Capital Mercury Shirt v. EMPLOYERS REINSURANCE

• Decision Date: 01 October 1990
• Docket Number: Civ. No. 90-3017.
• Citation: 749 F. Supp. 926
• Parties: CAPITAL MERCURY SHIRT CORP., Plaintiff, v. EMPLOYERS REINSURANCE CORP., USAble Insurance Company, Defendants.
• Court: U.S. District Court — Western District of Arkansas

749 F. Supp. 926

CAPITAL MERCURY SHIRT CORP., Plaintiff, v. EMPLOYERS REINSURANCE CORP., USAble Insurance Company, Defendants.

Civ. No. 90-3017.

United States District Court, W.D. Arkansas, Harrison Division.

October 1, 1990.

Michael G. Thompson, Friday, Eldredge & Clark, Little Rock, Ark., for plaintiff.

Dan F. Bufford, Laser, Sharp, Mayes, Wilson, Bufford & Watts, Allan W. Horne, Davidson, Horne & Hollingsworth, Little Rock, Ark., for defendants.

MEMORANDUM OPINION

H. FRANKLIN WATERS, Chief Judge.

This case was filed on March 16, 1990. Plaintiff alleges that this court has jurisdiction by virtue of 28 U.S.C. § 1332 (1985). Plaintiff, Capital Mercury Shirt Corporation, has approximately 1500 employees located in the State of Arkansas for whom it provides health and accident benefits on a shared cost basis. The employee benefit program is funded 50% by Capital and 50% by employee contributions.

In June, 1988, the plaintiff received a proposal from USAble to administer the plaintiff's employee benefit program. As part of the proposal, USAble was to acquire medical reinsurance coverage for plaintiff. Plaintiff accepted USAble's proposal and entered into an Administrative Services Agreement with it on September 1, 1988. Subsequently, Employers Reinsurance Corporation issued an "Aggregate Excess Medical Expense Policy" covering the period from September 1, 1988, through September 30, 1989. Plaintiff contends that "pursuant to the policy, Employers undertook, for a valuable consideration, to reimburse and indemnify the plaintiff for all claims paid by it to its employees and their families in excess of the maximum amounts agreed to by Employers."

On November 16, 1989, USAble, acting pursuant to its administrative services agreement, wrote to Employers requesting reimbursement to the plaintiff in the sum of $363,197.49. Plaintiff alleges this amount represents an overpayment it made in satisfaction of employees' health and accident claims during the policy period.

Plaintiff initially named only Employers as a defendant and requested judgment in the amount of $363,197.49, plus interest. Additionally, plaintiff sought 12% penalty and a reasonable fee for its attorneys pursuant to Ark.Code Ann. § 23-79-208 (1987). Employers answered contending that under the policy provisions it had the right to amend certain scheduled items because USAble had supplied inaccurate and incomplete information concerning plaintiff's prior claims experience. As a result of this allegation, Capital sought and was granted leave of the court to name USAble Insurance Company as an additional defendant. An amended complaint was filed on June 27, 1990. In this pleading Capital asserts that if Employers prevails on its defense then "USAble was guilty of negligence in fulfilling its responsibilities to the plaintiff in its undertaking to acquire medical reinsurance coverage in favor of the plaintiff by providing inaccurate, misleading and incomplete information to Employers." Additionally plaintiff asserts that such actions on USAble's part, if true, would also constitute a breach of USAble's fiduciary duty in connection with Capital's employee benefit plan.

In its answer filed July 31, 1990, USAble alleged that Capital's claim is subject to federal preemption pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. Thus, USAble contends "plaintiff is not entitled to collect interest, attorneys' fees, the 12% statutory penalty or any other remedy or penalty based on state law or statutes because ERISA provides the exclusive remedy for plaintiff's claim." USAble further denied that plaintiff was entitled to a jury trial under the ERISA provisions.

Because resolution of the preemption issue could significantly alter the procedures utilized in the trial of this case, the court, noting the issue of ERISA preemption had been raised by USAble in its answer, wrote the parties on August 7, 1990, requesting that this issue be briefed. In response to the August 7 letter, the court has received letter briefs on behalf of the plaintiff and USAble. Employers advised that it was in agreement with the position taken by USAble.

Capital contends that ERISA does not govern its action. It is alleged that as against Employers this is a simple contract claim only inferentially related to an employee benefit plan with the sole issue being whether, under the contract of reinsurance, Employers is indebted to Capital for the payments made to its employees under the health and accident program. Capital points out that it is the insured under the policy not the health and accident benefits program or Capital's employees.

Capital argues that it is not a plan "participant", "beneficiary" or "fiduciary," or a plan administrator which has improperly denied benefits due under ERISA. In its response to USAble's arguments Capital states:

USAble's letter brief goes to great lengths to characterize Employers Reinsurance Corp's Reinsurance Policy as part of the ERISA plan covering Capitals' employees. Regardless of whether that characterization is correct, the issue of ERISA Preemption turns on the fact that Capital is neither a "participant" nor "beneficiary" under Capital's ERISA plan. Since Capital is neither a "participant" or "beneficiary" of the plan, its suit against Employers Reinsurance Corp. is not within the preemptive realm of ERISA and is accordingly governed by state law.

Capital contends "it is merely seeking insurance benefits due it, as the employer, under a policy of insurance purchased by it and of which it is the named insured, for payments made to fund its employee's health and accident benefit claims." Capital's claim against "USAble is for negligence and breach of contract should it be found that USAble failed to properly acquire reinsurance coverage from Employers which it obligated itself to acquire."

In response USAble argues that the cause of action is preempted and that the stop-loss policy is merely an alternative funding mechanism designed to protect against or provide coverage for an unusually high amount of claims. As such, USAble states the stop-loss policy is an integral part of the plan and is expressly incorported in the plan. Finally, USAble states that ERISA preemption "does not depend upon who is suing or being sued, but rather, upon whether the state law claims asserted `relate to' an ERISA Plan." The court has been provided a copy of the plan and the policy at issue.

It is undisputed that the plan at issue is an employee welfare benefit plan within the meaning of ERISA. 29 U.S.C. § 1002(1) (1985). Since ERISA's enactment courts and litigants have struggled to determine what is and what is not an ERISA governed case. Clearly any suit brought by a participant or a beneficiary to enforce their rights under the plan or to collect benefits under the plan comes within the preemptive scope of ERISA. Although many find it incomprehensible that Congress could have meant to preempt what were at one time simple contract actions, there appears to be little doubt that this was ERISA's aim and is in fact the law. ERISA was enacted to:

Protect ... participants in employee benefit plans and their beneficiaries, by requiring disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing adequate remedies; sanctions and ready access to the Federal courts.

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44-45, 107 S.Ct. 1549, 1551, 95 L.Ed.2d 39 (1987).

Unfortunately, once one diverges from this area there is indeed a "morass" in the present state of the law. Given the myriad of circumstances surrounding disputes concerning "employee welfare benefit plans" this is hardly surprising. As one court aptly remarked "the ERISA quicksand is fast swallowing up everything that steps in it or near it. This morass serves as the stage for a theater of the absurd." Jordan v. Reliable Life Ins. Co., 694 F.Supp. 822, 827 (N.D.Ala.1988) ("This court proceeds ... into unchartered seas without a compass."), later proceeding, 716 F.Supp. 582 (N.D.Ala.1989) ("ERISA may have swallowed up, like a `black hole,' even this garden variety claim."). Nevertheless, the consensus appears to be that "ERISA preemption extends beyond circumstances involving the processing of claims...." Settles v. Golden Rule Ins. Co., 715 F.Supp. 1021, 1023 (D.Kan.1989).

Capital's arguments have their genesis in the civil enforcement section of ERISA. Section 1132 specifies the persons empowered to bring a civil action. 29 U.S.C. § 1132. Under this section a civil right of action is granted to "participants," "beneficiaries," "fiduciaries," and the Secretary of Labor. The plan sponsor or employer is not listed as an entity empowered to bring action. Therefore, Capital points out that as an employer its claims would not be cognizable under ERISA and, thus, are not preempted. Additionally, by relying on Munoz v. Prudential Ins. Co., 633 F.Supp. 564 (D.Colo.1986), Capital appears to also argue that ERISA's preemptive scope does not reach the conduct of non-fiduciary defendants.

In Pilot Life the Supreme Court stated:

That the civil enforcement provisions of ERISA § 502(a) are the exclusive vehicle for actions by ERISA-plan participants and beneficiaries asserting improper processing of a claim for benefits, and that varying state causes of action for claims within the scope of § 502(a) would pose an obstacle to the purposes and objectives of Congress.

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 52, 107 S.Ct. 1549, 1555, 95 L.Ed.2d 39 (1987). The terms participant and beneficiary have been broadly construed to allow "potential" or "former" participants and beneficiaries to be included. See, e.g., Smith v. Electronic Data Sys. Corp., 657 F.Supp. 1242, 1243 (D.Colo.1987) ...