Nieves v. Intercontinental Life Ins. Co. of Puerto Rico

• Decision Date: 05 November 1991
• Docket Number: 91-1557 and 91-1661,Nos. 91-1556,s. 91-1556
• Citation: 964 F.2d 60
• Parties: Rebecca R. NIEVES, Individually and as Next Friend of Andrew J. Nieves and Alan J. Nieves, Plaintiffs, Appellants, v. INTERCONTINENTAL LIFE INSURANCE COMPANY OF PUERTO RICO, Defendant, Appellee. Rebecca R. NIEVES, Individually and as Next Friend of Andrew J. Nieves and Alan J. Nieves, Plaintiffs, Appellees, v. INTERCONTINENTAL LIFE INSURANCE COMPANY OF PUERTO RICO, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 60

964 F.2d 60

Rebecca R. NIEVES, Individually and as Next Friend of Andrew

J. Nieves and Alan J. Nieves, Plaintiffs, Appellants, v. INTERCONTINENTAL LIFE INSURANCE COMPANY OF PUERTO RICO,

Defendant, Appellee.

Rebecca R. NIEVES, Individually and as Next Friend of Andrew

J. Nieves and Alan J. Nieves, Plaintiffs, Appellees, v. INTERCONTINENTAL LIFE INSURANCE COMPANY OF PUERTO RICO,

Defendant, Appellant.

Nos. 91-1556, 91-1557 and 91-1661.

United States Court of Appeals First Circuit.

Heard Nov. 5, 1991.

Decided May 14, 1992.

Eric A. Holden with whom Patricia A. Garcia, New Orleans, La., was on briefs, for plaintiffs.

Fernando Perez Colon, San Juan, P.R., for defendant.

Before CAMPBELL, Circuit Judge, BOWNES, Senior Circuit Judge, and SKINNER, ^* District Judge,

LEVIN H. CAMPBELL, Circuit Judge.

This appeal stems from a diversity action brought by Rebecca Nieves and her two minor children, Andrew and Alan Nieves (collectively, the claimants), seeking benefits after the death of her husband Anthony J. Nieves ("Nieves") under a life and health group insurance policy issued by Intercontinental Life Insurance Company ("Intercontinental").

On the parties' cross motions for summary judgment, the United States District Court for the District of Puerto Rico ruled that Nieves was an "eligible employee" hence an insured, under the terms of the policy. The court accordingly determined that his widow and minor children were entitled to recover policy benefits for life and accidental death. The district court declined, however, to award claimants medical or funeral expenses. Both parties appealed. The claimants challenge the denial of medical expenses, and the insurance company denies that Nieves was an "eligible employee" within the meaning of the policy. We conclude that the district court erred in determining that Nieves was an "eligible employee" and therefore reverse its judgment in favor of the widow and minor children. We affirm its denial of expenses.

I. Background

In 1983, Nieves worked as a security consultant for Associated Grocers, Inc., in East Baton Rouge, Louisiana. In June 1984, Nieves moved to Puerto Rico to work for a company named the Office of Strategic Security ("OSS"). OSS's business was to provide guard and security services for corporate clients--especially protection to company property and to executives during labor disputes. Stanley Varon ("Varon") was the owner and sole stockholder of OSS. Varon was also the Chief Executive Officer of St. Lawrence Garment Company ("St. Lawrence"), a manufacturer of ladies' and children's underwear, with several plants located throughout the island. St. Lawrence occasionally contracted for the services of OSS's employees on a part-time basis to provide internal security for St. Lawrence.

After Nieves began working for OSS, trouble arose at St. Lawrence. Varon requested Nieves to assist there and Nieves complied. According to Varon's deposition, Nieves' services at St. Lawrence amounted to two or three hours of his time a week. There was no written employment contract between Nieves and St. Lawrence; however, while rendering services for St. Lawrence, Nieves remained at all times on OSS's payroll.

OSS did not provide life or health insurance for their employees. After rendering services for St. Lawrence for a few months, Nieves asked Varon if he could be enrolled under St. Lawrence's health and life insurance policy. Varon indicated that since Nieves was doing some work for St. Lawrence, he did not see why Nieves could not be included in St. Lawrence's group insurance policy. In his deposition, Varon indicated that he did not instruct anyone to do anything concerning Nieves' request.

Shortly thereafter, Nieves filled out an enrollment application dated March 21, 1985, seeking admission into St. Lawrence's group health and life insurance with Intercontinental. In his enrollment application, Nieves gave his employer's name as "St. Lawrence Garment Co., Inc." and his employment date as "November 5, 1984."

Following receipt of the application, Intercontinental issued policy number S.S.P. 365-03-84. Nieves appeared as the insured under that policy, effective March 1, 1985 through March 1, 1986. His wife, Rebecca Nieves, was named beneficiary of the $10,000 death benefit provision contained in the policy. Intercontinental issued an identification card and certificate number 82, naming Nieves as insured and affording coverage to his dependents. The premiums of $115.10 per month corresponding to Nieves' coverage were paid by St. Lawrence from May 1, 1985 to November 1, 1985. In 1985, Intercontinental paid for benefits to Nieves and his dependents under the policy for various small medical claims. ¹

On August 25, 1985, Nieves left Puerto Rico and moved back with his family to Louisiana. The record is unclear as to the exact date when Nieves ceased to be an employee of OSS and his reasons for leaving. The parties stipulated that Nieves remained on OSS's payroll until September 30, 1985. In his deposition, Mr. Varon explained that retaining Nieves on OSS's payroll was only a friendly accommodation because of Nieves' weak finances at the time of his departure from Puerto Rico, not because he was doing work for OSS.

While residing in Louisiana, on or about September 9, 1985, Nieves was struck by a motor vehicle. At the time of the accident, Nieves was performing duties as a security consultant for Associated Grocers, Inc., on the company's premises located at 8686 Anselmo Lane in East Baton Rouge, Louisiana. As a result of the injuries he suffered, Nieves was hospitalized in the intensive care unit of Our Lady of the Lake Regional Medical Center until the day of his death on October 5, 1985. The medical expenses incurred for his treatment amounted approximately to $152,100.18.

On October 31, 1985, the claimants filed an action for damages in the United States District Court for the Middle District of Louisiana against the parties allegedly responsible for the accident that caused Nieves' injuries and death. In that action, plaintiffs itemized their claimed damages. Among these were $200,000 for medical and funeral expenses and court costs. This action was eventually settled and was dismissed pursuant to an order entered on October 17, 1988, approving a stipulation for dismissal. The terms and conditions of the settlement agreement were set forth in a document titled "Settlement Agreement and Release" which provided for a global settlement for the amount of $1,297,174.

On November 17, 1985, Nieves' widow and minor children filed a claim for benefits under Intercontinental's group policy issued to insure the employees of St. Lawrence. Initially, Intercontinental issued its check in the amount of $5,000, payable to Mrs. Rebecca Nieves, as partial payment of the $10,000 death benefit under the policy. Pursuant to Mrs. Nieves' request, Intercontinental placed a stop payment order on check number 37539 and agreed to send a substitute check to Mrs. Nieves following the ten-day waiting period required by their bank. After further investigation, Intercontinental informed the comptroller of St. Lawrence in a letter dated April 15 1986, that it would not pay benefits because Nieves was never an employee of St. Lawrence. Intercontinental gave Mrs. Nieves a check in the amount of $740.40, returning the premiums paid for Nieves by St. Lawrence, less claims paid by Intercontinental. Mrs. Nieves did not cash this check.

As a result of Intercontinental's refusal to pay, the claimants initiated a separate action against Intercontinental to recover the benefits provided by the insurance policy. This action was originally filed in the Texas state court. It was removed to the United States District Court for the Southern District of Texas by one of the insurance companies named as defendants and not a party to this appeal. On October 19, 1988, that court entered an agreed order severing and removing to the United States District Court for the District of Puerto Rico the portion of the action related to Intercontinental.

In the United States District Court for the District of Puerto Rico, both parties filed motions for summary judgment. The beneficiaries' contention was that they were entitled to receive life and accidental death benefits as well as medical or funeral expenses in accordance with the terms of the policy. On its part, Intercontinental argued that Nieves had never been an employee of St. Lawrence and, therefore, his beneficiaries were not entitled to receive any benefits under an insurance policy issued exclusively to cover employees of St. Lawrence.

In an opinion and order dated April 21, 1991, the district court granted the beneficiaries' motion as to the issue of coverage and life insurance benefits and Intercontinental's motion as to the issue of medical and funeral expenses. 763 F.Supp. 1161. Both parties appealed. Intercontinental argues that the district court erred in determining that Nieves was an eligible employee and the beneficiaries contend that they were entitled to receive medical expenses.

II. Standard of Review

Our review of a district court's grant of summary judgment is plenary. See Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir.1990); Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir.1990). The construction of an insurance policy is a question of law, and the legal conclusions of the district court are, of course, not binding on the court of appeals. New England Legal Foundation v. Mass. Port Authority, 883 F.2d 157, 167 (1st Cir.1989). A reviewing court may make an independent examination of an insurance policy. Atlas Pallet, Inc. v. Gallagher, 725 F.2d 131, 134 (1st Cir.1984).

We turn first to the threshold issue of coverage. Since this is a diversity action, we evaluate Nieves' claims under the law of Puerto Rico. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

Under Puerto Rico law, the ...