Henkin v. Northrop Corp.

• Decision Date: 10 December 1990
• Docket Number: No. 89-55683,89-55683
• Citation: 921 F.2d 864
• Parties: , 13 Employee Benefits Ca 1409 Marilyn HENKIN, Plaintiff-Appellant, v. NORTHROP CORPORATION, a Delaware corporation; the Prudential Insurance Company of America, a New Jersey corporation; Provident Life and Accident Insurance Company, a Tennessee corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 864

921 F.2d 864

59 USLW 2447, 13 Employee Benefits Ca 1409

Marilyn HENKIN, Plaintiff-Appellant, v. NORTHROP CORPORATION, a Delaware corporation; the

Prudential Insurance Company of America, a New Jersey

corporation; Provident Life and Accident Insurance Company,

a Tennessee corporation, Defendants-Appellees.

No. 89-55683.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 3, 1990.

Decided Dec. 10, 1990.

Mark T. Young, Mayer, Glassman & Gaines, Los Angeles, Cal., for plaintiff-appellant.

James J. Moak and Kevin W. Manning, Adams, Duque & Hazeltine, Los Angeles, Cal., for defendant-appellee The Prudential Ins. Co. of America.

Joseph M. Rimac and Kevin W. Manning, Adams, Duque & Hazeltine, Los Angeles, Cal., for defendant-appellee Provident Life and Acc. Ins. Co.

Appeal from the United States District Court for the Central District of California.

Before ALARCON and NORRIS, Circuit Judges, and CALLISTER, ^* District Judge.

CALLISTER, District Judge:

In this action brought under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Secs. 1001 to 1461 (1988), we must review the interpretation of two insurance policies. The insured, Harold Henkin, was covered by two group accidental death policies issued pursuant to his employment. Henkin died thirty-one days after he was fired from that employment. The plan administrators denied coverage, and his widow, Marilyn Henkin, brought this suit to overturn their ruling. The district court granted the plan administrators' motions for summary judgment and Marilyn Henkin appeals.

Harold Henkin, a married father of three children, was employed by Northrop Corporation (Northrop) in 1982. He enrolled in two group accidental death and dismemberment policies established by Northrop for its employees. The first policy, with defendant Provident Life and Accident Insurance Company (Provident), provided $120,000.00 in benefits upon accidental death. The second policy, with defendant Prudential Insurance Company of America (Prudential), provided $42,500.00 in benefits upon accidental death. It is undisputed that both plans are ERISA plans.

On April 30, 1987, Northrop wrote a letter to Harold Henkin informing him that he was "terminated effective 29 April 1987" because of his unexcused absence from work since April 21, 1987. On May 30, 1987, Harold Henkin died of accidental causes. His widow filed this suit after her claim for benefits was denied by Prudential and Provident. Her suit claims that she is entitled to benefits for two reasons: (1) Califomia Insurance Code Sec. 10209 (West 1972) mandates coverage under both policies; and (2) the language of the Provident policy provided that her husband was insured at the time of his death. ¹

Provident and Prudential moved for summary judgment. The district court rejected Marilyn Henkin's claim that Sec. 10209 mandated coverage, and found that the language of the Provident policy did not cover Harold Henkin at the time of his death. The district court granted the summary judgment motions, and that decision was appealed by appellant Marilyn Henkin.

We review de novo the district court's award of summary judgment. Kruso v. International Telephone and Telegraph Corp., 872 F.2d 1416, 1421 (1989), cert. denied, --- U.S. ----, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). In reviewing the decision of Prudential and Provident to deny ERISA plan benefits, we are guided by Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). There, the Court held that a denial of ERISA benefits is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan. In that situation, an arbitrary and capricious standard of review is applicable. Id. at 115, 109 S.Ct. at 956.

In this case, review of Prudential's denial of benefits proceeds de novo; counsel cited no discretionary provision in the Prudential policy to the contrary.

The Provident policy does contain a provision giving Provident "the final responsibility to determine the proper amount of each claim payment under the terms of the insurance contract." Provident argues that this provision triggers an arbitrary and capricious standard of review under Firestone. But we need not decide this issue. As will be made clear below, the denial of benefits withstands scrutiny even if the de novo standard is employed. We will therefore employ the de novo standard in examining the denials under both plans.

We turn first to appellant's argument that Sec. 10209 of the California Insurance Code mandates coverage. That statute contains two subsections relevant to this suit. Subsection (b) provides that group life policies shall contain a provision giving a fired employee thirty-one days "after such termination" to convert the group life policy to an individual policy. Subsection (d) provides that if the fired employee dies within this thirty-one day period without filing a conversion application, he will nevertheless be entitled to the benefits he would have received had an individual policy been issued. ²

Northrop designated Harold Henkin's termination date as April 29, 1987. He died thirty-one days later without filing a conversion application. If Sec. 10209 is applicable, subsection (d) mandates coverage.

The applicability of Sec. 10209 turns initially on whether it is preempted by ERISA. ERISA is a remedial statute designed to protect the interests of employees in pension and welfare plans, and to protect employers from conflicting and inconsistent state and local regulation of such plans. Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir.1985). The latter purpose is achieved through the preemption, with a few exceptions, of all state laws relating to employee pension and welfare benefit plans. 29 U.S.C. Sec. 1144. One of the exceptions to preemption saves state laws that "regulate insurance." 29 U.S.C. Sec. 1144(b)(2)(A). The United States Supreme Court has interpreted ERISA to provide that a state law "regulates insurance" when it is limited to the insurance industry; has the effect of transferring or spreading a policyholder's risk; and relates to the policy itself. Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 743, 105 S.Ct. 2380, 2391, 85 L.Ed.2d 728 (1985). The specific decision in Metropolitan was that ERISA does not preempt a state statute requiring minimum mental health care benefits for all state residents covered by general health policies. The Court found that this statute regulated insurance because it applied only to insurers and dictated the contents of policies. Id. at 743, 105 S.Ct. at 2391.

We can discern no reason to treat mandated conversion rights differently than mandated mental health benefits. In Metropolitan, the Court noted that statutes mandating policy terms are commonplace, and that "mandated-benefit statutes, then, are only one variety of a matrix of state laws that regulate the substantive content of health-insurance policies to further state health policy." Id. at 729, 105 S.Ct. at 2384. The Court noted that nearly every court that has addressed the question has concluded that mandated policy language statutes are not preempted by ERISA. Id. at 742 n. 18, 105 S.Ct. at 2390 n. 18. We therefore find that Sec. 10209 is a state law "regulating insurance" and hence is saved from ERISA preemption.

The next issue to be resolved is whether Sec. 10209 applies to accidental death policies. This is a question of state law. The California Supreme Court has addressed this issue in dicta, but not in an authoritative holding. Williams v. American Casualty Co., 6 Cal.3d 266, 491 P.2d 398, 98 Cal.Rptr. 814 (1971). When a decision turns upon applicable state law, and the state's highest court has not adjudicated the issue, this Court must determine what decision the highest state court would reach if faced with the issue. Molsbergen v. United States, 757 F.2d 1016 (9th Cir.1985), cert. dismissed, 473 U.S. 934, 106 S.Ct. 30, 87 L.Ed.2d 706 (1985). Dicta from the highest court in the state, while not controlling, is relevant to this inquiry. Janikowski v. Bendix Corp., 823 F.2d 945, 950 (6th Cir.1987); Nicolson v. Life Ins. Co. of Southwest, 783 F.2d 1316, 1319 (5th Cir.1986). Thus, the California Supreme Court's dicta in Williams may be of some value in determining whether Sec. 10209 applies to accidental death policies. In Williams, Harold Williams died twenty-five days after being terminated from his employment. His widow made claim under an accidental death policy. The lower court decided that coverage had ceased before Harold Williams died, but this decision was reversed on appeal. The California Supreme Court examined a clause in the policy that terminated coverage for an employee "on the first premium due date" following his firing. Because premiums were paid by payroll deduction with no clear "due date," the court found the termination of coverage provision ambiguous and interpreted it against the insurer.

The insurer then argued that a premium payment deducted from William's September 27, 1964, payroll check was retumed to him just before his death on October 25, 1964, and thus there was no coverage. But the court interpreted the policy to provide a thirty-one day grace period. Then, in dicta, the court stated that this grace period was common in the industry, and pointed to Sec. 10209's thirty-one day conversion privilege. The court noted that while Sec. 10209 applies to group life insurance and that "[u]nder the instant group disability policy, the insurer does not have an analogous obligation" under Sec. 10209 to provide a thirty-one day grace period, nevertheless it is not unreasonable to find a thirty-one day grace period requirement in the accidental death policy itself. 6 Cal.3d at 277 n. 9, 491 P.2d 398, 98 Cal.Rptr. 814.

The policy in Williams was an...