Winchester v. Prudential Life Ins. Co. of America

• Decision Date: 24 September 1992
• Docket Number: No. 90-4201,90-4201
• Citation: 975 F.2d 1479
• Parties: 15 Employee Benefits Cas. 2777 Julie M. WINCHESTER, Plaintiff-Appellant, v. PRUDENTIAL LIFE INSURANCE COMPANY OF AMERICA, Defendant-Appellee, and Life Insurance Company of North America, Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1479

975 F.2d 1479

15 Employee Benefits Cas. 2777

Julie M. WINCHESTER, Plaintiff-Appellant, v. PRUDENTIAL LIFE INSURANCE COMPANY OF AMERICA, Defendant-Appellee and Life Insurance Company of North America, Defendant.

No. 90-4201.

United States Court of Appeals Tenth Circuit.

Sept. 24, 1992.

John R. Anderson of Beaslin & Anderson, Vernal, Utah, for plaintiff-appellant.

Peter W. Billings, Jr., and Craig T. Jacobsen of Fabian and Clendenin, Salt Lake City, Utah, for defendant-appellee.

Before MOORE and EBEL, Circuit Judges, and COOK, Senior District Judge. ^*

EBEL, Circuit Judge.

In this appeal, we address whether an insurance company providing a group accidental death and dismemberment insurance policy to an ERISA plan permissibly denied coverage to a plan participant who died of heart failure following a firefighting training exercise. To answer this question, we must consider (1) the standard under which we must review the insurance company's actions, (2) the sweep of ERISA's preemption section, and (3) the construction the Utah courts place upon certain terms in the insurance policy.

We hold that the district court correctly granted summary judgment in favor of the insurance company based on three grounds. First, under Utah law, heart failure alone does not constitute "bodily injury" within the meaning of an accidental death insurance policy. Second, to the extent that Utah law is ambiguous, we must defer to the plan administrator's interpretation of the policy terms unless it is arbitrary and capricious. Third, the appellant did not meet her burden on summary judgment of showing adequate evidence that death resulted independent of a preexisting bodily infirmity or illness so as to establish that as a genuine disputed issue of fact. Accordingly, we affirm.

I. Background

Julie Winchester, the appellant, is the widow of William Winchester. Prior to his death, Mr. Winchester worked as a plant operator at an electrical power plant. He died of an apparent heart attack following a firefighting training exercise at the plant.

Mr. Winchester participated in an employee benefit plan sponsored by the National Rural Electric Cooperative Association and governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. The plan extended coverage to participants in a group insurance policy issued by Prudential Insurance Company ("Prudential"), the appellee. Prudential also served as administrator of the plan with regard to benefits provided under the policy. These benefits included term life insurance and accidental death and dismemberment insurance.

Because of the lack of a nearby firefighting facility, the job duties of plant operator included fighting fires that occurred at the power plant. On the day of his death, Mr. Winchester participated in a firefighting training exercise. He and the other operators ran through one twelve-minute drill in which they were unable to extinguish the fire. They then took a half-hour break, after which they engaged in a second drill. They successfully extinguished this second fire in seven minutes. During both drills, all the participants wore fireproof rubber suits.

Mr. Winchester collapsed shortly after the second drill. He was pronounced dead at the hospital. Mr. Winchester apparently suffered heart failure, but the cause of the heart failure was undetermined. No autopsy was performed.

Mrs. Winchester filed claims for both life insurance and accidental death insurance benefits. Prudential paid the former but denied the latter on the grounds that Mr. Winchester's death did not come within the terms of the policy for accidental death. Specifically, the policy conditioned accidental death coverage on "[t]he [e]mployee [having] sustained an accidental bodily injury," and "[t]he injury, directly and independently of all other causes, [having] resulted in the loss." Prudential contended that Mr. Winchester's death had not met these conditions.

After Prudential's refusal to pay accidental death benefits, Mrs. Winchester brought suit in Utah state court. Prudential then removed the case to the United States District Court for the District of Utah based on diversity jurisdiction. Although not styled as such, this case arises under 29 U.S.C. § 1132, which provides the exclusive remedy for the failure to obtain benefits from an ERISA plan. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54, 107 S.Ct. 1549, 1556, 95 L.Ed.2d 39 (1987); cf. Evans v. Safeco Life Ins. Co., 916 F.2d 1437, 1439 (9th Cir.1990) (district court required plaintiff to file amended complaint restating cause of action as an ERISA claim following removal to federal court).

Prudential moved for summary judgment. The district court granted Prudential's motion based on several theories. It held first that "bodily injury" required injury caused by external violence such as a cut, bruise, or wound, and Mrs. Winchester had put forth no evidence of such injuries. Second, Mrs. Winchester set forth no facts to show that the death was "accidental" within the meaning of the policies. This appeal followed. ¹ We have jurisdiction pursuant to 28 U.S.C. § 1291.

II. Standard of Review

The district court implicitly reviewed Prudential's actions de novo. Prudential asserts that the court should have reviewed its decision to deny benefits under the arbitrary and capricious standard.

Courts must review an ERISA administrator's actions de novo "unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan," Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 956, 103 L.Ed.2d 80 (1989), in which case review is under the arbitrary and capricious standard. See Sandoval v. Aetna Life and Casualty Ins. Co., 967 F.2d 377, 380 (10th Cir.1992). The key, then, lies in determining whether a plan provides an administrator with such discretion. Here, the plan summary stated that "Prudential, as Claim Administrator, determines the benefits for which an individual qualifies under the Benefit Plan" and that "the insurance company has the exclusive right to interpret the provisions of the Plan, [and] its decision is conclusive and binding." R., Doc. 42.

In Pratt v. Petroleum Production Management Inc. Employee Savings Plan & Trust, 920 F.2d 651 (10th Cir.1990), we considered similar language, see id. at 657 n. 7, and held that it did vest the administrator with "not only the authority, but also the discretion, to decide questions of plan interpretation." Id. at 658 (citations omitted). In accordance with Pratt, we conclude that Prudential had discretion to interpret the contract, and hence that the appropriate standard for judicial review of Prudential's interpretation of the plan and its determination of Winchester's eligibility for benefits is whether the actions were arbitrary or capricious. Sandoval, 967 F.2d at 379-80. Indicia of arbitrary and capricious conduct include lack of substantial evidence, mistake of law, bad faith, and conflict of interest. See id. at 380 n. 4.

The district court therefore erred in its use of the de novo standard of review. However, the district court upheld the administrator's interpretation, and so it certainly would have upheld the interpretation under the more limited arbitrary and capricious standard. Because we hold that the district court reached the correct result, the use of the wrong standard was harmless error.

III. ERISA Preemption

Utah case law provides us with guidance in interpreting the insurance policy provision at issue here. Before consulting that law, however, we must determine whether it is preempted by ERISA. Whether a state law is preempted depends entirely upon the nature of that state law. In this case, we are concerned with Utah court decisions that construe language such as "accidental bodily injury" in the context of an insurance policy.

ERISA's preemption sections consist of three clauses: the preemption clause, ² the saving clause, ³ and the deemer clause. ⁴ The preemption clause broadly preempts all laws that "relate to" an ERISA plan. However, the saving clause limits the preemption clause's application by exempting laws relating to insurance, banking, and securities from the preemption clause's broad sweep. The deemer clause, in turn, creates an exception to the saving clause's exception. Although the saving clause prevents the preemption of insurance, banking, and securities laws, an ERISA plan may not be "deemed" to be an insurance, banking, or securities company. ⁵

In the context of insurance regulation, the deemer clause comes into play when an ERISA plan provides insurance to its participants. A "self-funded plan" pays all benefits itself. In contrast, an "insured plan" purchases insurance policies for its members from an outside insurer. Because a self-funded plan may not be deemed an insurance company, the saving clause does not save state insurance laws from preemption when applied to such a plan directly. On the other hand, the saving clause does save state insurance laws from preemption when they are applied to an insurance policy purchased by an ERISA plan. Thus, whether ERISA preempts a given state insurance law depends on whether the plan in question is self-funded or insured. See FMC Corp. v. Holliday, 498 U.S. 52, --- - ---, 111 S.Ct. 403, 409-10, 112 L.Ed.2d 356 (1990); Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747, 105 S.Ct. 2380, 2393, 85 L.Ed.2d 728 (1985).

We first apply the preemption clause. The decisions in question certainly address the circumstances under which the ERISA plan here must pay benefits. Hence, the decisions clearly "relate to" the ERISA plan and are preempted unless exempted by the saving clause.

Thus, we must apply the saving clause. In Pilot Life, the Supreme Court set forth a two-part inquiry to determine if a given law "regulates insurance" within the...