Bilden v. United Equitable Ins. Co., 89-5563

• Decision Date: 26 December 1990
• Docket Number: No. 89-5563,89-5563
• Citation: 921 F.2d 822
• Parties: Mendora BILDEN, Appellee, v. UNITED EQUITABLE INSURANCE COMPANY, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 822

921 F.2d 822

Mendora BILDEN, Appellee, v. UNITED EQUITABLE INSURANCE COMPANY, Appellant.

No. 89-5563.

United States Court of Appeals Eighth Circuit.

Submitted Sept. 10, 1990.

Decided Dec. 26, 1990.

James Adducci, Chicago, Ill., for appellant.

Jay Fiedler, Grand Forks, N.D., for appellee.

Before JOHN R. GIBSON, Circuit Judge, ROSS, Senior Circuit Judge, and LARSON, ^* Senior District Judge.

JOHN R. GIBSON, Circuit Judge.

United Equitable Insurance Company appeals from a judgment in favor of Mendora Bilden arising out of United's denial of nursing home benefits under a policy it had issued. Bilden recovered the amounts due under the insurance contract, attorneys' fees, and consequential as well as punitive damages. United argues that it is entitled to judgment notwithstanding the verdict; it also alleges numerous trial errors as grounds for a new trial. While this appeal was pending, an Illinois state court placed United under an Order of Rehabilitation. United now asks that this court stay consideration of the appeal. We deny the stay and affirm the judgment of the district court. ¹

In October 1984, Bilden purchased a policy of nursing home insurance from United Equitable. She was then 76 years old and still able to manage her own affairs. United had promoted its nursing home coverage with a brochure that promised that if her doctor prescribed nursing home care, it would pay benefits.

In December 1985, Bilden was admitted to the Northwood Deaconess Hospital with a diagnosis of Alzheimer's disease. She remained hospitalized for four days. Her physician determined that she should be admitted to a nursing home and ordered that she be placed in an intermediate care unit rather than a unit offering the lower level of care labeled "custodial."

While awaiting a vacancy in the intermediate care unit at the Northwood Deaconess Home, Bilden was placed in the hospital's swing bed unit, where she received intermediate-level care. When a bed opened up in the intermediate care unit, the hospital immediately transferred Bilden to that unit.

United Equitable's policy provided that it would pay benefits if Bilden started receiving daily "nursing care" (as defined in the policy) within thirty days following discharge from a hospitalization of three or more consecutive days for the same or related condition. Benefits for "custodial care" (as defined in the policy) were only payable if the custodial care followed a previous confinement for covered nursing care of at least 20 consecutive days.

Bilden submitted her claim to United. United, after reviewing certain medical records, denied the claim on the grounds that Bilden was receiving custodial rather than intermediate level care. United did not consult Bilden's doctor, her nurses, or its own in-house physician, and did not conduct any further inquiry.

Bilden filed this action, and, after an eight-day trial, the jury awarded her the benefits due under the insurance policy, her attorneys' fees, $71,000 in consequential damages, and $952,000 in punitive damages. In August 1989, the district court denied United's motion for judgment notwithstanding the verdict and also denied the motion for a new trial on the condition that Bilden agree to remit punitive and exemplary damages in excess of $476,000. Bilden v. United Equitable Ins. Co., No. A2-86-189, slip op. at 34 (D.N.D. Aug. 23, 1989). Bilden filed the remittitur, and the court entered an amended judgment on October 20, 1989. This appeal followed.

After this appeal had been fully briefed and set for oral argument on September 10, 1990, the Circuit Court of Cook County, Illinois, placed United under an Order of Rehabilitation and directed the Director of Insurance of the State of Illinois to take possession and control of United's property, business, and affairs pursuant to the Illinois Insurance Code. People v. Lincolnwood Nat'l Life Ins. Co., No. 90CH07724 (Cook Cty. Cir. Aug. 8, 1990); see Ill.Rev.Stat. ch. 73, para. 799-857.62 (1989). The rehabilitation order, entered August 8, 1990, provided that all persons having notice of it:

... are hereby prohibited from instituting or further prosecuting any action at law or in equity or any other proceedings against Lincolnwood National and United Equitable, or the Rehabilitator, or from obtaining preferences, judgments, attachments or other like liens or encumbrances, or the making of any levy against Lincolnwood National and United Equitable, or the property or assets of Lincolnwood National and United Equitable....

Order at 5. The state court also issued a temporary moratorium restraining United and all other persons from paying any claims under the policies until further order of the court. Id. at 6.

On September 6, 1990, United's counsel filed a motion for continuance of oral argument and stay of appeal. We requested responses, which the parties electronically transmitted to this panel. On September 10, we heard arguments on the request for a stay and on the merits of the appeal. The parties also addressed the effect of a stay on the supersedeas bond filed by United on February 21, 1990, in the amount of $800,000. ²

I.

United first urges this court to abstain from the exercise of federal jurisdiction under the doctrine of Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). It argues that the express terms of the Order of Rehabilitation, which prohibit "instituting or further prosecuting" any legal action against United, demand the application of Burford abstention. It also argues that the factual setting of this case provides a compelling basis for invoking Burford.

Addressing first the express language of the Order of Rehabilitation, we conclude that the prohibition on "instituting or further prosecuting" any legal action does not apply to this case. Bilden won her jury verdict 18 months before the Illinois court entered the order. United, not Bilden, instituted and prosecuted this appeal. When the order was issued, the appellate briefs had already been filed with this court and oral argument was scheduled for the following month. Under these circumstances, we do not interpret the order as barring Bilden from completing the final steps in defending against an appeal brought by United, particularly when United has filed a supersedeas bond with the district court.

United cites no Illinois cases that would shed light on the proper construction of the language in the order. Instead, it relies on cases interpreting the automatic stay provision of the bankruptcy code. See, e.g., Cathey v. Johns-Manville Sales Corp., 711 F.2d 60 (6th Cir.1983). We are not persuaded by this authority, as the provision of the bankruptcy code is substantially broader than the language of the rehabilitation order. ³

Aside from the express language of the rehabilitation order, United argues that the factual setting of this case requires the application of Burford abstention. In Burford, the Supreme Court reinstated a district court's dismissal of a suit seeking review of the reasonableness under Texas law of a state commission's decision that granted Burford the right to drill in an oil field governed by a comprehensive regulatory scheme. 319 U.S. at 334, 63 S.Ct. at 1107. Burford abstention applies when a state has established a complex regulatory scheme supervised by state courts and serving important state interests, and when resolution of the case demands specialized knowledge and the application of complicated state laws. See Nucor Corp. v. Nebraska Pub. Power Dist., 891 F.2d 1343, 1348 (8th Cir.1989), cert. denied, --- U.S. ----, 111 S.Ct. 50, 112 L.Ed.2d 26 (1990); Bob's Home Service, Inc. v. Warren County, 755 F.2d 625, 628 (8th Cir.1985); Association for Retarded Citizens v. Olson, 713 F.2d 1384, 1390-91 (8th Cir.1983); Moe v. Brookings County, 659 F.2d 880, 883 (8th Cir.1981). In such cases, the exercise of federal jurisdiction would disrupt the state's regulatory scheme. See Moe, 659 F.2d at 883.

United argues that Burford abstention applies here because Illinois has created a complex, court-supervised regulatory scheme to govern insurance, an industry of central importance to the state. United contends that proceeding with this appeal will disrupt rehabilitation and frustrate the state's goal of preserving the assets of the insolvent insurance company. United further argues that it should not be forced to "dissipate its funds by engaging in costly litigation in unconnected suits across the country." Appellant's supplemental brief at 4-5.

Bilden correctly points out that abstention is a matter of discretion; federal courts are not required to abstain when the criteria for abstention are met. In Association for Retarded Citizens, we recognized that abstention was the exception and not the rule. 713 F.2d at 1390. "The Supreme Court has admonished that abstention should be used only in the extraordinary and narrow circumstances where it would clearly serve an important countervailing interest." Id. (citing County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188-89, 79 S.Ct. 1060, 1063, 3 L.Ed.2d 1163 (1959)). See also Colorado River Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 1244, 47 L.Ed.2d 483 (1976).

United relies primarily on a Third Circuit case, Lac D'Amiante Du Quebec v. American Home Assurance Co., 864 F.2d 1033 (3d Cir.1988), in which a seller of asbestos sought indemnity from an insurance company that had been placed in liquidation proceedings under a New York statute. Id. at 1034-36. The Third Circuit held that abstention was appropriate because the case involved unsettled issues of state law and independent federal proceedings would have disrupted a detailed and complex state regulatory scheme. Id. at 1045-46. The court noted, however, that its decision did not lay down a "per se rule that district courts must always abstain from an action against an insurance company the instant a state court...