Hizer v. GMC, Allison Gas Turbine Div.

• Decision Date: 01 June 1995
• Docket Number: No. IP 94-0082-C.,IP 94-0082-C.
• Citation: 888 F. Supp. 1453
• Parties: Debra L. HIZER, Plaintiff, v. GENERAL MOTORS CORPORATION, ALLISON GAS TURBINE DIVISION, Metropolitan Life Insurance Company, and Allison Engine Company, Inc., Defendants.
• Court: U.S. District Court — Southern District of Indiana

888 F. Supp. 1453

Debra L. HIZER, Plaintiff, v. GENERAL MOTORS CORPORATION, ALLISON GAS TURBINE DIVISION, Metropolitan Life Insurance Company, and Allison Engine Company, Inc., Defendants.

No. IP 94-0082-C.

United States District Court, S.D. Indiana, Indianapolis Division.

June 1, 1995.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Richard N. Bell, Cohen & Malad, P.C., Indianapolis, IN, Charles C. Engel, Brownsburg, IN, for plaintiff.

Reginald B. Bishop, Roberts & Bishop, Indianapolis, IN, for defendant.

ENTRY ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

HAMILTON, District Judge.

This case presents several questions concerning interest payable on benefits subject to the federal Employee Retirement Income Security Act (ERISA). Plaintiff Debra L. Hizer claims that defendants have failed to pay her all the interest required by Indiana statute on the proceeds of a life insurance policy that her late husband purchased. Because of a dispute over whether Mr. Hizer's insurance application took effect before his death, the $100,000 benefit was not paid until nearly five years after he died. Mr. Hizer bought the policy pursuant to an employee benefit plan sponsored by defendant General Motors Corporation, so defendants contend that the Indiana statute on which plaintiff bases her claim for additional interest is preempted by ERISA. Plaintiff has filed a motion for partial summary judgment as to the interest rate calculation on the insurance benefits. She has also requested attorneys fees pursuant to ERISA. Defendants have filed a cross-motion for summary judgment.

The court concludes that ERISA preempts the Indiana statute that would otherwise govern plaintiff's right to interest for the delayed payment of life insurance benefits. The court further holds that plaintiff is entitled under ERISA to interest for the delayed payment of benefits, and that the proper measure of interest, under applicable Seventh Circuit authority, is the prevailing market rate or prime rate of interest during the period that payment was delayed. The court grants summary judgment for plaintiff and will award her attorneys fees under ERISA.

Undisputed Facts

Debra L. Hizer is the widow of Virgil L. Hizer. Mr. Hizer worked for Allison Gas Turbine, a division of the General Motors Corporation (collectively "GM").¹ Mr. Hizer was a participant in the General Motors Life and Disability Benefits Program, an approved employee welfare benefit plan governed by ERISA. One benefit under that plan was a Basic Group Life Insurance policy administered by defendant Metropolitan Life Insurance Company ("MetLife").

In April 1988, Mr. Hizer received a MetLife brochure stating he was eligible for Optional Group Life Insurance coverage to supplement the basic coverage he already had. The brochure instructed employees to complete an election form and return it to MetLife to receive the optional coverage. Mr. Hizer executed the election form opting $100,000 of coverage and delivered it to either his foreman or the GM insurance department on July 29, 1988. He later received the contract of insurance.

Mr. Hizer died suddenly on August 24, 1988. Mrs. Hizer filed a claim for the proceeds of the optional coverage on September 19, 1988. MetLife denied the claim, stating that because it had not received the election form until August 2, 1988, coverage did not commence until September 1, 1988 (i.e., the first month after the month in which the election form was received). Mrs. Hizer filed suit against the defendants in state court claiming entitlement to the insurance proceeds. Defendant MetLife removed the action to federal court in Hizer v. General Motors Corp., No. IP 91-123-C (S.D.Ind.). Defendants filed a motion for summary judgment, based on plaintiff's failure to exhaust administrative review procedures. The parties then agreed to stay the action while Mrs. Hizer submitted her claim to MetLife for further administrative review. In that review, concluded on April 27, 1993, MetLife found that Mr. Hizer may have submitted his enrollment form to his foreman before the August 1, 1988, deadline required for the coverage to be in effect at his death. MetLife therefore decided to honor Mrs. Hizer's claim.

On May 19, 1993, MetLife tendered a check to Mrs. Hizer in the amount of $111,999.74, which included $100,000 in benefits under the policy plus interest. Although Mr. Hizer had died nearly five years earlier, MetLife calculated the interest as six percent per annum multiplied by the amount of the proceeds for a period of only two years, or $11,999.74. Mrs. Hizer, not satisfied with the interest calculation, filed a motion for summary judgment requesting a greater amount of interest based on Ind.Code § 24-4.6-1-103, which provides for interest at the rate of eight percent from the date of settlement on money due on most written instruments not specifying a rate of interest.² Judge Tinder dismissed the action on the ground that Mrs. Hizer's only remaining claim, for additional interest under ERISA, was premature because she had not exhausted her administrative remedies.³ Judge Tinder did not rule on Mrs. Hizer's motion because the summary judgment for the defendants had mooted the issue. That decision on summary judgment is final and has not been appealed.

After further administrative review of Mrs. Hizer's claim for additional interest, MetLife rejected the claim. Mrs. Hizer filed the present action on January 25, 1994, seeking an award of interest on the insurance proceeds at the rate of eight percent, again relying on Ind.Code § 24-4.6-1-103. Mrs. Hizer seeks to invoke this court's federal question jurisdiction under ERISA, 29 U.S.C. § 1132(e). She also seeks attorneys fees.

The plan documents applicable to this life insurance policy are silent as to the payment of interest on benefits claimed and awarded. Defendants say, however, it is "customary" for them to pay delayed settlement interest on GM benefits in accordance with the General Motors claims manual. The claims manual says that six percent interest will be paid from the insured's death, but "generally" for no more than two years. Mrs. Hizer does not dispute that point as a factual matter, but bases her claim on Ind.Code § 24-4.6-1-103, which requires payment of interest on money due pursuant to a written instrument. She argues that the state statute requires the interest to be paid at an annual rate of eight percent where the instrument is silent as to interest, and that the statute applies to defendants. Thus, Mrs. Hizer claims she is entitled to the difference between the interest defendants actually paid her on May 19, 1993, and the interest that would have accrued by that time had it been calculated at eight percent, plus interest since May 19, 1993, on that difference.

Summary Judgment Standard

Summary judgment should be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. E.g., Glass v. Dachel, 2 F.3d 733, 740 (7th Cir.1993). The fact that the parties have filed cross-motions for summary judgment does not affect the applicable standard; the district court should deny both motions if there is a genuine issue of material fact. E.g., Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993). In this case, however, the material facts relevant to the parties' motions are not in dispute.

The Merits

The parties' motions raise several questions about the relationship between ERISA and state law concerning interest payable on monetary obligations, and the scope of federal question jurisdiction under ERISA. The questions are significant in cases like this one, where substantial plan benefits are not paid until long after payment was due. As discussed below, the court concludes first that it has subject matter jurisdiction over this case because ERISA preempts the Indiana statute that would otherwise control the interest due on delayed payment of benefits under an ERISA plan. Next, the court recognizes under the common law of ERISA a right to payment of interest on delayed payments of benefits. Third, the court holds that, under controlling Seventh Circuit reasoning, interest for delayed payment of ERISA benefits should be calculated using market interest rates, such as the prime rate. Fourth, the court finds that plaintiff should be entitled to a market rate of interest in this case beginning thirty days after she submitted her original claim. Finally, the court determines that Mrs. Hizer should be awarded attorneys fees under ERISA.

Subject Matter Jurisdiction and Preemption: This court must first consider whether plaintiff's claim for additional interest arises under federal law. If it does not, the case must be dismissed for lack of subject matter jurisdiction. Plaintiff's claim must be that she is seeking an ERISA benefit — otherwise, the court has no jurisdiction. However, she contends that the measure of that benefit is controlled by an Indiana statute. She further contends that ERISA does not preempt the state statute. See 29 U.S.C. § 1144(a) (ERISA preempts "any and all State laws insofar as they ... relate to an employee benefit plan ..."). The jurisdictional question is how plaintiff's claim for benefits based on an Indiana statute can arise under federal law. The answer is that her claim necessarily arises under federal law, and that the state statute is preempted.

Mrs. Hizer relies on Estate of Pierson by Ewbank v. Pierson, 738 F.Supp. 1230 (S.D.Ind.1990). In Pierson, Judge Dillin found that Ind.Code § 24-4.6-1-103 governed the interest rate to be applied to proceeds of a life insurance policy administered under the GM Employee Benefit Plan, and that the correct rate under the statute was eight percent. In so holding, Judge Dillin found that ERISA did not preempt the Indiana statute regulating interest payable on money judgments because it had only a "remote and peripheral" relation to the employee...