Davis v. Ottumwa Young Men's Christian Ass'n, 87-1568

• Decision Date: 22 March 1989
• Docket Number: No. 87-1568,87-1568
• Citation: 438 N.W.2d 10
• Parties: Randy A. DAVIS and Nancy Davis, Husband and Wife, and Randy A. Davis, as Next Friend of Wendy Davis, a Minor Child, Appellants, v. OTTUMWA YOUNG MEN'S CHRISTIAN ASSOCIATION, State Farm Insurance Company, Blue Cross of Iowa, and Blue Shield of Iowa, Appellees.
• Court: Iowa Supreme Court

Page 10

438 N.W.2d 10

Randy A. DAVIS and Nancy Davis, Husband and Wife, and Randy A. Davis, as Next Friend of Wendy Davis, a Minor Child, Appellants, v. OTTUMWA YOUNG MEN'S CHRISTIAN ASSOCIATION, State Farm Insurance Company, Blue Cross of Iowa, and Blue Shield of Iowa, Appellees.

No. 87-1568.

Supreme Court of Iowa.

March 22, 1989.

Rehearing Denied May 12, 1989.

Vern M. Ball of Ball Law Offices, Bloomfield, for appellants.

Richard J. Gaumer of Webber, Gaumer, Emanuel & Daily, P.C., Ottumwa, for appellee Young Men's Christian Ass'n of Ottumwa.

John N. Moreland and John R. Webber III of McKay and Moreland, P.C., Ottumuwa for appellee State Farm Ins. Co.

F. Richard Lyford and Elaine M. Brown of Dickinson, Throckmorton, Parker, Mannheimer & Raife, P.C., Des Moines, for appellee Blue Cross of Iowa and Blue Shield of Iowa.

Considered by HARRIS, P.J., and LARSON, SCHULTZ, CARTER and SNELL, JJ.

LARSON, Justice.

Randy Davis was employed by the Ottumwa YMCA in late 1982. One of the fringe benefits of this job was coverage under a group health insurance policy with Blue Cross and Blue Shield of Iowa (Blue Cross). Health insurance coverage was critical to Davis because his daughter, Wendy, was a Down's syndrome child. Wendy soon required extensive medical treatment, and Davis looked to Blue Cross for reimbursement. Blue Cross denied coverage on the ground that Davis's employer, the YMCA, had allowed the policy to lapse for nonpayment of the premium. This left Davis without any coverage because he had canceled his private Blue Cross policy at the time he took the YMCA job.

Davis sued for reimbursement of Wendy's medical expenses and joined in the action the YMCA, Blue Cross, and State Farm Insurance Company, which had taken over the YMCA's group plan. The district court dismissed Davis's claims as to all defendants, and he appealed. We reverse and remand.

On appeal, four issues are raised: (1) whether a federal statute, 29 U.S.C. §§ 1001 et seq., preempted Davis's common-law actions for breach of contract and negligence; (2) whether the district court abused its discretion in refusing to allow Davis to amend his petition to add a claim under the federal act; (3) whether Davis's appeal was timely as to State Farm Insurance Company, which had been dismissed from the action approximately two years earlier; and (4) whether a genuine issue of material fact could be generated against the defendants.

I. The Preemption Claim.

There is a federal statute called the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq., which deals with the area of employment benefits. In Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), the Supreme Court recognized a broad preemptive effect of ERISA on similar actions arising out of employment relationships. In Pilot Life, the plaintiff instituted a diversity action against the defendant insurance company in federal court. His complaint contained three counts: tortious breach of contract, breach of fiduciary duties, and fraud in the inducement. The defendant moved for summary judgment on preemption grounds, and the motion was granted. The federal court of appeals reversed, but the United States Supreme Court agreed with the district court that the common-law action was preempted by ERISA. The Court concluded that the causes of action asserted in plaintiff's complaint "relate to" an employee benefit plan, and therefore fall within ERISA's express preemption clause, § 514(a), as set forth in 29 U.S.C. section 1144(a). ¹

In the instant case, it is also clear that the claims in Davis's petition "relate to" an employee benefit plan and are, apparently, preempted by ERISA. Davis argues that he falls under an exception to ERISA because his case is based on state statutes "regulating" insurance companies. See Pilot Life, 481 U.S. at 45, 107 S.Ct. at 1552, 95 L.Ed.2d at 46 ("The saving clause excepts from the preemption clause laws that 'regulate insurance.' "). The Iowa "regulating" statutes on which Davis says his suit was based are Iowa Code chapter 91A, requiring the labor commissioner to collect "wages" and defining wages to include health insurance benefits, and Iowa Code section 509B.3, which requires all group policies to include conversion privileges.

The problem with Davis's exemption argument is that his petition did not mention, or even suggest, that these statutes were involved. He did not identify either statute by Code number or by alleging their substance. Moreover, we do not believe either statute is one "regulating insurance." Chapter 91A provides for employees' suits against employers for "wages," which Davis argues include health insurance premiums. Pilot Life held that, to be a basis for exemption from ERISA, "a law must not just have an impact on the insurance industry, but be specifically directed toward that industry." Id. at 50, 107 S.Ct. at 1554, 95 L.Ed.2d at 49. In determining whether the statute "regulates" insurance, we must not be guided by a single sentence or segment in the statute but by the provisions of the whole act, including its object and policy. Id. at 51, 107 S.Ct. at 1555, 95 L.Ed.2d at 50.

Chapter 91A is not a statute which is excepted from coverage of ERISA. Its title is the "Iowa Wage Payment Collection Law," Iowa Code § 91A.1, and it deals exclusively with employer/employee relationships. It does not even purport to regulate insurance.

Davis also argues that his case is based on section 509.3, although he does not mention it by number. This section requires conversion privileges in all health insurance policies. Defendants' failure to allow Davis to convert from the group plan to an individual plan violated section 509.3, according to Davis. Section 509.3, however, only requires that group policies include conversion privileges; it does not deal with negligence or breach of contract by persons who allegedly lose those rights for their employees, as claimed here. Furthermore, the policy under which Davis thought he had coverage did include a conversion privilege.

We hold that Davis's claims are preempted by ERISA, because they "relate to ... [an] employee benefit plan" and do not fall within any of the exceptions to preemption contained in the ERISA statute. See Pilot Life, 481 U.S. at 45, 107 S.Ct. at 1552, 95 L.Ed.2d at 46.

The question remains whether Davis pleaded his case in such a way as to be under ERISA. The district court held that Davis's petition could not be construed to assert an ERISA claim and that he should not be permitted to amend his petition in order to include such a claim. These rulings provide the bases for the next two issues.

II. Notice Pleading.

Our rules, and the cases under them, evidence a liberal view of pleading. Rule of civil procedure 69(a) requires only that a petition include "a short and plain statement of the claim showing that the pleader is entitled to relief." This rule has been interpreted to turn on the reasonableness of the notice conveyed by the petition. The rule does not require the identification of a specific theory of recovery if it advises the defendant of the incident out of which the claim arises and gives fair notice of the general nature of the claim. Stessman v. Black Hawk Broadcasting Co., 416 N.W.2d 685, 686 (Iowa 1987); Unertl v. Bezanson, 414 N.W.2d 321, 324 (Iowa 1987).

Despite the liberality of our pleading rules, however, we still require that a petition give "fair notice" of the claim. Shill v. Careage Corp., 353 N.W.2d 416, 420 (Iowa 1984); Gosha v. Woller, 288 N.W.2d 329, 331 (Iowa 1980). The key in the present case, therefore, is whether Davis's original petition was sufficient to provide fair notice to the defendants that he was making a claim under ERISA.

It is clear that an ERISA claim was not in the contemplation of any of the parties at the outset. It was only after Pilot Life was decided in April 1987 that the parties attempted to conform their pleadings to the holding of that case. On May 7, 1987, Blue Cross and the YMCA sought to amend their answers and their previous motions for summary judgment. The court allowed the defendants' amendments. On June 3, 1987, Davis attempted to amend his petition to assert an ERISA claim. This chronology of events is a clear indication that none of the parties, most significantly the defendants, had "fair notice" from Davis's petition of an ERISA claim. It is difficult to believe that a state common-law claim based on negligence and breach of contract could be construed to be fair notice of an intent to rely on a federal statutory claim.

In this respect, the present case is similar to Shill, in which the petitioner originally pleaded only negligence and gave no hint of the theory of implied warranty on which the plaintiff attempted to rely. It is also similar to Gosha, in which the plaintiff pleaded only an express warranty and the district court found for him on the basis of implied warrant of habitability. In both of these cases, we held the petitions were inadequate to convey fair notice to the defendants. We reach that same conclusion here. This raises our next issue of whether Davis should have been allowed to amend his petition to assert an ERISA claim.

III. The Attempted Amendment.

Davis's attempt to amend his petition to assert an ERISA claim, filed approximately 130 days before the trial date, was rejected by the district court which held it would substantially change the issues and would result in a "gross injustice" to the defendants. The amendment basically restated the earlier allegations of the petition but added elements and damage for emotional distress and attorney fees. Davis argues that these changes were not so substantial as to justify rejection of his proposed amendment, pointing to the similarity in the issues and the relatively long time remaining before the date set for trial. He further argues that it was unfair for the court to allow the...