Coleman v. Nationwide Life Ins. Co.

• Decision Date: 17 July 1992
• Docket Number: 91-2652,Nos. 91-2646,s. 91-2646
• Citation: 969 F.2d 54
• Parties: 15 Employee Benefits Cas. 1865 Joanne W. COLEMAN, Plaintiff-Appellee, v. NATIONWIDE LIFE INSURANCE COMPANY, Defendant & Third-Party Plaintiff Appellant, v. ROOFING CONCEPTS, INCORPORATED, Third-Party Defendant. Joanne W. COLEMAN, Plaintiff-Appellant, v. NATIONWIDE LIFE INSURANCE COMPANY, Defendant-Appellee, v. ROOFING CONCEPTS, INCORPORATED, Third-Party Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 54

969 F.2d 54

15 Employee Benefits Cas. 1865

Joanne W. COLEMAN, Plaintiff-Appellee, v. NATIONWIDE LIFE INSURANCE COMPANY, Defendant & Third-Party Plaintiff Appellant, v. ROOFING CONCEPTS, INCORPORATED, Third-Party Defendant.

Joanne W. COLEMAN, Plaintiff-Appellant, v. NATIONWIDE LIFE INSURANCE COMPANY, Defendant-Appellee, v. ROOFING CONCEPTS, INCORPORATED, Third-Party Defendant.

Nos. 91-2646, 91-2652.

United States Court of Appeals Fourth Circuit.

Argued April 8, 1992.

Decided July 1, 1992.

As Amended July 17, 1992.

Edwin Lewis Kincer, Jr., Mezzullo & McCandlish, Richmond, Va., argued (David D. Hopper, on the brief), for appellant.

John Bertram Mann, Levit & Mann, Richmond, Va., argued, for appellee.

Before WILKINSON, HAMILTON, and LUTTIG, Circuit Judges.

OPINION

WILKINSON, Circuit Judge:

In this case plaintiff seeks benefits under a group health insurance plan, the award of which would violate important provisions of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. Plaintiff Joanne Coleman seeks to recover under a contract between her husband's employer and Nationwide Life Insurance Company, which had terminated automatically due to the employer's failure to pay the premiums. Coleman has offered the court three rationales for ruling in her favor. First, she contends that while the contract of insurance gave the right to cancel the policy for nonpayment of premiums, such cancellation required an affirmative act by Nationwide and could not be exercised retroactively. Second, she urges by way of estoppel that statements made to her by Nationwide personnel indicating that she had coverage preclude Nationwide from denying her benefits due to the termination of the plan. Finally, she argues that Nationwide breached its fiduciary duty under ERISA by failing to notify plan beneficiaries that her husband's employer had not paid the necessary premiums to keep the policy in force.

At first glance, these appear to be three unrelated theories of recovery, but acceptance of any of them would require this court to rewrite the contract of insurance. While a court should be hesitant to depart from the written terms of a contract under any circumstances, it is particularly inappropriate in a case involving ERISA, which places great emphasis upon adherence to the written provisions in an employee benefit plan. Plaintiff's theories, though packaged in different wrappers, all would lead to the same result--the written plan would no longer be the benchmark in an action under ERISA. Accordingly, we must reverse the judgment of the district court and direct it to dismiss the complaint.

I.

Plaintiff Joanne Coleman and her husband participated in a group health insurance plan sponsored by her husband's employer, Roofing Concepts, Inc. After terminating its group health coverage with another insurer in late 1988, Roofing Concepts was issued a group health policy by Nationwide Life Insurance Company, which took effect on November 1, 1988. The Nationwide policy fell within ERISA's definition of an employee welfare benefit plan, and was thereby subject to regulation under the statute. 29 U.S.C. § 1002(1). The plan documents consisted of the insurance policy and Roofing Concepts' application.

In the contract of insurance, Roofing Concepts agreed to pay 100 percent of the premiums due on the policy. The written provisions of the plan also stated that the policy would "continue for as long as premiums are paid or until it is cancelled." The plan allowed for a 31-day grace period after a premium due date, during which time insurance coverage would continue for the plan participants. The policy provided, however, that "[i]f all the premium is not paid prior to the expiration of the grace period, the Policy will terminate on the last day of the grace period."

Roofing Concepts defaulted on its payments almost from the start. At the time of its application to Nationwide, Roofing Concepts paid a premium deposit of $3665.63, which equaled the estimated premium on the policy for the first month. Nationwide's underwriters thereafter calculated the actual monthly premium to be $3709.42, $43.79 more than Roofing Concepts' deposit. Nationwide billed Roofing Concepts for this difference, which was due on November 1, 1988. Roofing Concepts, however, never paid the $43.79, nor did it ever make another monthly premium payment. Roofing Concepts also failed to notify its employees that it had ceased paying the premiums on the policy.

Roofing Concepts went out of business on February 15, 1989. On February 16, Roofing Concepts informed Nationwide of this event and asked Nationwide to cancel the health insurance policy. On March 6, 1989, Nationwide sent a reply letter indicating that because Roofing Concepts had paid no premiums except for the initial deposit, the policy was cancelled as of its effective date, November 1, 1988.

Plaintiff Coleman was pregnant at the time of the Nationwide policy's inception. In response to a telephone inquiry, Coleman received a letter from a Nationwide account representative dated December 1, 1988, which included her policy number as well as a brief summary of group benefits. On December 5, 1988, Coleman was sent an authorization for a two-day hospital stay for her childbirth that she requested from Capp Care, a cost containment organization paid by, but not affiliated with, Nationwide. The authorization letter contained the following disclaimer: "CAPP CARE'S AUTHORIZATION OF ADMISSION, CONTINUED STAY OR SURGICAL PROCEDURE DOES NOT GUARANTEE PAYMENT. PAYMENT IS ALSO SUBJECT TO ELIGIBILITY AND COVERAGE AT THE TIME SERVICES ARE RENDERED AND MUST BE VERIFIED BY THE EMPLOYER OR INSURANCE CARRIER."

Coleman claims in her affidavit that she was advised by unnamed Nationwide employees on several occasions after December 1, 1988 that she had coverage. In her deposition, however, Coleman indicated that the only time she spoke to Nationwide personnel between December 1 and the birth of her child was in January 1989 when she was told during a telephone inquiry that a tubal ligation would be covered by the policy. Coleman did contend that she spoke to Capp Care employees on numerous occasions during the same time period regarding her authorization for hospitalization.

Coleman gave birth to a son on January 25, 1989. Although Nationwide paid two of the medical expenses associated with the childbirth totalling $481.60, it notified Coleman in a letter dated March 27, 1989, that the bulk of her expenses would not be paid because her coverage had been cancelled as of November 1, 1988. These uncovered expenses totalled $6976.07. When Coleman's husband contacted Kenneth Harris, president of Roofing Concepts, to find out why the policy had been cancelled, Harris professed ignorance despite the fact that he had signed the February 16 letter to Nationwide requesting the cancellation of coverage.

Coleman filed this suit against Nationwide on January 12, 1990, seeking payment of the medical expenses plus attorney's fees. Both parties subsequently filed motions for summary judgment. On October 16, 1990, the district court denied Nationwide's motion for summary judgment and granted Coleman's on alternative theories of estoppel and breach of fiduciary duty. 748 F.Supp. 429 (E.D.Va.1990). After Nationwide filed a motion to alter or amend the judgment, the district court on July 18, 1991, reversed its earlier ruling that plaintiff was entitled to judgment on an estoppel theory. The court, however, upheld the grant of summary judgment for Coleman on fiduciary duty grounds. Both parties now appeal to this court.

II.

Coleman argues that she was covered under the health insurance plan because Nationwide had no right to retroactively cancel her benefits. Although she apparently concedes that the failure of Roofing Concepts to pay the policy premiums gave Nationwide the right to cancel the policy, she contends that her coverage was in full force and effect when her child was born because Nationwide had taken no affirmative action to cancel the policy as of that time.

We believe, however, that Coleman misreads the plain language of the policy, which provides for automatic termination of the coverage if the policy's grace period expires without payment of an overdue premium having been made. The written plan expressly states that "[i]f all the premium is not paid prior to the expiration of the grace period, the Policy will terminate on the last day of the grace period" (emphasis added). The policy also states that coverage "will continue for as long as premiums are paid or until it is cancelled." Thus, the policy itself draws a distinction between automatic termination if Nationwide is not paid a premium and a cancellation for some other reason. On the facts of this case, Coleman's coverage terminated no later than December 2, 1988, when the grace period for payment of the $43.79 portion of the November premium expired. The language of this plan indicating that coverage terminates automatically for failure to pay premiums is unambiguous. Courts are not at liberty to disregard the plain language of a plan in order to demand that insurers provide coverage for which no premium has been--or ever will be--paid. ¹

Attempts to circumvent this policy language on behalf of an admittedly appealing plaintiff would regrettably reprove the adage that hard cases make bad law. For example, adoption of Coleman's position that the insurer has to make some affirmative acknowledgment of termination in order for such termination to have effect would not only conflict with the plain language of the plan, but might also inure to the detriment of beneficiaries in the long run. An insurer that has an automatic termination provision in its policy is not presently precluded from making the business decision to accept payment of premiums after the grace period has expired and to treat the policy as an uninterrupted one. The...