Greany v. Western Farm Bureau Life Ins. Co.

• Decision Date: 01 September 1992
• Docket Number: 91-35125,Nos. 91-35098,s. 91-35098
• Citation: 973 F.2d 812
• Parties: Patrick D. GREANY, et al., Plaintiffs-Appellants, v. WESTERN FARM BUREAU LIFE INSURANCE COMPANY, a Colorado corporation, et al.; Lincoln National Life Insurance Company, an Indiana corporation, Defendants-Appellees. Patrick D. GREANY, et al., Plaintiffs-Appellees, v. WESTERN FARM BUREAU LIFE INSURANCE COMPANY, a Colorado corporation, et al., Defendants-Appellants, and Lincoln National Life Insurance Company, an Indiana corporation, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 812

973 F.2d 812

Patrick D. GREANY, et al., Plaintiffs-Appellants, v. WESTERN FARM BUREAU LIFE INSURANCE COMPANY, a Colorado

corporation, et al.; Lincoln National Life

Insurance Company, an Indiana

corporation, Defendants-Appellees.

Patrick D. GREANY, et al., Plaintiffs-Appellees, v. WESTERN FARM BUREAU LIFE INSURANCE COMPANY, a Colorado

corporation, et al., Defendants-Appellants,

and

Lincoln National Life Insurance Company, an Indiana

corporation, Defendant.

Nos. 91-35098, 91-35125.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 7, 1992.

Decided Sept. 1, 1992.

Peter M. Kirwan and Michael G. Garrity, Kirwan & Barrett, Bozeman, Mont., for plaintiffs-appellants-cross-appellees.

Gene I. Brown and Steve Reida, Landoe, Brown & Planalp, Bozeman, Mont., for defendants-appellees-cross-appellants.

Marshal L. Mickelson, Corette, Smith, Pohlman & Allen, Butte, Mont., for defendant-appellee.

Appeal from the United States District Court for the District of Montana.

Before: TROTT and KLEINFELD, Circuit Judges, and DIMMICK, ^* District Judge.

TROTT, Circuit Judge:

Patrick Greany, an employee of Western Farm Bureau Life Insurance Company ("Western") and Mountain West Farm Bureau Mutual Insurance Company ("Mountain West") (collectively "Farm Bureau"), and his wife Marcia Greany appeal the district court's dismissal of their common law claims brought against Western, Mountain West, Western Farm Bureau Group Health Insurance Trust ("the Trust"), and Lincoln National Life Insurance Group ("Lincoln National"). The Greanys' claims were based on Lincoln National's denial of insurance benefits. Among the theories of liability unsuccessfully advanced by the Greanys was a claim based on the federal common law of estoppel. Western, Mountain West, and the Trust appeal the judgment entered by the district court against Western following a jury verdict in favor of the Greanys. The jury verdict was based on Western's alleged failure to act with the required degree of competence in procuring adequate health insurance coverage for the Greanys. We have jurisdiction over the timely appeals pursuant to 28 U.S.C. § 1291 (1988).

I FACTS AND PROCEEDINGS BELOW

In March of 1977, Patrick Greany began working as an insurance salesman for Farm Bureau. As a Farm Bureau employee, Patrick was offered group health insurance coverage. In April of 1981, Patrick enrolled in a Farm Bureau group health insurance plan under a policy issued by Lincoln National ("the group plan"). The group plan provided $1,000,000 in lifetime benefits and covered most medical expenses related to pregnancy and childbirth. Premiums on the group plan were shared by Patrick and Farm Bureau.

On July 15, 1983, Patrick submitted his resignation from employment with Farm Bureau and informed the company his last day of employment would be August 1, 1983. Prior to submitting his resignation, Patrick began investigating various insurance options because he knew that eventually he would no longer be eligible for coverage under the group plan when he left Farm Bureau's employ. On July 15, 1983, Patrick completed and submitted an application to obtain an insurance policy through Western States Life Insurance Company ("Western States"), Patrick's new employer. Sometime during the last week of July 1983, Patrick requested that the Western States policy go into effect on September 1, 1983, based on his belief that the group plan coverage continued until August 31, 1983.

Upon receiving Patrick's resignation, Farm Bureau sent Patrick a Mountain West form entitled "Notice of Terminated Agents Privileges," and a Western form entitled "Notice of Conversion Insurance." Patrick received both forms on approximately July 25, 1983. The forms stated that Patrick had thirty-one days after terminating employment to convert the group plan into an individual policy.

Because Patrick was interested in comparing the cost of the Western States policy with a conversion policy available through Lincoln National, Patrick sent Farm Bureau a memo on August 1, 1983, requesting that the necessary conversion information and forms be sent to him. On August 5, 1983, Farm Bureau completed the front side of a "Preliminary Request for Conversion Information" form ("conversion request form") and forwarded it to Patrick. On the front of the conversion request form, Farm Bureau noted that the group plan coverage had terminated on August 1, 1983. After Patrick received the conversion request form from Farm Bureau, he completed the back side and forwarded it to Lincoln National.

Conversion representatives for Lincoln National reviewed Patrick's conversion request form and concluded, based on their On August 26, 1983, Marcia Greany went into premature labor and delivered a two pound seven ounce baby girl who had a hole between her main pulmonary artery and her aorta. The Greanys incurred approximately $62,000 in medical expenses associated with the child's premature birth and subsequent medical care.

                understanding of the "Master Contract" between Lincoln National and Farm Bureau, that the date of termination of group plan coverage contained on the conversion request form should have been August 31, 1983, not August 1, 1983.   Lincoln National sent Patrick a letter on August 25, 1983, attaching conversion information and stating that "your group coverage terminates August 31, 1983."
                

Patrick contacted Lincoln National on August 29, 1983, to inform the insurer of his daughter's premature birth. A Lincoln National agent confirmed that the Greanys were covered under the group plan until August 31, 1983.

However, the Greanys' expectation of coverage through August 31, 1983, abruptly evaporated. Lorna Young, a Farm Bureau employee, contacted Lincoln National on September 2 and 9, 1983, to inform Lincoln National that an incorrect date had been used by Lincoln National in evaluating the Greanys' coverage under the group plan. Young apprised the Lincoln National conversion agents of a modification to the Master Contract that changed the coverage termination date to coincide with the last day of employment. The district court record establishes that the amendment to the Master Contract that changed the termination of coverage to the last day of employment had gone into effect on April 1, 1982. The Lincoln National conversion agents contacted Lincoln National's new business division and confirmed that the Farm Bureau Master Contract was being revised to change the coverage termination date to the last day of work. The conversion agents, in dealing with Patrick, had apparently referred to a version of the Master Contract that did not include the recent amendments regarding coverage termination.

In a letter dated September 9, 1983, Lincoln National informed the Greanys that the termination date of August 31, 1983, quoted in the prior letter, was incorrect. The Greanys were also notified that the group plan benefits had actually terminated on August 1, 1983. Due to Lincoln National's error, the Greanys were given an opportunity to convert the group plan to an individual policy prior to October 1, 1983. Lincoln National thereafter refused to pay any of the Greanys' claims under the group plan. The Greanys converted the group plan into an individual policy with Lincoln National. Lincoln National paid the full $25,000 benefit available under the conversion policy. The Greanys also made a claim on their Western States policy and received a payment of $29,000. All but approximately $7,000 of the Greanys' medical expenses of $62,000 was paid by either Lincoln National or Western States.

The Greanys filed a complaint on August 19, 1986, against Farm Bureau, the Trust, and Lincoln National alleging: Count I--wrongful denial of benefits under the group plan; Count II--violations by Lincoln National of Montana's unfair claims settlement practice laws; Count III--violations of Montana's mandatory insurance content laws; Count IV--interference by Farm Bureau and the Trust with the Greanys' contractual and business relations with Lincoln National; and Count V--negligence by Farm Bureau in failing to provide the Greanys with adequate health insurance coverage. ¹

In the district court, Farm Bureau alleged the group plan was an employee benefit plan covered by the terms of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1461 (1988); the Greanys did not contest this allegation. Based on this concession, the district court dismissed all of the Greanys' claims except On September 10, 1990, a jury trial commenced on the remaining two claims. At the close of the evidence, the district court granted Lincoln National's motion for directed verdict or dismissal of Count III. The jury returned a verdict against Mountain West in favor of the Greanys on Count V and awarded them $7,000 in compensatory damages ³ and $75,000 in punitive damages.

Count III (violation of Montana's statute regulating conversion policies) and Count V (negligence), concluding that most of the claims were preempted by ERISA. ²

Both sides filed notices of appeal. Farm Bureau challenges the sufficiency of the evidence, the punitive damage award, and the district court's failure to dismiss the negligence claim against it. The Greanys challenge the district court's dismissal of their claims.

II STANDARD OF REVIEW

We review de novo a grant of summary judgment. Felton v. Unisource Corp., 940 F.2d 503, 508 (9th Cir.1991). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989).

ERISA preemption is a conclusion of law reviewed de novo. Olson v. General Dynamics Corp., 951 F.2d 1123, 1125 (9th Cir.1991). We review for clear error the district court's findings regarding whether a...