964 F.2d 1043 (10th Cir. 1992), 90-6230, Peckham v. Gem State Mut. of Utah

Docket Nº:90-6230, 90-6239.
Citation:964 F.2d 1043
Party Name:Andrea PECKHAM, as the Mother and Natural Guardian of Kyle M. Peckham, an infant, Andrea Peckham, individually, Plaintiffs-Appellants and Cross-Appellees, v. GEM STATE MUTUAL OF UTAH, a corporation, Defendant-Appellee and Cross-Appellant.
Case Date:May 21, 1992
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 1043

964 F.2d 1043 (10th Cir. 1992)

Andrea PECKHAM, as the Mother and Natural Guardian of Kyle

M. Peckham, an infant, Andrea Peckham,

individually, Plaintiffs-Appellants and



GEM STATE MUTUAL OF UTAH, a corporation, Defendant-Appellee

and Cross-Appellant.

Nos. 90-6230, 90-6239.

United States Court of Appeals, Tenth Circuit

May 21, 1992

Page 1044

[Copyrighted Material Omitted]

Page 1045

Glen Mullins, Oklahoma City, Okl., for plaintiffs-appellants and cross-appellees.

Jeffrey R. Oritt of Wilkins, Oritt & Rennow, Salt Lake City, Utah, for defendant-appellee and cross-appellant.

Before EBEL, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and JENKINS, Chief District Judge. [*]

EBEL, Circuit Judge.

The threshold question raised by this appeal is whether the benefit program at issue is an "employee welfare benefit plan" under the Employee Retirement Income Security Act (ERISA). Because we answer this question affirmatively, we also address whether ERISA preempts state law doctrines of estoppel and substantial compliance with contract. We hold that state law estoppel doctrines are preempted by ERISA but that the doctrine of substantial compliance is not so preempted.


Defendant Gem State Mutual of Utah (Gem) created the Inter-Mountain Employers Trust (IMET) to provide Gem group policies to IMET subscribers, a group of unrelated employers. AAA Engineering & Drafting (AAA) subscribed to IMET and thereby obtained Gem medical coverage for its employees. AAA pays for medical coverage for all of its employees. If an employee wants to extend this coverage to his or her dependents, AAA will deduct the required additional premium for family coverage from the employee's salary.

There are at least two ways that a newborn child could be covered under the Gem policy. First, "[a] newborn child will automatically be covered from the date of birth if 'Dependent' coverage is carried" so long as a Change Form is completed within thirty-one days of the birth. IMET Administrative Instructions at 1 (in App. D to Appellee's Br.). Alternatively, if only "Single" coverage is carried, a newborn will be added effective "on the next premium due date following the birth of the child" so long as a Change Form is completed within thirty-one days of the birth. Id. However, the Administrative Instructions go on to caution that "[i]f application is not made within 31 days following birth, the child will not be added except with Evidence of Health submission and acceptance." Id.

Plaintiff Andrea Peckham was an employee of AAA. Initially, she elected only single coverage. On July 9, 1987, Ms. Peckham requested a change to dependent coverage to include her husband Michael and son Michael, Jr. on her policy. Because these dependents were not originally covered, they needed to complete a medical questionnaire to obtain coverage. They completed the medical questionnaire on August 26, 1987. In the meantime, Ms. Peckham gave birth to her son and co-plaintiff, Kyle, on August 25. Kyle was not mentioned on the medical questionnaire regarding Michael and Michael, Jr., and Ms. Peckham

Page 1046

did not request that Kyle be covered on her policy at that time. Gem approved medical coverage for Michael and Michael, Jr. on September 2, 1987, and accordingly it approved the conversion of Ms. Peckham's policy to a dependent or family policy as of the next premium date, which was October 1, 1987.

Kyle had been born with spina bifida and hydrocephalus, and started incurring medical expenses immediately. On September 8, 1987, Gem received a claim for medical benefits for a "baby boy Peckham." On September 28, 1987, 1 Gem determined that the child was not a covered dependent and notified Ms. Peckham that, because she had not completed a Change Form to add her new child within 31 days of his birth, she would need to complete a medical questionnaire on him to get him approved for coverage. On October 23, 1987, Gem received the questionnaire, which indicated that Kyle was born with spina bifida and hydrocephalus. On October 28, 1987, Gem declined coverage for Kyle based on the questionnaire.

Ms. Peckham briefly left AAA on maternity leave. When she returned to AAA, she applied anew for employee coverage with Gem, requesting dependent coverage for her whole family. Gem accepted her application for family coverage, effective December 1, 1987. However, under a policy exclusion, expenses related to Kyle's pre-existing conditions were not covered until June 1, 1988, which was six months after the issuance of the new policy.

Ms. Peckham sued Gem, individually and on behalf of Kyle, for damages under common law tort and contract theories and for Kyle's medical claims from the date of his birth through June 1, 1988. Jurisdiction is based on diversity. The district court granted partial summary judgment to Gem. The court found that the policy at issue was covered by ERISA and therefore that Ms. Peckham's claims for breach of duty of good faith and fair dealing, emotional distress, and punitive damages were preempted by ERISA. The court also found that there was no way that Kyle could claim medical coverage prior to September 1, 1987, and hence it granted summary judgment to Gem on the claim for medical coverage from Kyle's birth to September 1, 1987. 2 However, the court found that but for Gem's dilatory processing Ms. Peckham would have qualified for coverage for Kyle effective September 1, 1987, and hence it awarded her damages for Kyle's medical claims between September 1, 1987, and June 1, 1988.

Ms. Peckham appeals the grant of summary judgment to Gem on her state common law claims and on her medical claims prior to September 1, 1987. Gem cross appeals the district court's award of medical claims for the period between September 1, 1987 and June 1, 1988.

I. The Applicability of ERISA

Ms. Peckham does not seriously dispute that if her policy with Gem is covered by ERISA, her state common law claims for breach of duty of good faith and fair dealing, emotional distress, and punitive damages would be preempted. See 29 U.S.C. § 1144(a) (ERISA preempts state law relating to an ERISA plan); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 52, 57, 107 S.Ct. 1549, 1555-56, 1558, 95 L.Ed.2d 39 (1987) (ERISA preempts state law actions for improper processing of claims); Settles v. Golden Rule Ins. Co., 927 F.2d

Page 1047

505, 508 (10th Cir.1991) (same). 3 Thus we must determine whether AAA's provision of Gem insurance for AAA employees--and therefore Ms. Peckham's policy with GEM--is covered by ERISA. 4 We review this question de novo. 5

ERISA governs "employee benefit plan[s]." 29 U.S.C. § 1003(a). One form of employee benefit plan is an "employee welfare benefit plan." Id. § 1002(3). As applicable to this case, an "employee welfare benefit plan" is

any plan, fund, or program ... established or maintained by an employer ... for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance ... medical, surgical, or hospital care or benefits....

Id. § 1002(1).

As noted by the Eleventh Circuit, this definition can be broken down into five elements:

(1) a "plan, fund, or program" (2) established or maintained (3) by an employer ... (4) for the purpose of providing medical, surgical, [or] hospital care ... benefits ... (5) to participants or their beneficiaries.

Donovan v. Dillingham, 688 F.2d 1367, 1371 (1982); see also Wickman v. Northwest Nat'l Ins. Co., 908 F.2d 1077, 1082 (1st Cir.) (adopting Donovan's breakdown of the elements of § 1002(1)), cert. denied, --- U.S. ----, 111 S.Ct. 581, 112 L.Ed.2d 586 (1990); Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th Cir.1986) (same), cert. denied, 482 U.S. 915, 107 S.Ct. 3188, 96 L.Ed.2d 676 (1987).

Elements (3), (4), and (5) of the above definition are clearly satisfied by Peckham's policy with Gem and are not disputed. The policy was offered by an employer, AAA, for the purpose of providing medical care benefits to participants, its employees. This leaves elements (1) and (2).

A. The "plan, fund, or program" requirement

Element (1) is also satisfied. The prevailing standard for determining the existence of a plan was developed by Donovan: A "plan, fund, or program" under ERISA is established if "from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and the procedures for receiving benefits." 688 F.2d at 1373; see also Hansen

Page 1048

v. Continental Ins. Co., 940 F.2d 971, 977 (5th Cir.1991) (adopting Donovan 's test for the existence of a plan, fund, or program); Wickman, 908 F.2d at 1082 (same); Ed Miniat, 805 F.2d at 738 (same). 6 With respect to AAA's provision of Gem insurance to AAA's employees, a reasonable person would determine that the intended benefit is medical coverage, that the intended class of beneficiaries is AAA's employees and, in the case of dependent coverage, their dependents, that financing comes from AAA with the possibility of supplemental financing from the employees if dependent coverage is requested, and that the procedures for receiving benefits are specified in the literature provided by IMET or Gem. Thus, AAA's plan is the type of "plan, fund, or program" contemplated by ERISA.

Ms. Peckham cites Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), for the proposition that a "plan" requires an "ongoing administrative program." Id. at 11, 107 S.Ct. at 2217. Although we agree that such an ongoing administrative program is required under Fort Halifax, we disagree with Ms. Peckham's contention that AAA's plan is not such a program. The obligation at issue...

To continue reading