc Custer, an infant, Plaintiff-Appellant, v. PAN AMERICAN LIFE INSURANCE COMPANY; National Insurance Services, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 410

12 F.3d 410

27 Fed.R.Serv.3d 1120

Kimberly A. CUSTER, Individually and as natural guardian and next friend of Marc Custer, an infant, Plaintiff-Appellant, v. PAN AMERICAN LIFE INSURANCE COMPANY; National Insurance

Services, Incorporated, Defendants-Appellees.

No. 92-2570.

United States Court of Appeals, Fourth Circuit.

Argued July 14, 1993.

Decided Dec. 17, 1993.

Jeffrey Alan Holmstrand, Bachmann, Hess, Bachmann & Garden, Wheeling, WV, argued (Lester C. Hess, Jr., Bachmann, Hess, Bachmann & Garden, on the brief), for plaintiff-appellant.

Sandra K. Law, Schrader, Byrd, Byrum & Companion, Wheeling, WV, argued (James F. Companion, Yolonda G. Lambert, Schrader, Byrd, Byrum & Companion, on the brief), for defendants-appellees.

Before NIEMEYER, HAMILTON, and WILLIAMS, Circuit Judges.

OPINION

NIEMEYER, Circuit Judge:

Kimberly A. Custer sued Pan American Life Insurance Company and National Insurance Services, Inc., the providers to Custer's employer of a group health insurance policy for the benefit of Custer and her fellow employees, claiming that Pan American Life and National Insurance wrongfully denied her health benefits. In particular, she alleged that they wrongfully refused to cover expenses for a cesarean section operation and to provide benefits to her son who was born with spina bifida and hydrocephalus. The district court, deciding the claim under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1001, et seq., entered summary judgment in favor of the defendants, concluding that the defendants did pay all claimable benefits until the date when the policy was terminated by Custer's employer, and that they are not required to provide benefits beyond the termination of the policy, as argued by Custer. Having fully considered all of the arguments raised on appeal, we affirm.

I

Kimberly Auber Custer was a beneficiary of a group health and life policy provided by her employer, Ohio Valley Candy Company. Ohio Valley Candy was a small, closely-held company, and Custer's father, John Auber was its president. Auber arranged for the policy through James Arritt, the company's insurance broker, who obtained the policy from National Insurance as administrator, and Pan American Life as underwriter. National Insurance is a wholly owned subsidiary of Pan American Life. The policy afforded no maternity benefits and did not cover preexisting conditions. It did, however, afford coverage to newly born family members without proof of medical eligibility, so long as written notice of the child's birth was provided within 31 days of the birth.

Before subscribing to the group policy, Custer became pregnant, and she so notified National Insurance at the time she subscribed. Toward the end of her pregnancy, it became apparent that a cesarean section would be required to deliver the baby. According to Custer, she advised Arritt of this fact, and Arritt told her that expenses for the surgery would be covered by the policy.

On October 21, 1988, Custer gave birth to a son, Marc Custer. Marc was born with spina bifida and hydrocephalus, conditions which require continuous and expensive medical attention. Arritt notified National Insurance of Marc's birth, orally and by two letters, for the purpose of triggering coverage without proof of eligibility. For some unexplained reason, the first letter dated November 11, 1988, was not received by National Insurance until March 27, 1989. When Arritt inquired about the letter in late November 1988 and learned that it had not been received, he sent a follow-up letter, dated December 2, 1988. All parties agree that this second letter was received on December 5. Asserting that both letters were received after the 31-day grace period following Marc's birth and that no proof of medical eligibility was submitted, National Insurance denied medical benefits to Marc. Medical benefits were also denied to Custer for her pregnancy, including coverage for the cesarean section.

Custer filed suit against National Insurance and Pan American Life in state court, claiming coverage for herself on the basis of the oral assurances given by Arritt, and for Marc, alleging that National Insurance did receive actual notice of his birth within 31 days. The state law claims were based on West Virginia common law and statute.

Shortly after Custer filed suit and before the defendants responded, Ohio Valley Candy canceled its policy with National Insurance and Pan American Life. Custer claims that John Auber canceled the policy because of his frustration with the way National Insurance and Pan American Life administered the policy. After the cancellation, the defendants admitted liability for benefits for Marc up to the date of cancellation and paid them.

The defendants removed the state court action to federal court, alleging that ERISA preempted the claims, and once in federal court, they filed a motion for summary judgment. They asserted that they had paid all obligations incurred for Marc up to the date of the cancellation and should not be held responsible for expenses incurred after cancellation. They also argued that the policy clearly excludes Custer's childbirth expenses and that under ERISA, Arritt's oral representation about coverage could not be enforced as a modification to the written policy. The district court did not rule on the merits of these claims but dismissed the complaint, reasoning that the plaintiff's state law claims were preempted by ERISA. The district court, however, granted plaintiff 30 days in which to file an amended complaint.

In her amended complaint, Custer abandoned her claims for maternity benefits but pursued claims on behalf of Marc for future benefits, even though the policy under which the claims were made had been canceled by her employer. She alleged that the defendants wrongfully interfered with her attainment of future rights in violation of 29 U.S.C. Sec. 1140; that because the defendants knew that the denial of Marc's claim was wrongful, they should be equitably estopped from relying on the cancellation of the policy; and that they had constructively terminated the policy before her employer's cancellation by refusing to cover Marc. Even though Custer received some of the same benefits from her husband's insurance company that she was claiming from National Insurance and Pan American Life, she argued also that the coordination of benefits clause in the policy with National Insurance and Pan American Life did not apply to prevent double payment.

After the parties filed status reports in the litigation, the court entered an order directing the defendants to file their motion for summary judgment by July 31, 1992, which they said they intended to file, and ordering the plaintiff to respond in accordance with Local Rule 2.07. On July 14, 1992, the defendants filed a paper entitled, "Memorandum of Law in Support of Defendant's Motion for Summary Judgment," and in the memorandum they claimed entitlement to summary judgment on all counts. The defendants did not, however, file a separate paper making a formal motion for summary judgment. Custer filed no response to this "memorandum." Several months later, on October 7, 1992, the defendants filed a formal motion for the entry of summary judgment under Local Rule 2.07 on the basis that no response had been filed to their earlier paper. Again, Custer filed no response. On November 12, 1992, over a month later, the district court entered summary judgment for the defendants, relying both on Custer's failure to comply with Local Rule 2.07 and on the merits of the defendants' position. On the merits, the court concluded that the defendants had made all payments required by the policy before it was terminated and that they were not required to provide benefits beyond termination. The court also denied Custer attorney's fees and refused to disregard the coordination of benefits provision within the policy. This appeal followed.

II

Pan American Life and National Insurance argue that we need not reach the merits of this case because Custer failed to respond to their motion for summary judgment filed in the district court, and, under the district court's local rule, she should be "deemed not to oppose" the motion. ¹ Although the district court did reach the merits of the summary judgment motion, it also relied on the local rule as a ground to support its judgment. Pan American Life and National Insurance read Rule 2.07(d) to embody a default principle for application to motions under Federal Rule of Civil Procedure 56. They maintain:

It is therefore, inconsistent and inappropriate for the plaintiff to raise on the instant appeal any issues which were ruled upon by the district court which concurred with the positions raised in the defendants' memorandum for summary judgment (since the plaintiff was deemed not to oppose these positions).

Relying on this default concept, they urge us to dismiss the appeal "on procedural grounds." We decline the invitation, however, because we believe that defendants' position misconstrues the summary judgment practice under Rule 56.

Default is a concept developed in the first instance from the failure of a defendant, who has been served, to appear in response to a writ of summons and to defend. When a complaint is filed, a summons issues for service on the defendant, requiring the defendant "to appear and defend" and providing notice that the defendant's failure to do so will result in judgment by default "for the relief demanded in the complaint." See Fed.R.Civ.P. 4(b). The admonition is backed by a procedure for entering a default judgment, described in Federal Rule of Civil Procedure 55. While these principles are explicitly adopted in other rules, see, e.g., Fed.R.Civ.P. 16(f) and 37(b)(2)(C), they do not govern the failure of a plaintiff to respond to a defendant's motion for summary judgment. If the court were to determine that the plaintiff's failure to...