Lawrence v. Jackson Mack Sales, Inc.

• Decision Date: 02 November 1992
• Docket Number: Civil A. No. J89-0573(L).
• Citation: 837 F. Supp. 771
• Parties: Pamela S. LAWRENCE, Plaintiff, v. JACKSON MACK SALES, INC., Northbrook Insurance Company and Southern Marketing Services, Defendants.
• Court: U.S. District Court — Southern District of Mississippi

837 F. Supp. 771

Pamela S. LAWRENCE, Plaintiff, v. JACKSON MACK SALES, INC., Northbrook Insurance Company and Southern Marketing Services, Defendants.

Civil A. No. J89-0573(L).

United States District Court, for the S. District Mississippi, Jackson Division.

November 2, 1992.

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Paul Koerber, Jackson, MS, William Featherston, Ridgeland, MS, for plaintiff.

Steven H. Begley, Wells, Wells, Marble & Hurst, Keith Ralston, Heidelberg & Woodliff, Jackson, MS, for defendants.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

Plaintiff Pamela S. Lawrence brought the present action seeking benefits pursuant to an employee benefit plan covered by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132(e), as amended by the Consolidated Omnibus Budget Reconciliation Act (COBRA), 29 U.S.C. § 1161 et seq., and damages relating to the failure to pay such benefits as were allegedly due, including statutory penalties for failure to provide notice of her COBRA rights. The case is now before the Court on the motion of defendant Jackson Mack Sales, Inc. (Jackson Mack) for partial summary judgment, the motions of defendants Northbrook Life Insurance Company (Northbrook) and Southern Marketing Services (Southern Marketing) for summary judgment and Northbrook's motion for summary judgment as to the cross-claim asserted against it by Jackson Mack. Plaintiff Pamela S. Lawrence has responded to defendants' motions, and Jackson Mack has responded to Northbrook's motion. The court, having considered the motions and responses, along with memoranda of authorities and attachments thereto, is of the opinion that defendants' motions for summary judgment as to Lawrence's claims should be granted in part and denied in part and that Northbrook's motion as to Jackson Mack's cross-claim should be denied.

FACTS AND PROCEDURAL HISTORY

On November 1, 1985, Jackson Mack established an employee welfare benefit plan for its employees and their dependents.¹ The plan, with effective dates of November 1, 1985 to December 31, 1988, was funded through group insurance coverage issued by Northbrook to the Trustee of the Northbrook Multiple Employer Trust for the Retail Industry. The group insurance coverage provided life insurance, accidental death, dismemberment, weekly indemnity and major medical insurance benefits to Jackson Mack employees and their beneficiaries. Southern Marketing processed and paid eligible claims under the Group Plan.

Phillip B. "Tiny" Lawrence, Jr., a managerial employee of Jackson Mack and Pamela Lawrence's former husband, participated in the plan maintained by Jackson Mack, and plaintiff and her children, as Tiny Lawrence's dependents, were covered under the plan from the time coverage was extended to Tiny Lawrence in November 1985. On December 25, 1986, over a year after the inception of the employee benefit plan, Tiny Lawrence informed his wife that he wanted a divorce and approximately a month later, on February 9, 1987, Pamela and Tiny Lawrence filed a joint complaint for divorce in the Chancery Court of Madison County, Mississippi. The divorce was finalized on May 6, 1987.

At some point after plaintiff and her husband filed for divorce but prior to the entry of the divorce decree, plaintiff consulted with her divorce attorney about whether she could continue coverage under the benefit plan after her divorce. Her attorney advised her to contact Jackson Mack to determine if the plan provided a continuation or conversion policy that would allow her to remain a plan beneficiary. Lawrence asserts that in accordance with her attorney's advice, she contacted the insurance clerk at Jackson Mack, Bonny Kelly, who, in response to plaintiff's inquiry, informed her that coverage under the plan and insurance policies would cease upon the finalization of her divorce and that plaintiff could not continue the coverage by paying premiums for the coverage.² Following her conversation with Kelly, plaintiff communicated with an insurance clerk for Southern Marketing, who confirmed to plaintiff that her coverage would not continue after plaintiff's divorce from her husband. On or about May 30, 1987, plaintiff's coverage under the health insurance policy of the employee benefit plan was terminated.

Soon after her divorce from Tiny and the termination of her insurance coverage, plaintiff began experiencing health problems. In August 1987, she collapsed while on a trip to Dallas, Texas, and later learned from her physician that she had suffered a heart attack. In late November of that year, she underwent a heart catherization and in January 1988, plaintiff had triple bypass cardiovascular surgery. Subsequently, she developed rheumatic fever due to an infection at the graph site and further treatment was required.

Without insurance coverage, Lawrence was unable to pay her medical expenses and on May 25, 1988, filed for bankruptcy protection under Chapter 7 of Title 11 of the United States Code. In re Pamela A. Lawrence, Bankruptcy Case No. 8801547 (Bankr. S.D.Miss.1988). By order of the bankruptcy court, plaintiff was released from all dischargeable debts on October 14, 1988.

On October 6, 1989, Lawrence filed suit against defendants Jackson Mack, Northbrook and Southern Marketing³ and on October 4, 1990 filed the amended complaint that is the basis of the motions presently under consideration.⁴

PLAINTIFF'S CAUSES OF ACTION

Plaintiff alleges in count 1 of her amended complaint that following the enactment of COBRA, defendants failed to provide her a "general COBRA notification" apprising Lawrence of her right to continuation coverage under the employee benefit plan and thus violated COBRA's notification requirements set forth in 29 U.S.C. § 1161. For this alleged violation, she seeks an award of statutory penalties provided by 29 U.S.C. § 1132(c)(1).⁵ In count 2, she alleges that after receiving notice of plaintiff's divorce, a "qualifying event" under 29 U.S.C. § 1163(3), defendants failed to offer to continue or convert her insurance coverage, as mandated by 29 U.S.C. § 1162. As damages for this alleged violation, Lawrence seeks to recover (1) all benefits which would have been due under a continued or converted insurance policy, pursuant to 29 U.S.C. § 1132(a)(1)(B); (2) all relief which may be granted under 29 U.S.C. § 1132(a)(2) for breach of fiduciary duties imposed by 29 U.S.C. §§ 1104 and 1109; (3) $1 million as incidental and consequential damages, pursuant to 29 U.S.C. § 1132(a)(3); (4) future benefits under the plan which will be due on medical and medically-related expenses, pursuant to 29 U.S.C. § 1132(a)(1)(B); (5) all amounts necessary to restore her to the position she held prior to defendants' alleged breaches, pursuant to 29 U.S.C. § 1132(a)(3); (6) attorneys' fees pursuant to 29 U.S.C. § 1132(g); (7) equitable relief pursuant to 29 U.S.C. § 1132(a)(3); and (8) prejudgment interest.

Count 3 of plaintiff's amended complaint alleges that defendants breached their duties as fiduciaries or co-fiduciaries by failing to comply with 29 U.S.C. §§ 1104 and 1105, and demands actual damages of $250,000 in accordance with 29 U.S.C. § 1132(a)(3), as well as an accounting. In this count, plaintiff charges that for all of the breaches of the duties owed to her, defendants are jointly and severally liable as provided by 29 U.S.C. § 1109. In addition to her ERISA claims, Lawrence asserts in count 4 a state law claim of tortious interference with her contractual and statutory rights to continuation or converted insurance coverage, for which she seeks actual damages in the amount of $200,000 and punitive damages of $1 million. Jackson Mack has moved for partial summary judgment and Northbrook and Southern Marketing have moved for summary judgment as to plaintiff's claims.⁶

COBRA

On July 1, 1986, the Consolidated Omnibus Budget Reconciliation Act (COBRA), 29 U.S.C. § 1161 et seq., became effective. COBRA, which amended ERISA, mandated that employers sponsoring group health plans which are part of ERISA employee benefit plans provide continuation or conversion insurance coverage to beneficiaries who would otherwise lose coverage as a result of a "qualifying event," such as death of a covered employee, divorce from a covered employee, or termination from employment. 29 U.S.C. § 1161(a).⁷ COBRA includes two notification requirements, both of which are relevant to the present action. First, COBRA requires that at the inception of a group health plan, beneficiaries be provided a "general notification" of their right to elect to continue or convert their coverage under the plan. 29 U.S.C. § 1166(a)(1).⁸ In addition, upon being notified by the employee or beneficiary of the occurrence of a "qualifying event" under 29 U.S.C. § 1163, which includes "divorce ... of the covered employee from the employee's spouse," the plan administrator must apprise the beneficiary or employee of his or her entitlement to continuation coverage. 29 U.S.C. 1166(a)(4)(B).⁹

EFFECT OF BANKRUPTCY ON PLAINTIFF'S ERISA CLAIMS

As indicated, plaintiff's various claims in this lawsuit are based upon her contention that defendants failed to provide her notice of her rights under COBRA, as required by 29 U.S.C. § 1166(a)(1) and (4), and thus deprived her of insurance coverage to which she was entitled under COBRA. Allegedly as a result of defendants' failure to afford her such coverage, plaintiff was forced to file for protection under the Bankruptcy Code on May 25, 1988. A final bankruptcy decree discharging her debts was entered on October 14, 1988. Defendants contend in their present motions that all of the claims asserted by Lawrence in this action which accrued prior May 25, 1988, the date of her filing for protection under the Bankruptcy Code, may not now be pursued by plaintiff since all such claims were assigned by operation of law to her bankruptcy estate. The...