Dearth v. Great Republic Life Ins. Co.
| Decision Date | 24 September 1992 |
| Docket Number | No. B055173,B055173 |
| Citation | 9 Cal.App.4th 1256,12 Cal.Rptr.2d 78 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Carl A. DEARTH and Kara Dearth, Plaintiffs and Appellants, v. GREAT REPUBLIC LIFE INSURANCE COMPANY, et al., Defendants and Respondents. |
Shernoff & Scott, Newport Beach, and Marian H. Tully, Claremont, for plaintiffs and appellants.
Baltaxe & Baltaxe, Michael F. Baltaxe, Encino, Buxbaum & Chakmak and John Chakmak, Newport Beach, for defendants and respondents.
Appellants, Carl A. Dearth and Kara Dearth ("Dearths") brought the underlying action in the Superior Court of the County of Los Angeles against respondent Great Republic Life Insurance Company ("Great Republic") and respondents David A. Nagler and Nagler & Nagler Insurance Agency ("Nagler"). The underlying action involves a policy of group health insurance ("the Policy") issued by Great Republic to Dearth's employer Pacemaker Enterprises Inc. ("Pacemaker"), a California corporation, covering Pacemaker's employees.
Nagler acted as Great Republic's agent in introducing the Policy to Pacemaker and its employees. Great Republic eventually refused to pay the Dearths certain benefits under the Policy, and Dearth brought suit against Great Republic and Nagler on a variety of related theories.
Great Republic moved for summary judgment below on the grounds that all of the claims of Dearth against it were preempted by virtue of the Employee Retirement Income Security Act of 1974 ("ERISA") (29 U.S.C., § 1001 et seq.). Nagler joined in Great Republic's Motion on the grounds that if the Policy is ERISA regulated, all causes of action against Nagler are also preempted. The trial court granted summary judgment for both Great Republic and Nagler on grounds of ERISA preemption. This appeal followed.
Pacemaker, which is in the business of general contracting, selected group health insurance coverage offered by Great Republic. Pacemaker made arrangements for Nagler to make a presentation to Pacemaker's employees at Pacemaker's place of business on the subject of group health insurance to be provided by Great Republic for the employees of Pacemaker. On January 25, 1985, the employees of Pacemaker met with David Nagler at Pacemaker's place of business, and the employees applied to Great Republic for group health insurance coverage known as "The Solution Plan" for a policy of insurance for Pacemaker's employees.
Carl A. Dearth was employed by Pacemaker during the period from January 7, 1985, to February 15, 1986. On January 25, 1985, the Dearths made written application to Great Republic with the other Pacemaker employees for group health insurance coverage. A copy of the Dearths' application (the "Application") for group health insurance to Great Republic is included in the record on appeal.
With the applications for insurance by its employees, including the Dearths' application, Pacemaker submitted its check in the amount of $892.00 for the first month's premium for the Dearths and the other employees.
The Dearths' application, as well as the applications of the other employees of Pacemaker was approved by Great Republic and insurance coverage was issued for the employees of Pacemaker by Great Republic effective March 1, 1985, policy No. SCAS 20791. A copy of the policy certificate booklet issued for the Dearths is included in the record on appeal. The Dearths' second amended complaint contains allegations that "GREAT REPUBLIC issued a group medical and hospital insurance policy No. S CAS20791 ... to Pacemaker Enterprises ... covering plaintiffs ... as members of the group." Insurance coverage for the Dearths under the Policy was issued only after Great Republic reviewed and approved the Dearths' application.
During the period of time that Carl A. Dearth was employed by Pacemaker, it was the policy of Pacemaker to provide its employees and their dependents with an employee benefit package, including group health insurance, vacation, and sick leave benefits. There was an agreement to provide the Policy benefits as part of the employment relationship between Pacemaker and its employees. Pacemaker made the monthly premium payments for group insurance coverage under the Policy for its employees. Effective March 1, 1985, Pacemaker provided group health insurance coverage under the Policy to the Dearths as a benefit of Carl A. Dearth's employment with Pacemaker. Kara Dearth was insured under the Policy as a dependent of Carl A. Dearth.
Pursuant to the Application, billings for the monthly insurance premiums for the Dearths' insurance coverage under the Policy were sent to and paid by Pacemaker. If Pacemaker failed to make the monthly premium payments, insurance coverage under the Policy for Pacemaker's employees and their dependents would automatically terminate. Pacemaker made the decision to cancel the Policy for its employees and their dependents. Pacemaker had certain duties with regard to administering the Policy. Those duties included the following:
1. Selection and endorsement of the Policy;
2. Verification of eligibility of employees for insurance coverage under the Policy and Policy benefits;
3. Adding and deleting employees from the Policy by giving appropriate notice to Great Republic;
4. Obtaining and submitting applications for insurance coverage from employees to be insured under the Policy;
5. Advising employees to complete claim forms;
6. Distributing certificate booklets to employees describing the Policy benefits;
7. Reviewing monthly premium billings from Great Republic for accuracy and reporting any errors to Great Republic;
8. Paying a monthly fee to Great Republic for administration of the Policy by Great Republic for Pacemaker;
9. Corresponding with Great Republic regarding Policy benefits for employees;
10. Designating the insurance agent who would service the Policy with respect to employees;
The Application contains misrepresentations or concealment of material facts in that the Dearths knew that Kara Dearth was pregnant at the time the Application was completed. Had Great Republic known that Kara Dearth was pregnant, it would have refused to issue insurance coverage for the Dearths and the Application so states.
The claims of the Dearths for Policy benefits at issue in this action are for the childbirth of their son on June 18, 1985, and for charges incurred as the result of treatment rendered to Baby Boy Dearth from his birth on June 18, 1985, until his death on July 19, 1985. Great Republic's investigation of the Dearths' insurance claims revealed that Baby Boy Dearth was born with a 35 week gestation period, that Kara Dearth was first seen for her pregnancy on November 24, 1984, and that she tested positive for pregnancy on January 2, 1985, (about three weeks before the application was completed). Baby Boy Dearth was born with severe congenital defects, including lung disease, pneumonia, and emphysema.
The Policy specifically provides that maternity insurance is not covered. The Policy specifically excludes pregnancy benefits, and the Policy contains a preexisting condition limitation which would also apply to exclude pregnancy benefits for Kara Dearth.
The Policy requires that newborn infants must be enrolled for insurance coverage under the Policy within 30 days of birth or have a completed health statement submitted for acceptance by Great Republic. Baby Boy Dearth was never enrolled for insurance coverage under the Policy, nor was any health statement ever submitted to Great Republic for him.
On June 25, 1986, the Dearths filed their complaint in this action. The Dearths filed a first amended complaint on July 3, 1986, and a second amended complaint on April 14, 1987. The Dearths' second amended complaint contains causes of action against Great Republic for breach of the duty of good faith and fair dealing, breach of statutory duties, and breach of contract. The Dearths' second amended complaint also contains causes of action against Nagler for breach of statutory duties, negligence, and breach of fiduciary duty.
Great Republic took the deposition of the designated representative of Pacemaker, John Charles Smida, on June 15, 1990. The deposition subpoena for the designated representative of Pacemaker specifically requested records relating to employee benefits and any employee benefit plan maintained by Pacemaker for its employees.
After discovering the existence of an employee benefit plan as a result of Mr. Smida's deposition, Great Republic also took other depositions. On July 10, 1990, Great Republic took the depositions of Stephen Adams, Elizabeth Adams and Robert King. Mr. Adams is the owner and president of Pacemaker. Mrs. Adams was the office manager and the secretary/treasurer of Pacemaker. Mr. King is the vice-president of Pacemaker.
Having discovered the existence of ERISA preemption as a result of the deposition of John Charles Smida and the other depositions described above, on June 21, 1990, Great Republic filed its motion for summary judgment or summary adjudication of issues.
Nagler filed a notice of joinder in Great Republic's summary judgment motion. The summary judgment motion was heard on July 24, 1990. At the time of the hearing, the Dearths' attorney requested "leave to amend this to state an action under ERISA." The court told the Dearths' attorney to "go ahead and file whatever papers are necessary." Great Republic's summary judgment motion was granted. The summary judgment motion was submitted as to Nagler and subsequently granted as to Nagler. Judgment was entered in favor of Great Republic on October 4, 1991. Although over two months elapsed between the time of the hearing on the summary judgment motion and the entry of judgment, the Dearths never filed any motion to amend their pleadings as permitted by the court.
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