Coker v. Trans World Airlines, Inc.

• Decision Date: 15 January 1999
• Docket Number: No. 97-2140,97-2140
• Citation: 165 F.3d 579
• Parties: 160 L.R.R.M. (BNA) 2263, 22 Employee Benefits Cas. 2370 Susan COKER, Plaintiff-Appellant, v. TRANS WORLD AIRLINES, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 579

165 F.3d 579

160 L.R.R.M. (BNA) 2263, 22 Employee Benefits

Cas. 2370

Susan COKER, Plaintiff-Appellant, v. TRANS WORLD AIRLINES, INC., et al., Defendants-Appellees.

No. 97-2140.

United States Court of Appeals Seventh Circuit.

Argued Dec. 3, 1997.

Decided Jan. 15, 1999.

Suzanne McCarthy (argued),Chicago, IL, for Plaintiff-Appellant.

Thomas J. Piskorski (argued), Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for Defendants-Appellees.

Before WOOD, Jr., RIPPLE, and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

Few things are more important to people in this uncertain world than their medical insurance, if indeed they are fortunate enough to find themselves in the 85% of the United States population that enjoys some level of coverage. 1997 Statistical Abstract of the United States § 2, Table 171 (reporting 1995 data). In many instances, this coverage is provided through an employer-sponsored welfare benefit plan regulated by the Employee Retirement Income Security Act, better known as ERISA, 29 U.S.C. § 1001 et seq. In this case, Trans World Airlines, Inc. (TWA) mistakenly (and for a substantial period of time) misinformed Douglas Coker and his wife Susan that they were covered by medical insurance when in fact those benefits had ended. When it caught the error, TWA immediately terminated the benefits, leaving Susan with a large medical bill for certain hospital stays. The Cokers sued under ERISA for benefits wrongfully denied, but the district court granted summary judgment for TWA. Susan has now appealed, claiming that TWA was legally estopped from cutting off her benefits. In our view, the district court properly understood the narrow limits of the doctrine of estoppel as it applies in ERISA cases, and we therefore affirm its judgment.

I

From October 1986 until his furlough at the end of September 1992, and then again after his reinstatement in June 1995, Douglas Coker worked for TWA as a ramp service employee at O'Hare International Airport in Chicago. (As of the time of oral argument, he was working part-time at both TWA and at United Airlines.) In that capacity, Douglas was a member of District Lodge 142 of the International Association of Machinists and Aerospace Workers, AFL-CIO (IAM). The collective bargaining agreement (CBA) between the IAM and TWA created various group benefit plans, including the medical insurance at issue here. Article 20 of the CBA provided that a furloughed employee with at least 10 years of compensated service would continue to receive medical coverage for 12 months after the date of furlough or until the employee obtained new employment, whichever happened first. The summary plan description (SPD) that TWA made available to its employees reflected this same information, though it clarified that benefits would cease upon reemployment only where the employee received insurance coverage from the new job. Even though his tenure at TWA was less than 10 years, Douglas qualified for this coverage under Article 20 because before 1986 he had been an Ozark Airlines employee; TWA acquired Ozark in October 1986 and counted Ozark service toward accrual of these benefits. Susan Coker was a covered dependent under Douglas' plan.

On September 30, 1992, Douglas and a number of other TWA employees were furloughed by the airline. On that day, TWA held a meeting for the group that was about to be laid off. The TWA local station manager handed out a memorandum laying out the continuing medical benefits that employees of Douglas' seniority level enjoyed. First, the memorandum explained that TWA was obligated under the CBA to provide 12 months of medical coverage for Douglas and Susan. Second, it indicated that Douglas and Susan had the option of purchasing, at their own expense, continued health coverage pursuant to the relevant version of the Consolidated Omnibus Budget Reconciliation Act (COBRA), 29 U.S.C. § 1161 et seq., "for a maximum period of 18 months after [the] ... furlough date." Taken together, these two provisions meant (for employees who did not find other employment with medical insurance) that the first 12 months post-furlough would be covered by TWA, and an additional 6 months could be purchased by the Cokers if they filed a timely application for COBRA benefits. (In November 1992, TWA also mailed a letter to the furloughed employees that repeated this information, but because the Cokers dispute whether they received that letter, we disregard it in our analysis of the case.)

The one-year anniversary of Douglas' furlough, September 30, 1993, came and went without incident. Too much without incident, in fact, because the Cokers took no steps at that time or any other to exercise their COBRA option. Notwithstanding that omission, a bureaucratic snafu at TWA caused the company to continue carrying Douglas as a covered employee (and Susan, as a dependent). March 30, 1994, would have been the last day on which the Cokers were eligible for COBRA benefits if they had paid for them, but it too passed without any changes in their status. Quite to the contrary, in both November 1993 and November 1994, TWA sent new insurance and prescription benefit cards to the Cokers. The Cokers did not question their good fortune. Indeed, they were passive in more ways than one. After his layoff, Douglas held several part-time and full-time jobs. Some of those positions did not include health care benefits, but he had a part-time job at United Airlines from May 1993 until April 1994, and then again from May 1995 until the present, under which he was eligible for medical benefits. Despite the provision in the CBA and SPD that TWA-paid medical benefits would expire if Douglas were reemployed with health care benefits, Douglas said nothing. In fact, he twice admitted in his deposition that he submitted hospital bills for his wife to the TWA plan, not United's, because it was clear that the latter plan would have excluded coverage of Susan's "pre-existing" medical condition. (Because of the Health Insurance Portability and Accountability Act of 1996, this barrier to coverage might not exist today. See Pub.L. 104-191, 110 Stat. 1936 (1996), codified at 29 U.S.C. §§ 1181, 1191.)

It is possible that no one would have noticed the accidental extension of coverage if Susan had not suffered from diabetes. She does, though, and in January and February 1995, she was admitted to the hospital on two or three separate occasions for in-patient treatment. Prior to each hospitalization, the Cokers sought pre-admission certification from Aetna Life Insurance Company, the third-party administrator of TWA's group plan, that the hospital stay would be covered under the plan. (A "third-party administrator" is an organization under contract to perform non-discretionary functions for a plan such as the ministerial review, approval, and denial of claims, cf. Harris Trust & Sav. Bank v. Provident Life & Accident Ins. Co., 57 F.3d 608, 613-14 (7th Cir.1995) (example of "third-party administrator"); it should not be confused with the ERISA plan "administrator," 29 U.S.C. § 1002(16)(A), which has many statutorily imposed duties and in this case is TWA.) Each time, Aetna approved the admissions, with the following caveat:

Certification is based upon the medical information provided. This notice is not a guarantee of benefits. Payment of benefits is subject to any subsequent review(s) of medical information or records, the patient's eligibility on the date the service is rendered, and any other contractual provisions of the plan.

(Emphasis in original.) This warning did not inspire the Cokers to check either the SPD or the CBA, even though Douglas had received copies of both. The Cokers explain that they were by then lulled into a false sense of security because of their continuing receipt of medical cards from TWA and because they had received similar notices prior to 1995 without incident.

Whatever the reason, the 1995 hospitalizations provoked a different response from TWA. Aetna paid $10,895 of the $11,140 bill for the first hospitalization, but that transaction finally alerted TWA to the mistake it had made in treating Douglas and Susan as still eligible under its group benefit plan. TWA concluded that the Cokers' medical benefits should have ended no later than April 1994, when Douglas' and Susan's COBRA eligibility had plainly expired. TWA therefore refused to cover the nearly $45,000 bill for the other hospitalization(s), and it notified the Cokers on February 24, 1995 that they were not covered by the plan. Beginning in July 1995, the Cokers repeatedly and unsuccessfully resubmitted claims for benefits.

In the meantime, the IAM had been pursuing a grievance against TWA about the original furlough, claiming that the company had violated the CBA by using another airline's employees for certain tasks instead of its own workforce. In March 1995, the arbitrator ruled in the union's favor and ordered TWA to reinstate the furloughed employees with whatever amount of backpay was necessary to bring their earnings up to the level they would have reached had it not been for the unlawful furlough. Under this formula, however, Douglas was entitled to nothing but reinstatement, because his income from other employment had exceeded what TWA would have paid him. In addition to backpay, the union had also asked the arbitrator to award "make-whole relief, including ... benefits," but the award did not do so. Douglas chose to take advantage of his right to reinstatement at TWA, and he has worked there part-time since June 26, 1995, once again covered by its benefit plans.

TWA's claim denial and the failure of the arbitral award to require retroactive medical benefits led the Cokers to sue TWA, the Cooperative Group Insurance Plan for Employees of TWA Inc. ("the Group Plan"), and the Transworld Airlines Inc. Retirement Plan ("the Retirement Plan"). Count I of the complaint alleged that the Cokers were...