Gaines v. Sargent Fletcher, Inc. Group Life Ins.

• Decision Date: 30 July 2004
• Docket Number: No. CV 03-2083 GAF(VBKX).,CV 03-2083 GAF(VBKX).
• Citation: 329 F.Supp.2d 1198
• Parties: Donald GAINES, Plaintiff, v. THE SARGENT FLETCHER, INC. GROUP LIFE INSURANCE PLAN; the Hartford Life Insurance Company Defendant.
• Court: U.S. District Court — Central District of California

329 F.Supp.2d 1198

Donald GAINES, Plaintiff, v. THE SARGENT FLETCHER, INC. GROUP LIFE INSURANCE PLAN; the Hartford Life Insurance Company Defendant.

No. CV 03-2083 GAF(VBKX).

United States District Court, C.D. California.

July 30, 2004.

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Gruber & Kantor, By Glenn R. Kantor, Esq., Corinne Chandler, Esq., Sherman Oaks, CA, for the Plaintiff.

Bannan, Green, Frank & Terzian, LLP, By Lesley C. Green, Esq., Los Angeles, CA, for Defendant Hartford Life and the Sargent Fletcher Long-Term Disability Plan.

Reish, Luftman, Reicher & Cohen, By Joseph C. Faucher, Esq., Los Angeles, CA, for Defendant Sargent Fletcher, Incorporated.

MEMORANDUM AND ORDER REGARDING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

FEESS, District Judge.

I. INTRODUCTION

This case presents a dispute concerning a $150,000 life insurance policy purchased by Plaintiff, Donald Gaines, for his wife Velda, through a benefit plan offered by his employer, Sargent Fletcher, Inc. When Velda died Sargent Fletcher, Inc. Group Life Insurance Plan and the insurance company that issued the policy, Defendant Hartford Life Insurance Company, refused to pay more than $20,000 because Gaines had not provided the insurer with information regarding his wife's health that was supposedly required to purchase the additional $130,000 in coverage. The Plan and Hartford have persisted in refusing to honor Gaines's claim even though Gaines filled out the forms provided to him by his employer and paid monthly premiums on the $150,000 policy until his wife died. Sargent Fletcher deducted these premiums from his paycheck, and forwarded them to Hartford, which accepted the payments without comment, and said nothing about the allegedly missing information until Gaines made his claim.

What the Court finds most noteworthy is that Defendants take this position in the face of the concession by the Sargent Fletcher Human Resources Manager that she was unaware of the requirements being asserted as a defense to Gaines's claim, and that no Sargent Fletcher employees had been advised of the need to supply the information that Gaines had failed to provide. Thus, despite a clear record establishing that Plaintiff did everything asked of him, and that his failure to provide information regarding his wife's health was entirely the fault of Defendants, Defendants insist that Plaintiff should bear the consequences of their failure. As a result, Plaintiff seeks relief from this Court in this lawsuit seeking recovery of benefits under Employee Retirement Income Security Act ("ERISA") section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B).

Defendants now separately and together move for summary judgment. Defendants attempt to make this case appear complex and unmanageable both on the facts and the law, needlessly complicating what is a relatively straightforward dispute. In essence, Defendants maintain that, though the outcome may be unfortunate, the Court should hold that Plaintiff is not entitled to the requested benefits because the Plan language clearly requires that Plaintiff submit evidence of good health in the form of a personal health statement and that the requirement was not met in this case. If the Court disagrees, Hartford seeks a second bite at the apple, requesting that the matter be remanded to it for a final determination on Plaintiff's claim.¹

Plaintiff's opposition, which the Court construes as also being a cross motion for summary judgment, seeks a determination that the decision of Sargent Fletcher and Hartford should be reviewed de novo, and that such review will reveal that the Plan language requiring the submission of "evidence of good health" is ambiguous.² Accordingly Plaintiff contends that the Plan should be construed to require evidence of good health only upon request by the plan administrators, and that their failure to request it from him in this case precludes them from asserting the requirement as a barrier to his claim. Plaintiff contends that such a construction is necessary to protect his reasonable expectations as required by ERISA jurisprudence, and that under such construction Defendants should therefore be: (1) estopped from invoking the Plan's evidence of good health requirement; and (2) deemed to have waived the requirement.

Having reviewed the parties' submissions and heard argument regarding the applicable facts and law, the Court concludes that the fundamental issue presented is whether a participant in an ERISA benefit plan can be denied benefits under a life insurance policy for failing to comply with an undisclosed condition when he has otherwise complied with all directions of the Plan Administrator, properly applied for the benefit and paid the premiums on the policy up until the time a claim was submitted. In other words, the Court must determine whether the defendant-fiduciaries may shift to a plan beneficiary the harm resulting from their own failure to properly advise the beneficiary of the conditions necessary to obtain plan benefits, even when the fiduciaries are in a position of superior knowledge. The Court concludes that when, as is the case here, ERISA fiduciaries breach their respective duties to a beneficiary and render decisions inconsistent with the reasonable expectations of that insured, the answer is unequivocally no.

Accordingly, for the reasons discussed in greater detail below, Defendants' motions for summary judgment are DENIED. In addition, Plaintiff's cross motion for summary judgment on the issues of the applicable standard of review, the reasonable expectations of the insured, estoppel, and waiver is GRANTED. Furthermore, Defendants' request that this matter be remanded to Hartford is DENIED.

II. STATEMENT OF UNDISPUTED FACTS

As of November 2000, Sargent Fletcher sponsored a group life and disability insurance plan ("the Plan") for the benefit of its employees funded by and issued through Hartford Insurance. (Alvarado Decl. ¶ 2).³ One of the benefits provided by the Plan was that insured employees would be eligible to obtain coverage for their dependents. Although Sargent Fletcher is the named Plan Administrator and the Plan is described as "self administered," Sargent Fletcher carried out limited administrative duties, and the actual administration of claims was performed by Hartford.⁴ Sargent Fletcher was given an administrative kit to assist it in carrying out its limited Plan Administrator duties. (SPD ¶ 6; SGI ¶ 38).

A. Plaintiff is Hired, Receives the Enrollment Packet, and Becomes Eligible for Enrollment in the Plan

Plaintiff was hired as an employee of Sargent Fletcher in June 2001 and became eligible to participate in the Plan ninety days later. (SGI to Hartford Motion ¶ 3). At the time of his hire, Plaintiff was given an enrollment packet for the Sargent Fletcher Life Insurance Plan. (Id. ¶ 19; Alvarado Depo. at 0018: 21-22). The enrollment packet contained three items: (1) a brochure describing the various employee life and disability, as well as supplemental life and supplemental dependent life, insurance options, (2) the Plan itself,⁵ and (3) a "Life/Disability Enrollment Form." (Chandler Decl. Exh. A Alvarado Depo. at 0039:2-4; 0007-8:19-06) (hereinafter "Alvarado Depo."). Ms. Alvarado, Human Resources Manager of Sargent Fletcher, testified in her deposition that she believed (incorrectly as the evidence reveals) that the enrollment packet contained all that was required. None of the documents in the enrollment packet — including the Plan itself — referred to a "personal health statement."

1. The Brochure

The brochure contained the following language: In the line labeled "Spouse Benefit," the brochure read: "$10,000 Increments up to $150,000, but not more than 50% of your own coverage approved by Hartford Life." (Chandler Decl. Exh. 10). In the line labeled "Spousal Guarantee Issue Amount," the brochure read: "Spouse coverage may be elected up to $20,000 without answering any medical questions." (Id.). Noticeably absent from the brochure is any mention of a requirement of "evidence of good health" or a "personal health statement." (Alvarado Depo. at 0018:12-15). Moreover, the implicit message of the brochure is that if any medical information is required, an inquiry would be made by Hartford or Sargent Fletcher.

2. The Plan and the Pertinent Plan Provisions

Under the subheading "How do You enroll?" employees are instructed that to enroll they must complete and sign a satisfactory enrollment form; and deliver it to the employer. (Plan attached to S.F.'s Mot. at 25) (hereinafter "Plan"). Under the "Eligibility and Enrollment" subheading, an employee is given the following directions:

When does coverage for Your Dependent(s) Start?

You are required to enroll for contributory Dependent coverage. To do so, You have to complete and sign a group insurance enrollment form acceptable to Us and deliver it to the Employer. Your spouse will become insured for coverage for which we do not require Evidence of Good Health on the first to occur of:

1. the date You are eligible for Dependent Coverage, if You enroll or have enrolled for spousal coverage by then; or

2. The date You enroll for Dependent Coverage, if You do so within 31 days after the date You are eligible. If you enroll for Dependent Coverage more than 31 days after You are first eligible to do so, no coverage will be available without Evidence of Good Health. Coverage for which we require Evidence of Good Health will be effective on the later of:

1. The date You become eligible; or

2. The date approved by Us.

. . . . .

If you enroll for Dependent Coverage more than 31 days after You are first eligible to do so, no coverage will be available without Evidence of Good Health.

Coverage for which We require Evidence of Good Health will be effective once approved by Us.

(Plan at 26) (emphasis added).

Although certain language in the Plan suggests that Evidence of...