Hamilton v. Mecca, Inc.

• Decision Date: 26 June 1996
• Docket Number: No. CV 495-71.,CV 495-71.
• Citation: 930 F. Supp. 1540
• Parties: McKee Hargrett HAMILTON, as Administrator of the Estate of Philip Hamilton, Jr., Plaintiff, v. MECCA, INC., d/b/a Peacock's Paint Center, and Provident Indemnity Life Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of Georgia

930 F. Supp. 1540

McKee Hargrett HAMILTON, as Administrator of the Estate of Philip Hamilton, Jr., Plaintiff, v. MECCA, INC., d/b/a Peacock's Paint Center, and Provident Indemnity Life Insurance Company, Defendants.

No. CV 495-71.

United States District Court, S.D. Georgia, Savannah Division.

June 26, 1996.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Francis S. Exley, Savannah, Georgia, for plaintiff.

John T. McTier, Valdosta, Georgia, for Mecca.

Steven E. Scheer, Savannah, Georgia, for Provident.

MEMORANDUM AND ORDER

NANGLE, District Judge.

Plaintiff brought the above-captioned action under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq., seeking benefits under a group health plan sponsored and administered by defendant, Mecca, Inc., d/b/a Peacock's Paint Center, and insured by defendant, Provident Indemnity Life Insurance Company. Plaintiff settled her claims against Provident Indemnity Life Insurance Company and a bench trial was held on her remaining claims against Mecca, Inc. Based upon the Findings of Fact and Conclusions of Law set forth below, see Fed.R.Civ.P. 52(a), the Court concludes that plaintiff is entitled to judgment in the amount of $24,059.32.

FINDINGS OF FACT

Defendant, Mecca, Inc., d/b/a Peacock's Paint Center ("Mecca"), operates a number of retail paint stores across south Georgia. In late 1991, Mecca sought a group health insurance policy from defendant, Provident Indemnity Life Insurance Company ("Provident"), to insure the group health plan that Mecca offered to its employees. On January 14, 1992, Provident issued such a policy, policy number C3-1990-0000-2, effective January 1, 1992, insuring those Mecca employees who chose to participate in its group health plan.¹ Mecca is both the "administrator" and "sponsor" of the plan, as those terms are used in ERISA, 29 U.S.C. § 1002(16).²

On April 9, 1993, Philip Hamilton, Jr., now deceased, began working for Mecca as a salesperson in the company's Savannah retail paint store. On May 3, 1993, Mr. Hamilton completed an application for coverage under the group health policy. The application required Mr. Hamilton to answer the following question:

Have you or your dependents in the last five years been medically treated for or diagnosed as having heart disorder, kidney or liver disorder, cancer, stroke or other circulatory disorder, diabetes, high blood pressure, nervous or mental disorder, drug or alcohol dependency, Immunodeficiency Syndrome (AIDS) or AIDS Related Complex or any other health condition whether active or in remission?

Mecca's Exhibit W, at 3. In response to the question, Mr. Hamilton checked "No", id., and did not reveal the fact that he was hospitalized on July 7, 1990, and diagnosed with what the parties have stipulated to be "severe hypertension partially controlled with p.o. Calan, ethanol abuse, history of previous supraventrical tachyarrythmias specifically atrial flutter on at least one occasion."³ The application also contained the following provision just above the signature line:

To the best of my knowledge, I represent that the answers I have given above are full, complete and true. I understand that misstatements, misrepresentations, or omissions on any enrollment form may result in the voiding of insurance coverage as of its effective date with no benefits payable in that event.

Mecca's Exhibit W, at 3.

On July 7, 1993, coverage began under the group policy for Mr. Hamilton, his wife and his daughter. See Plaintiff's Exhibit 4, at 3. The policy provided a variety of medical benefits to Mr. Hamilton and his family, as well as $15,000.00 in life insurance to Mr. Hamilton. Provident thereafter mailed a copy of the policy, insurance cards and certificate of coverage to Mecca for distribution to Mr. Hamilton. The evidence at trial indicated that, although no one at Mecca could specifically remember distributing these materials to Mr. Hamilton, it was Mecca's regular business practice to do so upon receipt of the materials from Provident.

In the summer or fall of 1993, Mecca began looking for a different group policy with lower premiums for its plan participants. However, several of the plan participants, including Mr. Hamilton, had health problems that required the insurance companies to "rate" the group policy, resulting in premiums that were essentially the same as the premiums that the participants were paying to Provident. As a result, Mecca kept the Provident group policy.

Approximately one year after Mr. Hamilton began working for Mecca, on April 5, 1994, he was hospitalized with what was subsequently diagnosed as "congestive heart failure".⁴ On April 6, 1994, Mr. Hamilton's wife and plaintiff in this action, McKee Hargrett Hamilton, notified Mecca of Mr. Hamilton's hospitalization. The owner of Mecca, Gene Peacock, subsequently requested medical information about Mr. Hamilton's condition, and Mr. Hamilton's attending physician wrote two letters to Mr. Peacock indicating that Mr. Hamilton was completely and indefinitely disabled. On April 19, 1994, Mr. Peacock sent the supervisor of Mecca's Savannah store, Bobby Lloyd, to Mr. Hamilton's home to inform him that, because his disability prevented him from returning to work, his employment with Mecca had been terminated effective April 18, 1994. Mr. Peacock followed up Mr. Lloyd's visit to Mr. Hamilton's home with a letter dated April 21, 1994, indicating that his decision to terminate Mr. Hamilton as of April 18, 1994, was necessitated by Mecca's need for help at the Savannah store and the company's inability to pay Mr. Hamilton while he was unable to work. See Peacock's Exhibit E.

Although Mecca had officially terminated Mr. Hamilton on April 18, 1994, Lynn Patrick, Mecca's Corporate Secretary/Treasurer and employee responsible for administering its group health plan, mailed a "notice of termination" form to Provident which indicated that Mr. Hamilton had been terminated as of April 1, 1994. See Plaintiff's Exhibit 5. The form asked for the "Date Employee Terminated (Last Day Worked)", id, and Ms. Patrick testified that, after consulting with Tom Seka at Provident, she put April 1, 1994, as Mr. Hamilton's official termination date because she believed that April 1 was the last day that Mr. Hamilton had worked for Mecca. In fact, Mr. Hamilton worked partial days on both April 4 and 5, 1994, and was considered a full time employee on these dates.

On or about the date of Mr. Hamilton's termination, April 18, 1994, the drug prescription card issued to the Hamiltons under the group policy was rejected by a local pharmacy. On April 20, 1994, Mrs. Hamilton telephoned Mecca to find out why the card had been rejected and she was referred to Provident without any explanation. She thereafter telephoned Provident and spoke to Tom Seka, who informed her that her family's participation under Mecca's group policy had been terminated but that Provident could provide Mr. Hamilton with a private, individual conversion policy. On May 17, 1994, Provident issued a conversion policy that covered only Mr. Hamilton and that had a $1,000.00 deductible and monthly premiums of $275.31.⁵ Mr. Hamilton subsequently terminated his conversion policy, effective July 31, 1994.

The parties have stipulated that, because Mr. Hamilton was both a full-time employee and totally disabled on his last day of work, April 5, 1994, Provident was obligated to provide him with the benefits described in § 7 of the Provident Summary Policy Description.⁶ That section is entitled "Extension of Major Medical Benefits Upon Termination of Insurance While Totally Disabled", and provides:

If an Insured Individual is Totally Disabled on the day his or her insurance ends, the insurance will be extended solely for the Illness or Injury causing that Total Disability. Such benefits will be extended only until the earliest of:

A. the end of that Total Disability; or

B. for 12 months from the date his or her insurance ends; or

C. the payment of the maximum benefit.

Plaintiff's Exhibit 31, at 36. The parties have also stipulated that, because Mecca had 20 or more employees on its payroll during calender year 1993, Mr. Hamilton and his family were entitled to continuation coverage under the group policy pursuant to the COBRA⁷ provisions of ERISA, 29 U.S.C. §§ 1161-1167.⁸ The parties have further stipulated that Provident did not provide Mr. Hamilton with coverage under § 7 of the group policy and that Mecca, as the plan sponsor and administrator, did not provide Mr. Hamilton with the statutorily-required notice of his right to elect continuation coverage under COBRA.⁹See 29 U.S.C. § 1166.

Mr. Hamilton did not receive notice of his rights under COBRA even though Lynn Patrick had, in May of 1993, obtained, filled out and mailed by certified mail a COBRA election form to another Peacock employee. Patrick testified that she did not understand why she had to fill out the form in 1993, that she relied upon the guidance of her agent, Tony Taylor, when she filled it out and that she regularly relied upon Mr. Taylor, as well as Tom Seka of Provident, when a question about the company's group health plan arose. Ms. Patrick further testified that the reason she did not fill out a COBRA election form for the Hamiltons is that, when she telephoned Provident after being unable to reach Tony Taylor, Mr. Seka's only instruction was to fill out a termination form; she was never instructed to fill out a COBRA election form for the Hamiltons.

Although neither party apparently recognized it, Mr. Hamilton could not have simultaneously exercised his rights under both § 7 of the policy and COBRA.¹⁰ By its own terms, § 7 is not triggered unless the "Insured Individual is Totally Disabled on the day his or her insurance ends". By definition, an election of continuation coverage pursuant to COBRA means that the insurance does not end.¹¹ Thus, Mr. Hamilton's election of COBRA coverage...