Evans v. Safeco Life Ins. Co.

• Citation: 916 F.2d 1437
• Decision Date: 19 October 1990
• Docket Number: No. 88-6299,88-6299
• Parties: , 12 Employee Benefits Ca 2755 Ernest E. EVANS, Plaintiff-Appellant, v. SAFECO LIFE INSURANCE COMPANY, Personal Security Option Program--Lockheed Special Accident Insurance Plan, Lockheed Corporation, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1437

916 F.2d 1437

59 USLW 2291, 12 Employee Benefits Ca 2755

Ernest E. EVANS, Plaintiff-Appellant, v. SAFECO LIFE INSURANCE COMPANY, Personal Security Option Program--Lockheed Special Accident Insurance Plan Lockheed Corporation, Defendants-Appellees.

No. 88-6299.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 14, 1989.

Decided Oct. 19, 1990.

Kenneth C. Blickenstaff, Lipsky & Blickenstaff, Claremont, Cal., for plaintiff-appellant.

William V. McTaggart, Parker, Milliken, Clark, O'Hara & Samuelian, Los Angeles, Cal., for defendant-appellee Safeco Life Ins. Co.

Donald B. Wallace, O'Melveny & Myers, Los Angeles, Cal., for defendants-appellees Lockheed Corp. and Personal Security Option Program--Special Acc. Ins. Plan.

Appeal from the United States District Court for the Central District of California.

Before SCHROEDER, BOOCHEVER and BEEZER, Circuit Judges.

PER CURIAM:

Ernest Evans (Evans) appeals the district court's dismissal of his second amended complaint under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001-1461 (1982 & Supp. IV (1987)) for the defendants' failure to pay insurance benefits allegedly due Evans for the death of his former wife's natural son, Gerald Evans (Gerald). We affirm.

I

In 1986, Evans was employed by Lockheed Corporation and enrolled in the Lockheed Special Accident Insurance Plan. Evans enrolled in the family plan, which covered the employee's spouse and children. The handbook to this plan states "[t]he family plan provides coverage for your spouse and your children who are unmarried and under age 19 (or under age 23 if registered full-time students wholly dependent on you for financial support)." In July of 1986, Gerald Evans, the natural son of Evans' ex-wife, died in an accident. Evans submitted a claim to Lockheed for Gerald's death, which was denied by Safeco (the issuer of the group policy) on the ground that Gerald was not Evans' child.

The following facts are taken from Evans' second amended complaint. In 1968, Evans and Bertha Graham (Gerald's natural mother) began to live together, and Gerald Deon Graham Evans was born in December of that same year. In 1970, Evans and Bertha Graham married. They separated in 1973, and were divorced in 1980. Bertha Graham remarried sometime after the divorce.

Evans admits in his complaint that he does not know if Gerald was his natural son, and Evans never established paternity in Gerald's lifetime. Evans always considered Gerald to be his natural son and treated Gerald accordingly. Even after Evans' separation from Bertha Graham, Gerald's natural mother, and until Gerald's death, Evans and Gerald remained close. After Bertha Graham remarried, Evans admits that Gerald lived with his mother but alleged that "Gerald regularly spent two or three nights a week with [Evans], and [Evans] regularly contributed to Gerald's support."

Evans originally sued in state court alleging violations of state law for the defendants' failure to pay the disputed benefits, but the defendants removed the action to federal court. The district court ordered Evans to file an amended complaint to restate the first cause of action as an ERISA claim. Evans filed his first amended complaint asserting ERISA claims against Lockheed as the administrator of the plan, Safeco as the issuer of the group policy, and against the Lockheed Special Accident Insurance Plan.

The district court granted the defendants' motion to dismiss the first amended complaint without prejudice on the ground that Evans did not allege sufficient facts to support a stepson theory, but it granted leave to amend so that Evans could attempt to allege facts sufficient to establish a "de facto or psychological" parent-child relationship.

The district court dismissed Evans' second amended complaint on the ground that Evans and Gerald "did not share a parent-child relationship" and therefore Evans could not recover under the terms of the policy, which covered only Evans, his spouse, and his children. The district court granted the defendants' motion to dismiss with prejudice. Evans filed a timely notice of appeal.

Evans' complaint was dismissed pursuant to Fed.R.Civ.P. 12(b)(6). We review a dismissal for failure to state a claim de novo. See, e.g., Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir.1986). A complaint should not be dismissed "unless it appears to a certainty that the plaintiff would not be entitled to relief under any set of facts that could be proved. All material allegations in the complaint are to be taken as true and construed in the light most favorable to the non-moving party." Id. (citation omitted).

II

The threshold question presented here is what law applies to interpret the terms of an ERISA insurance policy. We recently explained in Kunin v. Benefit Trust Life Insurance Co., 898 F.2d 1421 (9th Cir.1990), amended, 910 F.2d 534, 539 (9th Cir.1990) that claims brought under section 502 of ERISA are federal claims, not state contract law claims. In Kunin, we did not decide whether to incorporate state law into the federal common law or whether to fashion uniform federal rules. Today we hold that the interpretation of ERISA insurance policies is governed by a uniform federal common law.

Our analysis begins with the statute. ERISA contains one of the broadest preemption clauses ever enacted by Congress. Generally, the act supersedes state laws which "relate to" employee benefit plans. 29 U.S.C. Sec. 1144(a) (1982). However, ERISA also provides that "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance." 29 U.S.C. Sec. 1144(b)(2)(A) (saving clause).

In Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985) and in Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), the Supreme Court employed a two-part test to determine when laws regulate insurance under ERISA's saving clause. First, the Court looked to a common-sense view of the language of the saving clause. 471 U.S. at 740, 105 S.Ct. at 2389; 481 U.S. at 48, 107 S.Ct. at 1553. Second, it made use of the case law interpreting the phrase "business of insurance" under the McCarran-Ferguson Act. 15 U.S.C. Sec. 1011 et seq.

The criteria used to interpret the McCarran-Ferguson Act include (a) whether the practice has the effect of transferring or spreading a policyholder's risk, (b) whether the practice is an integral part of the policy relationship between the insurer and the insured, and (c) whether the practice is limited to entities within the insurance industry. See generally, Annotation, Construction and Application of Preemption Exemption, Under Employment Retirement and Income Security Act (29 U.S.C.A. Sec. 1001 et. seq.), for State Laws Regulating Insurance, Banking, or Securities (29 U.S.C.A. Sec. 1144(b)(2)), 87 A.L.R.Fed. 797 (1988).

We applied the Supreme Court's test in Kanne v. Connecticut General Life Insurance Co., 867 F.2d 489, 494 (9th Cir.1988), cert. denied, --- U.S. ----, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989) to determine whether ERISA preempts state decisional laws which interpret insurance policies. ¹ The Kanne court reasoned:

California's common law of contract interpretation is not "specifically directed toward [the insurance] industry." Nor generally does it effect risk spreading or concern the policy relationship between the insurer and the insured beyond that to which the parties have agreed in the insurance contract. Accordingly, we conclude that California's common law of contract interpretation is not a law that "regulates insurance," and therefore is not saved from preemption.

Id.

It would make little sense to adopt a state law rule, which Congress has chosen to preempt, as a matter of federal common law. The saving clause constitutes the exclusive list of state laws which are not preempted by ERISA. 29 U.S.C. Sec. 1144(b)(2)(A) (1982). In Kanne, we held that state laws of insurance policy interpretation do not qualify for the saving clause exception and are preempted. If we were to preserve 50 different state laws of insurance policy interpretation as federal common law, we would in effect add an item to the saving clause which we have already said that Congress did not mean to include.

Moreover, ERISA's legislative history, discussed in a plethora of ERISA preemption decisions, undeniably demonstrates that Congress expects uniformity of decisions under ERISA. See Pilot Life, 481 U.S. at 56, 107 S.Ct. at 1557 ("[t]he uniformity of decision which the Act is designed to foster will help administrators, fiduciaries and participants to predict the legality of proposed actions without the necessity of reference to varying state laws") (quoting legislative history) (emphasis added); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9, 107 S.Ct. 2211, 2216, 96 L.Ed.2d 1 (1987) (ERISA's preemption provision was designed to eliminate the "threat of conflicting or inconsistent State and local regulation of employee benefit plans") (quoting legislative history); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 99-100 n. 20, 103 S.Ct. 2890, 2901 n. 20, 77 L.Ed.2d 490 (1983) ("the emergence of a comprehensive and pervasive Federal interest and the interests of uniformity with respect to interstate plans required ... the displacement of State action in the field of private employee [welfare and pension benefit plans]") (quoting legislative history) (emphasis added); Menhorn v. Firestone Tire & Rubber Co., 738 F.2d 1496, 1500 (9th Cir.1984) ("The courts are directed to formulate a nationally uniform federal common law to supplement the explicit provisions and general policies set out in ERISA") (emphasis added).

In addition, strong parallels can be drawn between ERISA and the Labor Management Relations Act (LMRA), 29 U.S.C. Sec. 141, et seq., which courts have consistently...