Henretta v. Chrysler Motors Corp.
| Citation | 977 F.2d 595 |
| Parties | NOTICE: Although citation of unpublished opinions remains unfavored, unpublished opinions may now be cited if the opinion has persuasive value on a material issue, and a copy is attached to the citing document or, if cited in oral argument, copies are furnished to the Court and all parties. See General Order of |
| Decision Date | 29 November 1993 |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
Before LOGAN, BARRETT and EBEL, Circuit Judges.
After examining the briefs and the appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a); Tenth Cir.R. 34.1.9. The cause is therefore ordered submitted without oral argument.
The issues in these related appeals are: (a) whether the provisions of two insurance policies which funded an employee benefit plan established pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461 (ERISA), are governed by state law or by federal common law, and (b) whether an insurance provision for accidental dismemberment in the form of severance of both feet at or above the ankle covers accidental severance of an interspinous ligament and consequent damage to the spinal cord, resulting in complete loss of function in both feet.
The district court held that federal common law applies to policy provisions under ERISA and granted summary judgment in favor of the defendant employer and insurers, holding that, under the provisions of the benefits plan and the two insurance policies, "severance" of feet requires separation of the feet from the body. Mr. Henretta appeals both cases. We affirm.
These cases were presented to both the district court and this court on stipulated facts. Mr. Henretta, a resident of Oklahoma, was an employee of appellee Chrysler Motors Corp. (Chrysler) and was covered by Chrysler's Employee Benefits Plan (the plan). The accidental death and dismemberment coverage under the plan, funded by appellee Aetna Insurance Co. (Aetna) and by appellee Metropolitan Life Insurance Co. (Met Life) under two separate insurance policies, provided benefits for accidental loss of the feet by severance above the ankle. The terms of the plan and of the two insurance policies concerning this benefit provision are essentially identical. 1
In 1989, Mr. Henretta was rendered paraplegic in a motocross accident. His condition was the result of a spinal cord injury caused by complete disruption of the ligament between the spinous processes of the eleventh and twelfth thoracic vertebrae. Mr. Henretta submitted claims for benefits under the Aetna policy and the Met Life policy for accidental dismemberment, claiming that he had suffered a loss of both feet from severance above the ankle. Both Aetna and Met Life denied the claims, each responding that coverage for loss of both feet from severance above the ankle required separation of the feet from the body, rather than functional loss from severance of an interspinous ligament resulting in spinal cord damage.
Mr. Henretta brought two actions in the federal district court, one against Chrysler and Aetna and the other against Chrysler and Met Life. With respect to Chrysler, he based federal jurisdiction on 28 U.S.C. § 1331, noting that these were civil actions to recover benefits under ERISA, 29 U.S.C. § 1132(a)(1). With respect to Aetna and Met Life, he asserted diversity jurisdiction under 28 U.S.C. § 1332, and he claimed that interpretation of the insurance policies' provisions should follow Oklahoma state law. Ruling on cross motions for summary judgment in each case, the district court reviewed the administrators' rejection of Henretta's claims to benefits under ERISA de novo because the plans did not grant the administrators discretionary authority to construe the terms of the plans. See Millensifer v. Reirement Plan for Salaried Employees of Colter Corp., 968 F.2d 1005, 1009 (10th Cir.1992), quoting Firestone Tire & Rubber, 489 U.S. at 115. The court held that, pursuant to Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987), "state regulatory authority of insurance companies remains [under control of state law] but substantive contract law is pre-empted by ERISA." Henretta v. Chrysler Corp., No. 91-C-291-B, Order at 5 n. 2 (N.D.Okla., Jan. 10, 1992) (Henretta v. Chrysler/Met Life ); Henretta v. Chrysler Corp., No. 91-C-270-B, Order at 5 n. 2 (N.D.Okla., Jan. 10, 1992) (Henretta v. Chrysler/Aetna ). Accordingly, we review de novo.
First, we will address whether ERISA preempts Oklahoma state contract law in this determination of insurance coverage. "On appeal from a summary judgment order, we apply the same standard employed by the district court in reviewing the Administrator's decision." Woolsey v. Marion Labs, Inc., 934 F.2d 1452, 1456 (10th Cir.1991).
"Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987), quoted in Settles v. Golden Rule Ins. Co., 927 F.2d 505, 508 (10th Cir.1991). In those circumstances, uniform judge-made federal law, "federal common law," should govern, rather than varying state law. See 13B Charles A. Wright et al., Federal Practice and Procedure 2d § 3563, at 60 (1984).
In Winchester v. Prudential, No. 90-4201 (10th Cir., filed 9/24/92), the court carefully explained the scope and application of ERISA's preemption sections, which are fully relevant here:
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 law, 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 Holliday, 111 S.Ct. at 409-10; Metropolitan Life Ins., 471 U.S. at 747.
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 savings 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 meaning of the savings clause. As we explained in Kelley v. Sears, Roebuck & Co., 882 F.2d 453 (10th Cir.1989):
[T]he court first considers a "common sense view" of the language of the saving clause. Second, it determines whether the cause of action falls under the "business of insurance," applying three criteria: (1) whether the state law has the effect of transferring or spreading a policyholder's risk; (2) whether the state law is an integral part of the policy relationship between the insurer and the insured; and (3) whether the state law is limited to entities within the insurance industry.
Id. at 456 (citing Pilot Life, 481 U.S. at 48-49); see also Hanslip, 939 F.2d at 907.
Common sense dictates that the Utah decisions in question do regulate insurance. Laws that specifically regulate the terms of the insurance contracts clearly regulate insurance. See Metropolitan Life, 471 U.S. at 740-41. The three criteria of the "business of insurance" similarly support this conclusion. First, the decisions do have "the effect of transferring or spreading a policyholder's risk." The more liberally a court construes the phrase "accidental bodily injury," the more risk is transferred from the individual policyholder to all policyholders. Conversely, if a court construes the phrase more strictly, the individual retains more risk and other policyholders bear less. See Senkier v. Hartford Life & Acc. Ins. Co., 948 F.2d 1050, 1052 (7th Cir.1991). Second, the Utah decisions almost by definition affect "an integral part of the policy relationship between the insurer and the insured." The decisions construe the terms of the insurance policy and affect under what circumstances the policyholder may recover. Third, the effect of the Utah decisions "is limited to entities within the insurance industry." Although arguably the decisions involve the more general realm of contract law, the necessity to interpret the phrase "accidental bodily injury" in an insurance policy arises,...
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