Elliot v. Fortis Benefits Ins. Co.

• Decision Date: 01 August 2003
• Docket Number: No. 02-35080.,No. 02-35133.,02-35080.,02-35133.
• Citation: 337 F.3d 1138
• Parties: Stephanie ELLIOT, Plaintiff-Appellant-Cross-Appellee, v. FORTIS BENEFITS INSURANCE COMPANY, Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

337 F.3d 1138

Stephanie ELLIOT, Plaintiff-Appellant-Cross-Appellee, v. FORTIS BENEFITS INSURANCE COMPANY, Defendant-Appellee-Cross-Appellant.

No. 02-35080.

No. 02-35133.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 9, 2003.

Filed August 1, 2003.

Donald L. Harris, Cozzens, Warren & Harris, PLLP, Billings, MT, for the plaintiff-appellant.

Robert L. Sterup, Peteresen, Jones, Hingle & Sterup, PLLC, Billings, MT, for the defendant-appellee.

Appeal from the United States District Court for the District of Montana; Richard

F. Cebull, District Judge, Presiding. D.C. No. CV 01-11-RFC.

Before CUDAHY,^* O'SCANNLAIN and GOULD, Circuit Judges.

OPINION

CUDAHY, Circuit Judge.

Stephanie Elliot, a terminally ill former paralegal, sued Fortis Benefits Insurance Company, claiming benefits and other damages under a long-term disability insurance policy she had through her employer. She prevailed on her Employee Retirement Income Security Act (ERISA) claims, and recovered policy benefits and attorney's fees and costs, but lost on Fortis's motion for judgment on the pleadings on her state law claims, under which she sought non-ERISA compensatory and punitive damages. Although recent case law requires us to reconsider whether ERISA preempts such state law claims, we affirm the judgment of the district court.

I.

Stephanie Elliot was first diagnosed with cancer in 1995. She successfully underwent a right modified mastectomy, chemotherapy, stem-cell transplant and other treatment, and her breast cancer was found to be in complete remission. As of July 9, 1997, her oncologists noted that she had "no measurable disease," and regular examinations deemed her cancer-free as late as September 16, 1999. Nonetheless, to lessen the risk that she would develop cancer in the future, Elliot was placed on Tamoxifen¹ therapy beginning in July 1996. According to her doctor, the Tamoxifen was not prescribed for the treatment of any active cancer or other disease.

Elliot started working as a paralegal at the Crowley Law Firm on September 27, 1999. As part of her compensation, she was enrolled in Crowley's long-term disability insurance policy with Fortis Benefits Insurance Company. This coverage was effective as of her first day of work. This policy, however, contained restrictions on coverage for pre-existing conditions, which were defined as follows:

A "pre-existing condition" means an injury, sickness, or pregnancy or any related injury, sickness, or pregnancy for which you:

• consulted with or received advice from a licensed medical or dental practitioner; or

• received medical or dental care, treatment, or services, including taking drugs, medicine, insulin, or similar substances during the 3 months that end on the day before you became insured under the long term disability insurance policy.

Def's Statement of Uncontroverted Facts Ex. A at 20, Record at 22. The policy excludes benefits "for any disability caused by a pre-existing condition" until three consecutive months without treatment have passed or the beneficiary has been continuously insured under the policy for twelve consecutive months.

The first sign that Elliot's health was deteriorating came in December 1999, when her doctor noted elevated levels of Cancer Antigen 27.29, an early portent of cancer. Although her Cancer Antigen 27.29 levels subsequently declined, she suffered from growing headaches and pain in Summer 2000. On August 19, 2000, Elliot was diagnosed with brain and bone cancer. She was taken off Tamoxifen and did not return to work. At the time of this appeal, she was totally disabled and terminally ill.

For the first three months of her disability, Elliot was paid full salary under Crowley's short-term disability policy. Elliot then applied to Fortis for long-term disability benefits.

On October 30, 2000, Fortis sent Elliot a letter explaining the pre-existing condition limitation of her policy. The letter, however, in excerpting the policy provision dealing with pre-existing conditions, recited a requirement, not contained in the actual policy, that insureds be "at active work for a full day following" the three consecutive months of nontreatment or twelve consecutive months of coverage required under the policy. According to the new language, it appeared that Elliot would not qualify for coverage unless she returned to active work. The letter explained that Fortis would be conducting "a routine pre-existing review" because Elliot's date of disability, August 19, was within twelve months of the start of her coverage, September 27 of the preceeding year.

After a review of Elliot's medical history, Fortis denied disability benefits. Fortis reasoned that because Elliot was taking Tamoxifen and undergoing periodic checkups, her earlier breast cancer constituted a pre-existing condition. Because Elliot had a pre-existing condition, she was covered only if she could show three consecutive months of nontreatment or twelve consecutive months of coverage. Fortis found that she had seen doctors and had prescriptions dispensed regularly, with no three-month gap, and that her disability began within twelve months of the start of her coverage. To reach these conclusions, Fortis relied in part on the opinion of Dr. Patrick Cobb, Elliot's oncologist, who reported to Fortis that Elliot's current cancer was a metastasis from her earlier breast cancer and that Tamoxifen was prescribed to prevent the recurrence of breast cancer and its metastasis.

Elliot filed suit in the District of Montana against Fortis, making two claims for relief. First, Elliot sought policy benefits under ERISA. Second, she asserted violations of Montana's Unfair Trade Practices Act (UTPA),² Mont.Code Ann. § 33-18-201, and sought non-ERISA compensatory and punitive damages. She prevailed on the first count, and that is not before us. On the state law claim, the district court granted Fortis's motion for judgment on the pleadings, Fed.R.Civ.P. 12(c), concluding that the state law claim is preempted by ERISA. Elliot appeals this ruling.

II.

We review de novo a Fed. R.Civ.P. 12(c) judgment on the pleadings. McGann v. Ernst & Young, 102 F.3d 390, 392 (9th Cir.1996). ERISA preemption is a question of law, which we also review de novo. Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 874 (9th Cir.2001).

The district court based its finding of preemption on two separate ERISA provisions. First, the district court held that the express preemption of ERISA § 514, 29 U.S.C. § 1144, which contains both a preemption and a saving clause, defeated Elliot's state law claim. Second, the district court noted that even if it were to find the substantive provisions of the UTPA not preempted, ERISA § 502(a), 29 U.S.C. § 1132(a), would preempt the enforcement provision of the UTPA which allows her to enforce the state law rights. We consider in some detail both lines of analysis.

A.

We begin by noting a recent change in the law involving § 1144. Section 1144(a) expressly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" in favor of federal regulation under ERISA. However, § 1144(b)(2)(A) saves from preemption "any law of any State which regulates insurance, banking, or securities." The parties agree that Montana's UTPA, as applied here against Fortis, would fall under § 1144(a). How do we determine whether the UTPA is included in the class of laws regulating insurance that are saved by § 1144(b)(2)(A) from ERISA preemption?

Until April of the current year, courts determining the reach of the ERISA saving clause (including the district court in this case) used a two-step test set forth in Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 740, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). The Metropolitan Life test instructed courts to ask first whether, from a "common-sense view," the state law regulates insurance. The second step was to determine whether the state law regulates "the business of insurance." This is the telling phrase that was borrowed from the McCarran-Ferguson Act.³ See 15 U.S.C. § 1011 ("Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.") (emphasis added). In order to determine whether a given state law regulated "the business of insurance," courts were to consider three elements laid out in Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982) (emphasis omitted): "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."

But in Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, ___, 123 S.Ct. 1471, 1479, 155 L.Ed.2d 468 (2003), the Supreme Court "ma[de] a clean break from the McCarran-Ferguson factors" for determining the reach of the ERISA saving clause. "[F]or a state law to be deemed a `law ... which regulates insurance' under § 1144(b)(2)(A), it must [now] satisfy two requirements. First, the state law must be specifically directed toward entities engaged in insurance.... Second, ... the state law must substantially affect the risk pooling arrangement between the insurer and the insured." Id. (citations omitted). Thus, to determine the reach of § 1144 preemption, we must ask whether the UTPA is "specifically directed toward entities engaged in insurance" and whether it "substantially affect[s] the risk pooling arrangement between the insurer and the insured." As is immediately apparent, both these questions are actually remnants of the Metropolitan Life test,...