Davis v. John Alden Life Ins. Co.

• Decision Date: 29 August 1990
• Docket Number: Civ. A. No. 90-4104-S.
• Citation: 746 F. Supp. 44
• Parties: Willard L. DAVIS and Mavis Davis, Plaintiffs, v. JOHN ALDEN LIFE INSURANCE COMPANY and Jack Ropp, Defendants.
• Court: U.S. District Court — District of Kansas

746 F. Supp. 44

Willard L. DAVIS and Mavis Davis, Plaintiffs, v. JOHN ALDEN LIFE INSURANCE COMPANY and Jack Ropp, Defendants.

Civ. A. No. 90-4104-S.

United States District Court, D. Kansas.

August 29, 1990.

Robert A. Thompson, Hellmer, Denning & Thompson, Chtd., Salina, Kan., for plaintiffs.

Robert M. Adrian, King, Adrian, King & Brown, Chtd., Salina, Kan., John F. Hayes, Gilliland & Hayes, P.A., Hutchinson, Kan., for defendants.

MEMORANDUM AND ORDER

SAFFELS, District Judge.

This matter is before the court on plaintiffs' motion to remand to the District Court of Dickinson County, Kansas, pursuant to 28 U.S.C. § 1447(c) and on the motion of defendants, John Alden Life Insurance Company (hereinafter referred to as "John Alden") and Jack Ropp. Defendants move to dismiss on two grounds. First, defendants contend Counts I through V are preempted by the Employment Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. ("ERISA"). Second, defendants contend that Counts I and III fail to state a claim under state law, and therefore, should be dismissed.¹

For purposes of this memorandum and order, the relevant facts appear to be as follows. On February 20, 1988, the plaintiffs, Willard L. and Mavis Davis (hereinafter referred to as "plaintiffs"), entered into a contract of medical and hospitalization insurance with defendant, John Alden, through its agent, Jack Ropp. This insurance policy was issued under a group health insurance plan provided to employees of West Plaza IGA, Inc. In July of 1988, plaintiff, Willard Davis, had surgery which involved the implantation of an artificial knee in his left leg. When plaintiffs subsequently demanded payment of benefits under the policy, John Alden refused to pay arguing that Davis' surgery was specifically excluded under the policy provisions as a preexisting health condition. One year later, in July of 1989, Willard Davis had the same surgery performed on his right knee. Plaintiffs allege that John Alden should provide coverage for both surgeries because before the surgeries were performed, John Alden required that the insured plaintiff go through a pre-certification process whereby John Alden evaluated the claims and certified the knee surgeries as falling within the plaintiffs' insurance coverage.

Plaintiffs further contend that upon their demand for payment under the policy, defendants refuse to pay amounts which they allege are owed, $5,793.20². Additionally, the parties have stipulated that the plaintiffs' premium payments are current. Plaintiffs assert that they have met all conditions precedent to the defendants' obligation to pay their claim.

This action was originally filed in the District Court of Dickinson County, Kansas, on April 26, 1990, and was removed by John Alden on May 31, 1990, to this court. John Alden asserts removal jurisdiction based both on the existence of a federal question and on diversity of citizenship pursuant to 28 U.S.C. §§ 1331 and 1332, respectively. In their motion, plaintiffs seek to remand this action to state court.

I. Removal Jurisdiction

Before the court addresses the parties' motions, the court's initial inquiry is whether removal jurisdiction exists in this case. Defendant, John Alden, asserts in its removal petition that while plaintiffs' cause of action alleges only state causes of action on its face, in fact, the plaintiffs' cause of action is preempted by ERISA. Specifically, defendants assert that plaintiffs' complaint states a cause of action under a group health insurance plan within the meaning of ERISA, and as such, raises a federal question under 29 U.S.C. § 1132(a)(1)(B). Accordingly, defendants argue that under 28 U.S.C. § 1441(b) the action is removable without regard to the citizenship or residence of the parties.

In ascertaining whether an action arises under federal law, the general rule is that the federal question must appear in the plaintiff's "well-pleaded" complaint. See Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 2429-30, 96 L.Ed.2d 318 (1987). Thus, a case may not be removed to federal court on the sole basis of a federal defense such as preemption. Id. at 393, 107 S.Ct. at 2430. As the party urging the court that jurisdiction is proper, defendant bears the burden of establishing the propriety of removal. B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir.1981). As the Ninth Circuit Court of Appeals has stated, "we look to federal law to determine whether the elements of removal jurisdiction have been established under the statutes, keeping in mind that removal statutes are strictly construed against removal." Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir.1979).

Plaintiffs' six-count complaint may be briefly summarized as follows:

Count I.

That the defendants have breached statutory duties owed to the plaintiffs under K.S.A. 40-2404(b)(9)(a)-(g) and that such violations constitute negligence per se.

Count II.

Plaintiffs allege that the defendants have breached fiduciary duties owed to them.

Count III.

Plaintiffs allege that the defendants have violated K.S.A. 40-2404(b)(1)(a) and (f) which forbid unfair and deceptive acts and that such violations constitute negligence per se.

Count IV.

Plaintiffs allege that the defendants have inflicted severe emotional distress, and have slandered their character and credit rating.

Count V.

That the acts and/or omissions were committed with conscious disregard for the rights of the plaintiffs, thus, entitling the plaintiffs to punitive damages.

Count VI.

Plaintiffs allege that the defendants have breached their contractual obligation to pay benefits owed under the plaintiffs' insurance policy.

Clearly, the plaintiffs' complaint states no federal question on its face. However, defendants contend that Counts I through V are preempted by 29 U.S.C. § 1144(a), and therefore, removal is proper under 28 U.S.C. § 1441(b). In Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987), the Supreme Court outlined the appropriate analysis regarding whether removal jurisdiction may be predicated upon the affirmative defense of federal preemption in the context of ERISA. In order for removal jurisdiction to be proper in this case, two initial requirements must be met. First, the plaintiffs' cause of action must fall within the "sweep" of the preemptive statute and not be excepted from preemption by the savings clause. Second, the plaintiffs' cause of action must state a claim for which Congress provided an "exclusive federal cause of action for resolution of such disputes." Taylor, supra, at 62, 107 S.Ct. at 1546.

A. Preemptive Impact of ERISA

The first step under Taylor is whether plaintiffs' cause of action falls within the preemptive "sweep" of ERISA. The ERISA preemption provision states:

Except as provided in subsection (b) of this section, the provisions of this chapter 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). Accordingly, whether plaintiffs' cause of action is preempted depends on whether it relates to an employee benefit plan. In determining whether a cause of action "relates" to an employee benefit plan, the Supreme Court recently discussed the appropriate meaning to be given to the words "relates to." In Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987), the Court stated that these words have been given a "broad commonsense meaning, such that a state law `relates to' a benefit plan `in the normal sense of the phrase, if it has a connection with or reference to such a plan.'" Id. (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983).

In this case, plaintiffs' complaint involves an insurance policy which is part of an employees' group health insurance plan. Accordingly, the plaintiffs' cause of action may be said to "relate to a benefit plan" because it involves a dispute over nonpayment of benefits provided by an employees' group health insurance plan. Thus, the present action falls within the sweep of ERISA's preemption clause.

Plaintiffs, however, contend that Counts I and III fall within the savings clause of ERISA, and therefore, Counts I and III are not preempted. The savings clause, 29 U.S.C. § 1144(b)(2)(A), states:

Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities. (emphasis added)

The scope of ERISA's savings clause was discussed at length in Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). In Metropolitan Life Ins. Co., the Court analyzed the savings clause and adopted a three-prong test for determining when a state law regulates the "business of insurance" for purposes of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq. Id. The three-part test is as follows:

first, whether the practice has the effect of transferring or spreading a policyholder's risk;

second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and

third, whether the practice is limited to entities within the insurance industry.

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002, 3009, 73 L.Ed.2d 647 (1982). In applying the three-prong test to determine whether plaintiffs' cause of action falls within the ERISA savings clause, the court finds that the Kansas statutes, K.S.A. 40-2404(b)(9)(a)-(g) and 40-2404(b)(1)(a) and (f) do not meet all three requirements of the McCarran-Ferguson test. While these Kansas statutes are directed at the insurance industry (meeting prongs two and three), these provisions do not affect the substantive terms of the insurance policy, and therefore, may not be said to have an "effect on the spreading of policyholder...