Eversole v. Metropolitan Life Ins. Co., Inc.

• Decision Date: 15 September 1980
• Docket Number: No. CV 80-3269 MRP.,CV 80-3269 MRP.
• Citation: 500 F. Supp. 1162
• Court: U.S. District Court — Central District of California
• Parties: Ann EVERSOLE, Plaintiff, v. METROPOLITAN LIFE INSURANCE CO., INC., Defendant.

500 F. Supp. 1162

Ann EVERSOLE, Plaintiff, v. METROPOLITAN LIFE INSURANCE CO., INC., Defendant.

No. CV 80-3269 MRP.

United States District Court, C. D. California.

September 15, 1980.

Douglas L. Hallett, Adams, Duque & Hazeltine, Los Angeles, Cal., for plaintiff.

Harvey R. Levine, Shernoff & Levine, San Diego, Cal., for defendant.

OPINION

PFAELZER, District Judge.

On June 11, 1980, plaintiff Ann Eversole filed this civil action in the Superior Court of the State of California for the County of Los Angeles. The named defendants are Metropolitan Life Insurance Company ("Metropolitan") which issued a group insurance policy covering plaintiff to her employer, Litton Industries, Inc. and the Metropolitan employee who apparently was responsible for the denial of plaintiff's claim for medical benefits. The complaint seeks compensatory and punitive damages based on four causes of action under state law: 1) Breach of the Duty of Good Faith and Fair Dealing; 2) Common Law Fraud; 3) Breach of Fiduciary Duties; and 4) Breach of Statutory Duties under California Insurance Code § 790.03 (unfair insurance practices). The gravamen of the complaint is defendants' alleged bad faith denial of plaintiff's claim for medical benefits due under the insurance policy.

On July 25, 1980, defendants removed the action to this Court pursuant to 28 U.S.C. § 1441(a), (b). They contend that Metropolitan's group insurance policy is an "employee benefit plan" ("EBP" or "plan") governed exclusively by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1381 (1976). Federal district courts have original concurrent jurisdiction over actions to recover benefits due under an employee benefit plan and exclusive jurisdiction over all other private ERISA actions. 29 U.S.C. § 1132(e)(1).

Following removal of the action to this Court, defendants filed a Motion to Dismiss for Failure to State a Claim, or in the Alternative, for a More Definite Statement. The ground for their motion is that ERISA not only governs any action against the plan, but it also totally preempts plaintiff's state law claims, thereby requiring their dismissal. Further, defendants contend that plaintiff's failure to properly state a claim under ERISA requires either dismissal or a more definite statement.

Plaintiff's position is that ERISA does not govern group insurance policies issued to or purchased by employee benefit plans because ERISA exempts state laws regulating insurance from preemption. 29 U.S.C. § 1144(b)(2)(A). Therefore, plaintiff's state law claims against the insurance company are valid, and the action should be remanded to the state courts.

In light of the widespread usage of group insurance policies by employers, the question of ERISA preemption carries far-reaching implications for the substantive rights of countless policyholders, the duties of the insurers under those policies, and the caseload of the federal courts. Unfortunately, neither the sections of ERISA defining its coverage, 29 U.S.C. §§ 1002-03, and providing for preemption of state law, id. § 1144, the prior case law¹, nor the scholarly commentary² provide a clear answer to the problems raised here: 1) Does ERISA apply to the relationship between an insurance company and the insured when the insurance policy is issued to an employee benefit plan? 2) If it does apply, to what extent does ERISA preempt the policyholder's state law claims against the insurance company?

I. ERISA coverage

The initial approach to the question of ERISA coverage must be by analysis of the statute itself. The relevant subchapter of ERISA applies to "any employee benefit plan" established or maintained by an employer or employee organization. 29 U.S.C. § 1003(a). The term "employee benefit plan" includes "employee welfare benefit plan," id. § 1002(3), which is defined as follows:

The terms "employee welfare benefit plan" and "pension plan" mean any plan, fund, or program which was heretofore or is hereafter 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, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 186(c) of this title (other than pensions on retirement or death, and insurance to provide such pensions).

Id. § 1002(1) (emphasis added). In this case, plaintiff's benefit plan was established by her employer for the purpose of providing medical and other benefits through the purchase of insurance. The statute, read carefully, covers the plan in the instant case.³

Further support for ERISA coverage may be drawn from ERISA's definition of an ERISA "fiduciary":

A person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

29 U.S.C. § 1002(21)(A). Here, the Summary Plan Description of plaintiff's benefit plan names Metropolitan as fiduciary of the plan, and more importantly, provides that Metropolitan has the authority to grant or deny claims. Accordingly, Metropolitan seems to have the requisite "discretionary authority" in the administration of the plan to qualify as an ERISA fiduciary. Alternatively, Metropolitan may also be a fiduciary by virtue of its management or control over the primary asset of this plan, the policy itself. See 29 U.S.C. § 1101(b)(2) (assets of the plan include insurance policy).

Plaintiff contends that the insurance company is separate from the plan, that it controls only its own assets rather than the assets of the plan, and that a mere contractual relationship with a plan does not transform an insurance company into an ERISA fiduciary. See Cate v. Blue Cross, 434 F.Supp. 1187, 1190-91 (E.D.Tenn.1977).

Plaintiff's arguments seem persuasive, especially in light of ERISA's exemption of state insurance laws from preemption, discussed infra, but they appear to have been rendered untenable by Department of Labor regulations prescribing the minimum requirements for fair claims procedures in ERISA plans. These regulations provide inter alia:

To the extent that benefits under an employee benefit plan are provided or administered by an insurance company, insurance service, or other similar organization which is subject to regulation under the insurance laws of one or more States, the claims procedure pertaining to such benefits may provide for review of and decision upon denied claims by such company, service or organization. In such case, that company, service, or organization shall be the "appropriate named fiduciary" for purposes of this section.

29 C.F.R. § 2560.503-1(g)(2) (1979). The quoted language is explained by the Department of Labor as follows:

Where review and final decision on claims is performed by an insurance company, insurance service or similar organization as provided in a plan's claims procedure, the insurance organization is the "named fiduciary." ...

Many insurance carriers and associations objected to the position taken in the proposed regulation concerning insurance carriers as named fiduciaries, on the grounds that the employee benefit plan provided by an employer to its employees is not synonymous with the insurance contract entered into by the employer and the insurer as a vehicle to accomplish the payment of benefit claims. A person is a fiduciary by operation of section 3(21)(A)(iii) of the Act if the person exercises discretionary authority or discretionary responsibility in the administration of a plan. If this is the case under the terms of a particular plan regarding final decision on appeals from claim denials, the plan has effectively designated that person a named fiduciary.

42 Fed.Reg. 27426, 27427 (May 27, 1977).

This regulation would seem to be a binding "legislative rule" since it was promulgated under the Labor Department's delegated statutory authority under 29 U.S.C. §§ 1133, 1135 to establish fair claims procedures. See Batterton v. Francis, 432 U.S. 416, 97 S.Ct. 2399, 53 L.Ed.2d 448 (1977); Buczynski v. General Motors Corp., 616 F.2d 1238, 1242-43 (3d Cir. 1980) (ERISA regulation held binding). But even if the regulation is not absolutely binding, this Court is convinced that it is consistent with the statute and should be followed. See 2 Davis, Administrative Law § 7:8 at 36-37 (2d ed. 1979). Finally, it appears without question that this regulation covers the situation in this case, i.e., an employer providing an EBP by means of insurance policies where the insurer exercises discretionary authority over claims denials and is therefore a fiduciary.

On the basis of the foregoing analysis, the Court holds that plaintiff is a participant in an ERISA plan and that Metropolitan is an ERISA fiduciary. Consequently, although she has not done so, plaintiff could have asserted a claim under ERISA for benefits due under the plan, 29 U.S.C. § 1132(a)(1)(B), as well as one for breach of fiduciary duty, id. §§ 1132(a)(2), 1109(a).

II. Preemption of State Law

The fact that ERISA may apply to this dispute by imposing fiduciary obligations on defendants and bestowing legal rights on plaintiff does not, however, resolve the difficult question of ERISA...