Blum v. Spectrum Restaurant Group, Inc.

• Decision Date: 28 April 2003
• Docket Number: No. 4:02-CV-92.,No. 4:02-CV-98.,4:02-CV-92.,4:02-CV-98.
• Citation: 261 F.Supp.2d 697
• Parties: Cynthia BLUM, Plaintiff, v. SPECTRUM RESTAURANT GROUP, INC., A/K/A NBACO, Inc., Spectrum Restaurant Group's Employees Group Life and Supplemental Life Plan, Hartford Life and Accidental Insurance Company, and Custom Benefit Consultants, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Texas

261 F.Supp.2d 697

Cynthia BLUM, Plaintiff, v. SPECTRUM RESTAURANT GROUP, INC., A/K/A NBACO, Inc., Spectrum Restaurant Group's Employees Group Life and Supplemental Life Plan, Hartford Life and Accidental Insurance Company, and Custom Benefit Consultants, Inc., Defendants.

No. 4:02-CV-92.

No. 4:02-CV-98.

United States District Court, E.D. Texas, Sherman Division.

April 28, 2003.

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Grady Michael Gruber, Godwin Gruber, Dallas, TX, for Plaintiffs.

Scott Masur McElhaney, Jackson, Walker, Dallas, TX, for Defendants.

Thomas E. Sanders, Akin, Gump, Strauss, Hauer & Feld, San Antonio, TX, for Hartford Life and Accident Ins. Co.

Charles Cecil Keeble, Jr., Haynes & Boone, Dallas, TX, for Custom Benefit Consultants, Inc.

MEMORANDUM OPINION AND ORDER

DAVIS, District Judge.

Defendants Spectrum Restaurant Group, Inc. ("SRG") and the Group Life and Supplemental Life Plan for Employees of Spectrum Restaurant Group (the "SRG Plan") and Hartford Life and Accident Insurance Company ("Hartford") (collectively "Defendants") have filed Motions for Summary Judgment (Docket Nos. 101 & 102). For the reasons articulated below, Defendants' Motions for Summary Judgment are GRANTED.

BACKGROUND

Robert F. Blum ("Mr.Blum") was employed by Grandy's, Inc., which is owned and otherwise controlled by SRG. As a Grandy's employee, Mr. Blum was eligible to participate in certain benefit plans sponsored by SRG. One of those plans was the SRG Plan, a welfare benefit plan governed by ERISA that provided group term life insurance to eligible employees of SRG and its subsidiaries.

In October 1999, Custom Benefit Consultants, Inc. ("CBC") entered into an insurance brokerage and administrative services contract with SRG under which CBC: (1) assisted SRG, the named Plan Administrator, in procuring life insurance for SRG's employee benefit plans; and (2) agreed to provide services to SRG in connection with the administration of the SRG's employee benefits plans, including the SRG Plan. These services included handling certain enrollment and paperwork related to the administration of SRG's benefit plans, bringing insurance contracts to SRG, and handling communications regarding benefits.

In 2000, the SRG Plan offered basic and supplemental group term life insurance to eligible employees through the Principal Life Insurance Company ("Principal"). The SRG Plan consisted of two separate benefits: (1) a basic life insurance benefit affording life insurance to SRG employees such as Mr. Blum, which was purchased and paid for by SRG;¹ and (2) a voluntary supplemental life insurance benefit which could be purchased by SRG employees through their employment by way of a payroll deduction. Principal provided supplemental coverage to eligible employees for a guarantee minimum of $100,000, without proof of good health. Employees could also apply for additional supplemental coverage in an amount up to ten ties one's annual salary, subject to a limit of $1,000,000 with proof of good health.

On November 19, 1999, Mr. Blum completed his enrollment application and elected basic life insurance and supplemental life insurance coverage in an amount equal to ten times his annual salary. On the same form, Mr. Blum stated that his salary was $90,000. Mr. Blum later signed two nearly identical "Confirmation of Your Enrollment Elections" forms: one on February 15, 2000, and another on April 20, 2000. Those forms reveal that Mr. Blum's "Elections" included $900,000 in supplemental life insurance. The forms remind Mr. Blum that "it is your responsibility to read and comply with the enclosed benefits policies." This election triggered the requirement under SRG's 2000 Plan that Mr. Blum (1) submit proof of good health, and (2) obtain the carrier's approval before he became entitled to a supplemental life insurance benefit in excess of the Guarantee Issue Amount. There is not evidence that Mr. Blum submitted proof of good health.

On May 23, 2000 and June 1, 2000, CBC sent additional reminder letters to SRG employees who had requested supplemental life insurance from Principal in excess of the Guarantee Issue Amount, but who had not completed the required medical questionnaire. On more than one occasion, Robin Sylvia, CBC's CEO, called Mr. Blum during 2000 about the requirement, reminding him that he needed to provide proof of good health.

On December 15, 2000, CBC sent Mr. Blum a memorandum explaining that Defendant Hartford Life and Accident Insurance Company ("Hartford") would be the insurer providing the Plan's life insurance in 2001. The memo further noted that Hartford offered a guaranteed supplemental life insurance coverage benefit up to $200,000.00 rather than Principal's guaranteed coverage of $100,000.00. This memorandum summarized Mr. Blum's situation and again reminded him of the need to submit a medical questionnaire:²

Our records indicate that you elected [$972,000] in supplemental life insurance. However, do [sic] to pending medical approval, your current amount of supplemental life insurance coverage is [$0]. Effective January 1, 2001, you will be covered for the amount you elected up to $200,000.... If you elected supplemental life insurance in an amount over $200,000, you will need to complete a medical questionnaire from Hartford, which I will be sending you in a few days. Once medical underwriting approved you, payroll will begin deducting for the full coverage the first of month following approval date.

On December 15, 2000, CBC sent another memo to Mr. Blum regarding the supplemental life insurance available from Hartford under the Plan. That memo explained to Mr. Blum as follows:

Hartford ... will only write coverage up to 5 X salary. Our records indicate that you elected 10 X salary for an amount of $972,000 in supplemental life insurance. Effective January 1, 2001 you will be covered for $200,000.

This memorandum further advised Mr. Blum that if he wished to obtain supplemental life insurance coverage in excess of the guaranteed amount, he would be required to complete a health statement and possibly complete a paramedical exam.³

A Plan Booklet containing the terms of the Plan applicable in 2001 was distributed to eligible SRG/Grandy's employees in 2001. The Plan Booklet contained a Hartford Certificate of Insurance and a Summary Plan Description. Mr. Blum received a copy of this Plan Booklet, as Mrs. Blum testified that she found a copy in Mr. Blum's desk.

The Plan Booklet provides that the "Policy Effective Date" was "January 1, 2001," with anniversary dates of January 1 of each year. The Plan Booklet explained that two types of life insurance were available: basic and supplemental. Under the heading "Basic Amount of Life Insurance," the Plan Booklet stated that the Plan offered life insurance in "An amount equal to 1 times Your annual rate of basic Earnings, rounded to the next higher multiple of $1,000, subject to a maximum of $50,000." Under the heading "Supplemental Amount of Life Insurance," the Plan Booklet stated that the Plan offered additional life insurance in "a Guaranteed Issue Amount equal to 1, 2, 3, 4, or 5 times Your annual rate of basic Earnings, subject to a maximum of $200,000 without Evidence of Good Health" or in "a maximum amount equal to 1, 2, 3, 4, or 5 times Your annual rate of basic Earnings, subject to a maximum of $500,000 with Evidence of Good Health." Further, the Plan Booklet noted that the "Guaranteed Issue Amount" was "the Amount of Insurance for which [Hartford] do[es] not require Evidence of Good Health." "Evidence of Good Health" was defined to mean "information about a person's health from which [Hartford could] determine if coverage or increases in coverage will be effective. Information may include questionnaires, physical exams, or written documentation, as required by [Hartford]."

The Plan Booklet also described the conditions under which "Evidence of Good Health" would be required. Such evidence would be required if "the Amount of Insurance You request exceeds the Guaranteed Issue Amount for each coverage. If Evidence of Good Health is not approved in this situation, You are eligible for the amount for which You enrolled, up to the Guaranteed Issue Amount." The Plan Booklet noted that when "the required claim papers are received and approved by [Hartford], the Amount of Life Insurance will be paid." The Plan Booklet also noted that Hartford had "full discretion and authority to determine eligibility for benefits and to construe and interpret all terms and provisions of the Policy."

In October 2000, UltraLink, SRG and the SRG Plan entered into an agreement under which UltraLink agreed to provide an on-line employee benefits plan enrollment system which would allow SRG employees to enroll for employee benefits and review their benefit elections on a website. Pursuant to the agreement between UltraLink and SRG, UltraLink further agreed to take over, effective on or before June 1, 2001, certain administrative services for SRG and the SRG Plan from CBC. Specifically, UltraLink agreed to prepare benefit enrollment worksheets for SRG employees, set up a website where SRG employee's could enroll for and review their benefits, prepare confirmation worksheets for employees and prepare a payroll "change file" for SRG so it could make the proper deductions from its employees' paychecks for benefit premiums.

SRG held an open enrollment period for its benefit plans in June 2001, during which time SRG employees could change their benefit elections. At the same time, the on-line benefit plan enrollment system run by UltraLink was rolled out. In designing the on-line enrollment system, UltraLink neglected to provide a filter that effectively identified employees whose elected coverage had not been approved by the insurance carrier. More specifically, UltraLink did not apply a filter that would have recognized that employees who had...