Buehler Ltd. v. Home Life Ins. Co.

• Decision Date: 21 September 1989
• Docket Number: No. 88 C 2634.,88 C 2634.
• Parties: BUEHLER LTD., an Illinois corporation, Plaintiff, v. HOME LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Illinois

722 F. Supp. 1554

BUEHLER LTD., an Illinois corporation, Plaintiff, v. HOME LIFE INSURANCE COMPANY, Defendant.

No. 88 C 2634.

United States District Court, N.D. Illinois, E.D.

September 21, 1989.

COPYRIGHT MATERIAL OMITTED

Thomas J. Frederick, James D. Harrington, and George C. Lombardi, Winston & Strawn, Chicago, Ill., for plaintiff.

Joseph J. Hasman, Ernest W. Irons, and Anna S. Richo, Peterson, Ross, Schloerb & Seidel, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

NORDBERG, District Judge.

I. INTRODUCTION

The plaintiff, Buehler Ltd., brought this action directly and by right of subrogation against Home Life Insurance Co. for its refusal to pay life insurance benefits to the beneficiary of Buehler's late employee, Howard Tokmakian. In its six-count complaint, the plaintiff brings claims for breach of contract (Counts I and II); vexatious and unreasonable delay in settling the claim (for which the plaintiff requests attorneys' fees and statutory penalties pursuant to section 155 of the Illinois Insurance Code, Ill.Rev.Stat. ch. 73, para. 767 (1985)) (Counts III and IV); and breach of Home Life's implied duty of good faith and fair dealing (Counts V and VI). The defendant has answered Count I and has moved to dismiss the subrogation counts (Counts II, IV, and VI) as being preempted by section 514(a) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1144(a) (1982). The defendant also contends that the remaining direct action counts (Counts III and V) fail to state a claim and likewise should be dismissed. For the following reasons, the court grants the defendant's motions.

II. FACTS

For purposes of a motion to dismiss, the court must accept as true all well-pleaded factual allegations in the complaint and must draw all reasonable inferences in the light most favorable to the plaintiff. Powe v. City of Chicago, 664 F.2d 639, 642 (7th Cir.1981). A complaint should not be dismissed for failure to state a cause of action unless it is beyond doubt that the plaintiff could prove no set of facts that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). The court, however, need not accept as true legal conclusions or opinions that are couched as factual allegations. Briscoe v. LaHue, 663 F.2d 713, 723 (7th Cir.1981), aff'd, 460 U.S. 325, 103 S.Ct. 1108, 75 L.Ed.2d 96 (1983). Accordingly, the facts of this case, as alleged in the plaintiff's second amended complaint, are as follows.

For several years prior to 1985, Buehler had a group life insurance policy issued by Home Life for the benefit of Buehler employees. Under this policy, the amount of death benefits paid to an employee's beneficiary was determined by the class to which the employee was placed pursuant to the policy. At the encouragement of Home Life, Buehler requested that the terms of its life insurance policy be changed so that death benefits would be determined by a multiple of 1.5 times the employee's annual income, rather than on a class basis. In a memorandum dated November 2, 1985, Buehler notified its employees of this change to their life insurance coverage. The amended policy became effective on November 28, 1985, and as a result Buehler began paying higher premiums to Home Life.

On January 29, 1987, Howard Tokmakian, a sales engineer for Buehler, died. Subsequently, on June 18, 1987, Harold Tokmakian, Howard's brother and designated beneficiary under the policy, filed a claim for $78,732 under the life insurance agreement. Home Life refused to pay the claim.¹

On April 19, 1988, Buehler paid Harold Tokmakian $78,732 to satisfy his claim, allegedly in recognition of Buehler's legal obligation under its November 2, 1985, memorandum announcing the amended life insurance coverage. Buehler then instituted this diversity action against Home Life. Buehler's second amended complaint contains six counts. Count I is a direct action against Home Life for breach of its promise to Buehler to provide life insurance coverage for Buehler's employees at 1.5 times their annual income. The defendant has answered this count.

In Count II the plaintiff, by right of subrogation,² alleges that Home Life breached its contract to provide benefits to the beneficiary of Howard Tokmakian. Count III alleges that Home Life delayed its payment of benefits to Harold Tokmakian without reason or probable cause and in violation of its agreement with Buehler and, therefore, is liable under section 155 of the Illinois Insurance Code for attorneys' fees and statutory penalties. Count IV alleges a section 155 claim by right of subrogation for Home Life's unreasonable delay in payment, in violation of its legal obligation to Harold Tokmakian. Finally, Counts V and VI are claims for breach of Home Life's implied duty of good faith and fair dealing. In Count V Buehler alleges that Home Life acted in bad faith by refusing to pay the $78,732 claim filed by Harold Tokmakian and that by doing so Home Life breached its duty to deal fairly and in good faith with Buehler. The plaintiff also alleges that Home Life's breach of this duty was committed with fraud, actual malice, willfullness, or with such gross negligence as to indicate a wanton disregard of Buehler's legal rights. Count VI alleges the same action by right of subrogation for Home Life's breach of duty to Harold Tokmakian.

The defendant has moved to dismiss Counts II, IV, and VI, the subrogation counts, on the grounds that they are preempted by ERISA. In response, Buehler asserts that Home Life is not a fiduciary and that ERISA does not preempt state-law claims against nonfiduciaries.³ In the alternative, the plaintiff argues that even if Home Life is a fiduciary, Count IV, which alleges vexatious and unreasonable delay, should not be preempted because ERISA specifically permits actions based on state statutes that regulate insurance.

The defendant also has moved to dismiss Count III for failure to state a section 155 claim. The defendant argues that only insureds may bring such a claim and, therefore, that employers who merely establish a group life insurance program for their employees have no standing. The plaintiff, in turn, argues that the language of section 155 does not limit the persons who may bring suit and suggests that a section 155 claim may be brought by anyone to whom the insurer owes a duty; and Home Life, Buehler contends, owes it a duty pursuant to its agreement to provide group life and health insurance to Buehler's employees.

Finally, the defendant has moved to dismiss Count V, asserting that Buehler has failed to plead all the elements of an action for breach of the implied duty of good faith with the particularity required by Federal Rule of Civil Procedure 9(b). The plaintiff, on the other hand, contends that under Rule 8(a) all that is required is fair notice of the cause of action.

III. THE SUBROGATION COUNTS: ERISA PREEMPTION

A. General Principles

Section 514(a) of ERISA outlines the preemptive effect of ERISA on state laws and provides that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan," 29 U.S.C. § 1144(a) — even if the state law is consistent with ERISA's substantive requirements. See, e.g., Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2388, 85 L.Ed.2d 728 (1985). The broad application of this preemption clause is narrowly limited by section 514(b), the so-called "saving clause," which provides that ERISA will not preempt any state law that "regulates insurance, banking, or securities." 29 U.S.C. § 1144(b)(2)(A). The subsequent "deemer clause," however, qualifies the saving clause and states that an employee benefit plan "shall not be deemed to be an insurance company ... for purposes of any law of any State purporting to regulate insurance companies or insurance contracts...." Id. § 1144(b)(2)(B).

The first step in ERISA preemption analysis is the determination whether a state law falls within the scope of the express preemption clause. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987). This step has two requirements: 1) There must be an employee welfare benefit plan within the meaning of 29 U.S.C. § 1002(1),⁴ and 2) the state law must "relate to" the employee benefit plan.

With respect to the plan requirement, there must be "(1) a plan, fund or program, (2) established or maintained, (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, ... (5) to participants or their beneficiaries." Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th Cir.1986), cert. denied, 482 U.S. 915, 107 S.Ct. 3188, 96 L.Ed.2d 676 (1987); see Brundage-Peterson v. Compcare Health Servs. Ins. Corp., 877 F.2d 509, 510-11 (7th Cir.1989) (discussion of welfare benefit plans); Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 491-93 (9th Cir.1988) (same), cert. denied, ___ U.S. ___, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989); cf. 29 C.F.R. § 2510.3-1(j) (1988) (Department of Labor regulation excluding certain group insurance programs from ERISA definition of "employee welfare benefit plan").

As for the second requirement, the phrase "relates to" should be given a broad, commonsense meaning; thus, a state law will relate to an employee benefit plan "`if it has a connection with or reference to such a plan.'" Metropolitan Life, 471 U.S. at 739, 105 S.Ct. at 2388 (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983)). The preemption clause is not limited to "state laws specifically designed to affect employee benefit plans," Shaw, 463 U.S. at 98, 103 S.Ct. at 2900, and can encompass both state common law and statutory causes of action. See, e.g., Scott v. Gulf Oil...