Craft v. Northbrook Life Ins. Co.
| Decision Date | 25 January 1993 |
| Docket Number | Civ. A. No. J91-0368(L). |
| Citation | 813 F. Supp. 464 |
| Parties | David CRAFT and Barbara Craft, Plaintiffs, v. NORTHBROOK LIFE INSURANCE COMPANY and Medical Plans, Incorporated, Defendants. |
| Court | U.S. District Court — Southern District of Mississippi |
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Eugene Tullos, Raleigh, MS, for plaintiffs.
Richard Lawrence, Watkins & Eager, Billy W. Keyes, Roy Lidell, Wells, Wells, Marble & Hurst, Jackson, MS, for defendants.
Plaintiffs David and Barbara Craft brought this action seeking payment of benefits claimed to be due under separate employee benefit plans established by their respective employers on account of medical expenses incurred on behalf of their son, Justin Craft. In addition to their claims for breach of contract, plaintiffs asserted state law claims of fraud and for defendants' alleged breaches of fiduciary duties and duties of good faith and fair dealing. Plaintiffs demanded actual damages in the amount of $120,000, together with $250,000 in extra-contractual and punitive damages. Defendants Northbrook Life Insurance Company (Northbrook) and Medical Plans, Inc. have now separately moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The court has considered the memoranda of authorities together with attachments submitted by the parties and concludes that defendants' motions are well taken and should be granted.
On December 14, 1983, Barbara Craft gave birth to a son, Justin Craft. Following his birth, Justin, who was born prematurely, remained continuously hospitalized for approximately nine months, until he was discharged on September 16, 1984.
At the time of his birth, Justin's mother, Barbara Craft, participated in an employee benefit plan offered by her employer, Southern Apparel. The plan was a self-funded plan for which Southern Apparel had reinsurance with Harbor Insurance Company for individual claims exceeding $10,000. Medical Plans served as the supervisor or administrator of the plan pursuant to an agreement with Southern Apparel dated October 1, 1983, under which Medical Plans was responsible for performing such duties as were delegated to it by Southern Apparel, including the processing and payment of claims owed by Southern Apparel for benefits due under the plan. Consistent with its duties and in accordance with the dependent coverage provided by the plan for Justin Craft, Medical Plans authorized payment for claims submitted on behalf of Justin from his birth through March 29, 1985. During March 1985, however, Southern Apparel made a decision to terminate its self-funded plan and thus applied for and secured group insurance coverage through Northbrook. Effective April 1, 1985, Southern Apparel cancelled its self-funded coverage and terminated the services of Medical Plans as plan supervisor and administrator, and Northbrook became the insurer of Southern Apparel's group plan. Thereafter, no benefits were authorized to be paid nor paid by Medical Plans or Southern Apparel on behalf of Justin Craft.
On April 1, 1985, employees who had participated in Southern Apparel's self-funded plan, including Barbara Craft, were provided a certificate of insurance coverage under Northbrook's policy. This document outlined the benefits available and the terms of coverage. With respect to the effective date of dependent coverage, Northbrook's policy provided:
Your dependents, other than a newborn child, cannot become insured if they are Totally Disabled. In this case, the dependents will become insured on the first of the month coinciding with or next following the date they are no longer Totally Disabled.
The policy defined "totally disabled" or "total disability" as:
An Injury or Sickness that results in:
According to Northbrook, Justin Craft first became eligible for coverage, according to these policy provisions, on October 1, 1985, the first day of the month following the date when he was no longer "totally disabled." Northbrook therefore paid plaintiffs' claims for Justin's medical expenses from and after October 1, 1985. It made no payments, however, for medical expenses incurred for Justin prior to October 1, 1985.
On September 18, 1984, David Craft became employed by Klinger Electric Company and remained so employed at the time of Justin's birth. Like Southern Apparel, Klinger Electric maintained an employee benefit plan for its employees which was self-funded by Klinger Electric, with reinsurance for individual claims exceeding $10,000. Medical Plans acted as the supervisor or administrator of Klinger Electric's employee benefit plan pursuant to a contract dated March 1, 1981 and, as with the Southern Apparel plan, Medical Plans was responsible for performing on behalf of Klinger Electric those duties delegated to it by this agreement, including the processing and payment of covered claims.
Under the terms of Klinger Electric's plan, employees were allowed to participate after having completed three months' employment with the company. On December 13, 1984, five days prior to the date he was to become eligible for coverage under the plan, David Craft signed an enrollment form indicating that he wanted to participate in his employer's employee benefit plan. The following day, Justin Craft was born. By letter dated January 25, 1985, Medical Plans informed Klinger Electric, which in turn advised David Craft, that Justin was not eligible for dependent coverage under the plan from the time of his birth since David Craft was not himself eligible for coverage until December 18, 1984, the date on which he had completed three months' employment. According to Medical Plans' explanation, when David Craft thereafter became eligible to participate in the plan, Justin Craft was totally disabled and did not thereafter became eligible for coverage under the plan by reason of the following policy provision:
David Craft was advised in January 1985 that coverage for Justin was declined until such time as Justin met the requirements set forth in items (1) and (2).
Plaintiffs do not dispute that their claims for medical expenses incurred prior to April 1, 1985 were processed by Medical Plans and paid under Barbara Craft's dependent coverage through Southern Apparel's employee benefit plan, and they apparently concede that Northbrook paid their claims for expenses incurred after October 1, 1985. What they seek to recover in this action is the medical and hospitalization expenses incurred for Justin from April 1 to October 1, 1985 which they contend should have been paid under the subject employee benefit plans.1
In support of their motions for summary judgment, defendants assert that each of the plans that are at issue in this lawsuit is governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., and that each of plaintiffs' state law claims is thus preempted by virtue of ERISA's exclusivity provision, 29 U.S.C. § 1144.2 Despite plaintiff's protestations to the contrary, it is apparent that the plans are, in fact, employee welfare benefit plans governed by ERISA. The term "employee benefit plan" includes an "employee welfare benefit plan" which is defined at 29 U.S.C. § 1002(1) as:
any plan, fund, or program ... established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise ... medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment.
Section 1003(a) further provides that, with exceptions not applicable here, the provisions of ERISA apply to "any employee benefit plan if it is established or maintained ... by an employer engaged in commerce or in any industry or activity affecting commerce."
The Fifth Circuit has observed that an ERISA plan has been established if "from the surrounding circumstances, a reasonable person can ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits." Hansen v. Continental Ins. Co., 940 F.2d 971, 979 (5th Cir.1991) (quoting Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982) (en banc)). See also Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir.1990); Foxworth v. Durham Life Ins. Co., 745 F.Supp. 1227, 1230 (S.D.Miss.1990) (quoting Donovan). The plans involved in the case at bar satisfy these requirements. "A reasonable person would easily conclude that the intended benefits were medical, surgical or hospital care or benefits, that the beneficiaries were Southern...
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...HMO, 844 F.Supp. 966 (S.D.N.Y.1994); Diaz v. Texas Health Enterprises, 822 F.Supp. 1258 (W.D.Texas 1993); Craft v. Northbrook Life Insurance Company, 813 F.Supp. 464 (S.D.Miss.1993); but see Elsesser v. Hospital of the Philadelphia College of Osteopathic Medicine, Parkview Division, 802 F.S......