McInnis v. Provident Life & Acc. Ins. Co.

• Decision Date: 12 April 1994
• Docket Number: No. 93-2003,93-2003
• Parties: 18 Employee Benefits Cas. 1085 Jeffrey Charles McINNIS, Administrator of the estate of Lori Smith McInnis, Plaintiff-Appellant, v. PROVIDENT LIFE & ACCIDENT INSURANCE COMPANY; Fruit of the Loom, Inc.; Martin Mills, Incorporated, Defendants-Appellees, and Farley Industries; Richmond Apparel, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 586

21 F.3d 586

18 Employee Benefits Cas. 1085

Jeffrey Charles McINNIS, Administrator of the estate of Lori

Smith McInnis, Plaintiff-Appellant, v. PROVIDENT LIFE & ACCIDENT INSURANCE COMPANY; Fruit of the

Loom, Inc.; Martin Mills, Incorporated,

Defendants-Appellees,

and

Farley Industries; Richmond Apparel, Defendants.

No. 93-2003.

United States Court of Appeals, Fourth Circuit.

Argued Feb. 9, 1994.

Decided April 12, 1994.

ARGUED: Donald Thomas Bogan, Stern, Graham & Klepfer, Greensboro, NC, for appellant. David Blaine Sanders, Robinson, Bradshaw & Hinson, P.A., Charlotte, NC, for appellees. ON BRIEF: David M. Schilli, Robinson, Bradshaw & Hinson, P.A., Charlotte, NC, for appellees.

Before NIEMEYER, Circuit Judge, BUTZNER, Senior Circuit Judge, and ELLIS, United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Senior Judge BUTZNER and Judge ELLIS joined.

OPINION

NIEMEYER, Circuit Judge:

The employee benefit plan sponsored by Fruit of the Loom, Inc., provides medical benefits to employees for injuries caused by third parties, provided that any employee making a claim agrees to reimburse the plan if the employee recovers payment from the third party. North Carolina's wrongful death statute, N.C.Gen.Stat. Sec. 28A-18-2, however, places a limit on such reimbursement from the estate of a deceased. The question presented here is whether the employee benefit plan must pay medical benefits to the estate of a deceased plan participant and be denied reimbursement under the North Carolina statute or, in the alternative, whether the North Carolina statute is preempted by ERISA. For the reasons that follow, we hold that in the circumstances of this case ERISA preempts the operation of the North Carolina statute.

I

On February 26, 1990, in Moore County, North Carolina, an automobile driven by Jeffrey C. McInnis was struck head-on by an automobile operated by Leon Hinson, who was intoxicated at the time. Jeffrey McInnis' wife, Lori McInnis, who was riding in the passenger's seat, was seriously injured and hospitalized. Two weeks later, she died from her injuries. She was survived by her husband, who was appointed the administrator of her estate, and by a three-year-old child.

The insurance company covering Hinson offered to settle any claims against Hinson for the policy limit of $25,000, and the insurance company covering the McInnis vehicle offered to settle a claim under that company's underinsurance coverage for $175,000. On the petition of Jeffrey McInnis as the administrator, the Superior Court in Richmond County, North Carolina, approved the settlement, as required by the North Carolina's wrongful death statute, N.C.Gen.Stat. Sec. 28A-13-3(a)(23), finding the settlement total of $200,000 to be "in the best interest of the Estate of Lori Smith McInnis, and the beneficiaries of said Estate, to wit: Jeffrey Charles McInnis and the minor, Joshua H. McInnis." (Emphasis added).

Following the settlement, Jeffrey McInnis submitted a claim in the amount of $58,121 to the welfare benefit plan provided by Lori McInnis' employer, Martin Mills, Inc., a subsidiary of Fruit of the Loom, Inc., for reimbursement of hospital expenses incurred by Lori McInnis before her death. The welfare benefit plan, which provided group life insurance and medical benefits for employees of Fruit of the Loom and its subsidiaries, was sponsored by Fruit of the Loom and issued by Provident Life and Accident Insurance Company ("Provident Life"). Lori McInnis concededly was covered by the plan as an employee of a subsidiary. Fruit of the Loom indicated that it would advance the medical benefits to Jeffrey McInnis, but only if he executed an "Acts of the Third Party" agreement as specified in the plan. ¹ Fruit of the Loom explained its position further in a letter to McInnis:

Fruit of the Loom Group Medical Plan does not provide coverage for injuries caused by a third party. Benefits, however, may be advanced only if the injured party executes an "Acts of Third Party" Agreement. This agreement states that the injured party will reimburse the plan for the funds advanced upon recovery of a judgment or settlement from the third party.

McInnis refused to execute the agreement because, he claimed, such an agreement would force the estate to pay out medical expenses beyond an amount permitted by the state's wrongful death statute. The applicable state act provided, in pertinent part:

The amount recovered in such action [by reason of the death of a person] is not liable to be applied as assets, in the payment of debts or legacies, except as to burial expenses of the deceased, and reasonable hospital and medical expenses not exceeding one thousand five hundred dollars ($1,500) incident to the injury resulting in death.

N.C.Gen.Stat. Sec. 28A-18-2(a) (emphasis added). ² Because McInnis refused to execute the "Acts of Third Parties" agreement, Fruit of the Loom refused to advance medical payments under the terms of the plan.

McInnis filed suit against Provident Life, Fruit of the Loom, and its subsidiary, Martin Mills. On the defendants' motion for summary judgment, the district court entered judgment for the defendants, concluding that the "Acts of Third Parties" clause in Lori McInnis' plan was enforceable because the plan was covered by ERISA and because ERISA preempted any conflicting state provision. This appeal followed.

II

McInnis contends that, as administrator and successor in interest to Lori McInnis' rights under the plan, he is entitled to medical benefits for Lori McInnis' hospital expenses in the amount of $58,121. While he recognizes that the terms of the plan also require him to repay those benefits to the plan if he recovered for Lori McInnis' injuries from third parties, he contends that the North Carolina statute prohibits him from expending more than $1,500 in estate assets for such repayment. He thus claims that under state law, he cannot sign the payback agreement required by the plan.

Fruit of the Loom argues that to the extent the North Carolina statute alters the terms of a plan covered by ERISA, it is preempted by ERISA. It argues, in addition, that under principles of contract law, since McInnis failed to satisfy the plan's condition precedent to payment of medical benefits by not executing the payback agreement, McInnis is not entitled to benefits. Fruit of the Loom asserts that advancing benefits without a payback obligation would alter the terms of the plan in favor of McInnis and to the possible detriment of others not implicated by the North Carolina statute.

McInnis argues that the resolution of the issue is governed by our decision in Liberty Corp. v. NCNB, 984 F.2d 1383 (4th Cir.1993), where we held that, in the circumstances presented there, ERISA did not preempt the North Carolina wrongful death statute's limitation on recovery of medical expenses. N.C.Gen.Stat. Sec. 28A-18-2. Although Fruit of the Loom seeks to distinguish Liberty on the basis that the plan there did not impose a condition precedent to the payment of benefits, the critical issue is whether ERISA preempts application of the North Carolina statute under the circumstances of this case.

The broad scope of ERISA's preemption has been frequently articulated. The Act provides:

Except as provided in subsection (b) of this section, the provisions of [ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.

29 U.S.C. Sec. 1144(a) (emphasis added). The first step in the preemption analysis is to determine whether the purported claim "relates" to an employee benefit plan. See Custer v. Pan American Life Ins. Co., 12 F.3d 410, 418 (4th Cir.1993). The phrase "relates to" is given a broad, common sense meaning--"[a] law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983). The breadth of preemption, however, is not unlimited. "Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Id. at 100 n. 21, 103 S.Ct. at 2901 n. 21.

We applied these principles in Liberty to somewhat different circumstances. The court there found that the claim under North Carolina's wrongful death statute belonged not to the plan participant or to his estate, but rather to his beneficiaries. Liberty, 984 F.2d at 1388. While disposition of assets belonging to the beneficiaries of a plan participant may "relate" to a plan, we concluded that its relation to the plan was too "tenuous, remote, or peripheral," and thus the beneficiaries' claims would not be governed by ERISA. Id. at 1388. We were careful to note, however, that if the damages were recovered "by or on behalf of the same person [plan participant] whose medical expenses it had paid ... [then] the conflict between the state law and the ERISA plan must be resolved in favor of the plan and therefore in favor of preemption." Id. at 1389. Thus, the answer to the question of whether a claim under North Carolina's wrongful death statute belongs to the deceased...