Brewer v. Protexall, Inc.

• Decision Date: 22 March 1995
• Docket Number: Nos. 94-2920,94-3067,s. 94-2920
• Citation: 50 F.3d 453
• Parties: Pens. Plan Guide P 23908T Donald BREWER and Melissa Brewer, Plaintiffs-Appellees, v. PROTEXALL, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 453

50 F.3d 453

Pens. Plan Guide P 23908T

Donald BREWER and Melissa Brewer, Plaintiffs-Appellees, v. PROTEXALL, INC., Defendant-Appellant.

Nos. 94-2920, 94-3067.

United States Court of Appeals Seventh Circuit.

Argued Jan. 12, 1995.

Decided March 22, 1995.

John W. Robertson (argued), Carl E. Hawkinson, Barash & Stoerzbach, Galesburg, IL, for Donald Brewer.

John W. Robertson, Barash & Stoerzbach, Galesburg, IL, for Melissa Brewer in No. 94-2920.

Bruce Thiemann (argued), Peoria, IL, for Protexall, Inc.

John W. Robertson, Carl E. Hawkinson, Barash & Stoerzbach, Galesburg, IL, for Melissa Brewer in No. 94-3067.

Before POSNER, Chief Judge, ROVNER, Circuit Judge, and MORAN, District Judge. ^*

ILANA DIAMOND ROVNER, Circuit Judge.

In this ERISA action, Donald Brewer sued his former employer, Protexall, Inc., after it refused to cover $7986 in health insurance claims he had submitted under its health benefits plan. See 29 U.S.C. Sec. 1132(a)(1)(B). The district court granted Brewer's motion for summary judgment and also awarded him $41,965 in attorney's fees. Protexall appeals, and we affirm.

I.

Brewer began his employment with Protexall, a Galesburg, Illinois manufacturer of industrial clothing, in October 1988. Protexall maintains a self-funded health benefits plan that is administered by Self Insured Services Company ("SISCO"). After six months of employment, Brewer became eligible to enroll in Protexall's health benefits plan without having to answer any questions about his own or his family's health. Opting instead to retain the coverage he had through his previous employer, Brewer did not originally enroll in the Protexall plan, and Protexall agreed to pay the premiums on his existing policy. When that coverage lapsed in June 1989, Brewer obtained a temporary policy through Time Insurance, and then joined the Protexall plan on September 21, 1989. Protexall began deducting premiums from his paychecks at that time. In response to the claims now at issue, however, SISCO informed Brewer on March 9, 1990 that he was not covered because he had failed to provide adequate proof of his own and his family's good health at the time of his enrollment. Brewer admits that he did not provide such proof, but argues that the plan did not require him to do so. The parties' dispute centers on whether the plan in effect in September 1989 required proof of good health as a condition of coverage.

II.

On April 2, 1990, after SISCO had denied Brewer's claims, his attorney asked Protexall to provide a copy of its plan document, and Protexall responded by sending a plan document dated October 1988. (R. 22, Ex. 11.) ¹ That document did not require proof of good health from employees who enrolled within thirty-one days of becoming eligible for coverage, but as to employees who enrolled after that time, provided The Company reserves the right to require evidence of good health, obtained at the individual's expense, satisfactory to the Company from any eligible person who makes application for Participant coverage under the Plan more than thirty-one (31) days after the date of his eligibility; his coverage shall become effective on the date such evidence of good health is approved by the Company, except where he had comparable health coverage elsewhere which terminates. In this case, application for enrollment may be made within twenty (20) days of the other coverage termination date without submission of evidence of good health....

(Id. at 22.)

Because, as all parties agree, Brewer applied for coverage less than twenty days after his Time policy had terminated, this clause appears to exempt him from the proof of good health requirement. But Protexall counters that interpretation with two arguments. First, it contends that the October 1988 plan was not actually in effect when Brewer enrolled in September 1989 because it had been superseded by an amended plan that did not contain the twenty-day window for previously-covered employees. Second, Protexall argues that even if the pre-amendment language controls, Brewer does not in any event qualify for the exception because his temporary Time policy was not "comparable ... coverage." Like the district court, we reject both of these arguments. ²

The parties agree both that the October 1988 plan was amended and that the amended plan does not include an exception for employees who apply within twenty days of terminating a comparable policy. (See R. 22 Ex. A1.) ³ The parties also agree, however, that the amended plan was not executed until November 1990, more than a year after Brewer had enrolled. (Id.) Indeed, Protexall even admits that the amendment had not been reduced to any "producible" written form prior to Brewer's enrollment. In responding to Brewer's motion for summary judgment, for example, Protexall wrote the following about its compliance with Brewer's April 1990 request to receive a copy of the plan document:

[A] response was made to this request on April 5, 1990, at which time copies of the Plan document adopted October 25, 1988, and of the First Amendment and Second Amendment to the Plan document were forwarded to [Brewer's attorney]. At that time, these three documents constituted all of the written documents adopted and executed by PROTEXALL, INC. constituting the Plan.

(R. 21 at 10.) ⁴ SISCO Vice President Willy Schiller corroborated that the amendment had not been reduced to writing when she testified that the revised plan dated October 1, 1990 was the first "formal document" in which the twenty-day window had been deleted. (R. 22, Ex. A, para. 10.)

Protexall contends, however, that the amendment was effective in October 1989 even though the amended plan document had not yet been executed and the amendment had not been reduced to "producible" written form. Protexall suggests that two facts demonstrate that the amendment was in effect at the earlier date. First, Protexall points to Schiller's testimony that Protexall's president, Larry Williams, informed her of the change in late 1988 or early 1989 and told her that it was to take effect in January 1989. (Id. at pp 5, 9.) Second, Protexall refers to the fact that drafts of the amendment had been prepared and were being exchanged between itself and SISCO prior to October 1989. ⁵

But Protexall's argument is easily answered; neither the oral communications to SISCO nor the exchange of draft amendments suffices to amend the plan because neither satisfies the plan's own requirements for amendment. The plan defines "amendment" in this way:

The term "Amendment" means a formal document that changes the provision of the Plan Document, duly signed by the authorized person or persons as designated by the Plan Administrator.

(R. 22 Ex. A11 at 7.) ⁶ Under the plan's own terms then, any measure that has not been reduced to a "formal document" and "duly signed" by an "authorized person" could not have constituted an amendment of the plan. Because, as Protexall itself admits, no amendment meeting those requirements existed until October 1990, the October 1988 plan was in effect when Brewer enrolled in September 1989. ⁷

The only remaining question, then, is whether Brewer qualified for the twenty-day exception to the proof of good health requirement. In that regard, the parties dispute whether Brewer's temporary Time insurance policy constituted "comparable coverage" for purposes of that exception. In resolving this dispute, which requires us to interpret a health benefits plan governed by ERISA, we apply the federal common law rules of contract interpretation. Bullwinkel v. New England Mut. Life Ins. Co., 18 F.3d 429, 431 (7th Cir.1994); McNeilly v. Bankers United Life Assurance Co., 999 F.2d 1199, 1201 (7th Cir.1993). Those rules direct us to "interpret ERISA plans in an ordinary and popular sense as would a person of average intelligence and experience" and to construe ambiguous plan terms strictly in favor of the insured. Bullwinkel, 18 F.3d at 431; see also McNeilly, 999 F.2d at 1201. ⁸

As we have previously explained, "contract language is ambiguous if it is subject to more than one reasonable interpretation." McNeilly, 999 F.2d at 1201 (citing Auto-Owners (Mut.) Ins. Co. v. L.P. Cavett Co., 882 F.2d 1111, 1113 (7th Cir.1989)). We agree with the district court that the term "comparable" as used in the relevant clause of the Protexall plan clearly meets that test. True, Protexall's contention that the Time policy was not "comparable" because it was a temporary non-renewable policy is certainly plausible. But so is the district court's suggestion that "comparable" may as well refer to "the types of claims covered, the limits of coverage, the deductibles, exclusions, or any combination of those." (June 25, 1992 Order at 10.) And the plan itself does nothing to clarify the meaning of "comparable"; the term does not appear anywhere in the plan's thirteen pages of "Definitions" (which amount to a quarter of its total length). Because the term is subject to more than one reasonable interpretation and because it is not clarified anywhere in the plan itself, we find that it is indeed ambiguous. And because at least one of the reasonable interpretations of "comparable" includes Brewer's temporary policy, we must construe the term in his favor. Having determined both that the October 1988 plan, which included the twenty-day exception, was in effect at the time of Brewer's enrollment and that his Time policy constitutes "comparable coverage" for purposes of that exception, we must affirm the district court's grant of summary judgment in Brewer's favor.

III.

Protexall also contests the district court's award to Brewer of $41,965 in attorney's fees. 29 U.S.C. Sec. 1132(g)(1), ERISA's fee shifting provision, provides that:

(1) In any action under this subchapter ... by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.

As the statute...