McWilliams v. American Medical Intern., Inc.
| Decision Date | 18 March 1997 |
| Docket Number | Civil Action No. 95-G-0586-S. |
| Citation | 960 F.Supp. 1547 |
| Court | U.S. District Court — Northern District of Alabama |
| Parties | Eugene McWILLIAMS; Gloria T. McWilliams, Plaintiffs, v. AMERICAN MEDICAL INTERNATIONAL, INC.,<SMALL><SUP>1</SUP></SMALL> Defendant. |
Tony George Miller, Maynard, Cooper & Gale, Birmingham, AL, for plaintiffs.
Frank S. James, III, Berkowitz, Lefkovits, Isom & Kushner, Birmingham, AL, for defendant.
Plaintiff Eugene McWilliams began working for Brookwood Health Services, predecessor to American Medical International [hereinafter AMI], around 1975 or 1976, accepting an early retirement therefrom about April 15, 1987.2 In 1983, prior to plaintiffs decision to accept early retirement, he had received an unsolicited mailing from Royce Diener, CEO and Chairman of AMI, describing the employee programs available to retirees.3 Offers extended in Mr. Diener's letter were never withdrawn. Mr. McWilliams shared the letter with his wife, discussed it with her, and relied on it in making his decision to retire. Pertinent portions of the letter follow:
MEDICAL PLAN COVERAGE FOR EARLY RETIREES
Until now, AMI executives who retire early often could not obtain group medical coverage for themselves and their dependents. They would have to purchase costly individual medical insurance—if they could qualify. Now, you can continue AMI's regular group medical plan4 by making optional payments for you and your dependents if you qualify for early retirement under one of AMI's retirement plans. This coverage will continue until you or your covered dependents are eligible to receive Medicare. Please contact your local benefits representative for information about the cost of this benefit (emphasis added).
Prior to retiring Mr. McWilliams discussed his retirement plans with Dr. John (Jack) Moxley, AMI senior vice president and his supervisor. McWilliams' understanding of his retirement, uncontroverted by Moxley, was he would be provided coverage until reaching age 65. Moxley never mentioned AMI termination rights. McWilliams' uncontroverted trial testimony was that his retiree coverage under the medical plan would be the same as that of all other participants, including active employees and executives. Transcript at 65-66.
Ms. Diane Martindale, director of benefit projects for Tenet, the successor merged company, and its corporate representative, acknowledged that prior to 1993 all "costcutting" amendments had applied equally to all classes of participants including active employees and retirees.5
As an AMI executive, McWilliams (and his dependents) was covered through the company's non-ERISA Executive Health Plan—a "top hat plan" only for executives and "exempt from E.R.I.S.A. requirements."6 Transcript at 188-189. Ms. Martindale acknowledged this Executive Health Plan was simply an insurance contract between AMI and Northwest National Life Insurance Company, (Transcript at 188), that contained no provision granting termination rights to the employer. Transcript at 149, 156, 158. There were no plan documents other than the insurance contract. Transcript at 189.
In addition to the Executive Health Plan, AMI maintained and administered an ERISA health plan, the Group Medical Plan [hereinafter GMP] for other, non-executive, employees. After retirement, by the Diener letter contract, the McWilliams and other retirees were changed from the Executive Health Plan to the GMP, the self-funded, self-insured medical plan. Transcript at 204. McWilliams was not an ERISA employee, however when the contract was made.
During 1991 and 1992 Mr. and Mrs. McWilliams experienced serious health problems. Mr. McWilliams had two heart attacks and open heart surgery. Mrs. McWilliams had breast cancer and a mastectomy.
In 1992 the Financial Standards Board promulgated Financial Accounting Standards [hereinafter FAS] which changed how self-insured medical plans accounted for the cost of retiree medical benefits. Under Financial Accounting Standards No. 106: Employers' Accounting for Post Retirement Benefits Other Than Pensions (1990),7 employers were required to reflect on their balance sheets the present value of the estimated future costs for retirees' medical benefits. This switch was a one-time change for bookkeeping purposes only.
AMI commissioned the Wyatt Group, Inc. [hereinafter Wyatt] to study and document the financial impact of Rule 106. Using the Wyatt analysis as a starting point AMI thereafter eliminated retirees' medical benefits in its 1993 Choice Plus Medical Plan (CMP). Retirees were notified in July 1993, by Mr. O. Edwin French, AMI's senior vice president, their coverage would cease August 31, 1993. They could obtain COBRA coverage thereafter for 18 months or to age 65, whichever occurred first.
On July 5, 1993, Mr. French, by letter,8 informed Mr. McWilliams his medical insurance coverage would cease August 31, 1993. In response Mr. McWilliams engaged the services of Lester Williamson, Jr., attorney, to represent him in the matter. On August 5, 1993, Mr. Williamson sent a letter to Mr. French,9 copied to Diane Martindale, concerning continued coverage for the McWilliams. Copies of both the Diener letter and the March 4, 1991, memorandum were attached. Neither McWilliams nor Williamson heard from either French or Martindale. Transcript at 32. "Mr. McWilliams was thereafter switched to COBRA coverage with no increase in his $303.24 premiums."10 Transcript at 32. AMI ceased COBRA coverage on the McWilliams on February 28, 1995. They have had no medical insurance since that time, having been unsuccessful in obtaining coverage elsewhere.
Plaintiffs filed suit in the Circuit Court for the Tenth Judicial District in Jefferson County, Alabama, January 31, 1995, alleging fraud and breach of contract. The case was removed to this court March 10, 1995, based on the claim for benefits under a group health plan covered by the Employee Retirement Income Security Act of 1974, 29 U.S.C.A. §§ 1001, et seq. [hereinafter ERISA].
Section 1002 of the Act sets forth in part the following:
(1) The terms "employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or other wise, (A) medical, surgical, or hospital care or benefits or benefits in the event of sickness, accident, disability, death or unemployment. ...
Section 1144(a), set forth below, states:
[T]he provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title.
AMI subsequently filed a motion in federal court for summary judgment, claiming plaintiffs' claims were superseded by ERISA. Pursuant to Howard v. Parisian, Inc., 807 F.2d 1560 (11th Cir.1987), its progeny, and statute, the court granted defendant's motion for summary judgment on state law tort claims.11 The court denied defendant's motion for summary judgment on all other claims and invited plaintiffs to amend the pretrial order to conform to the summary judgment order.
Plaintiffs thereafter amended the pretrial order by adding the following paragraphs:
Plaintiffs contend that defendants were not, under the terms of the medical plan allowing a termination of the plan "if necessary," entitled to terminate coverage to McWilliams and other retirees. Defendants have not and cannot establish that the termination was legally or economically necessary.
Plaintiffs contend that a binding agreement was entered by the parties to provide plaintiffs with health and medical benefits coverage for the plaintiffs' lifetime through Denier's [sic] letter, and the subsequent memo from AMI's vice-president of employee benefits, and that this resulted in a vesting of those benefits under ERISA.
Plaintiffs also contend that they are entitled to relief under the doctrines of equitable estoppel and/or promissory estoppel, both of which are recognized in the body of federal common law developed under ERISA. Specifically, plaintiffs contend that representations and/or promises were made to them by defendants to the effect that, as long as the defendants' medical plans were in effect, they would have coverage until age 65 (and later that they would have coverage for life), and that they relied to their detriment on the representations and promises by first taking early retirement, and subsequently by turning down benefits with two different potential employers. Consequently, defendants should be held to their interpretation of the plan's coverage and termination provisions. Because the defendants' failure to comply with their representations and promises resulted in several [sic] emotional distress and anxiety to the plaintiffs, and because it was foreseeable and expected that the loss of health care coverage would result in emotional distress to the McWilliams, plaintiffs are entitled to recover, under federal common law, damages for their emotional distress under the theory of promissory or equitable estoppel.
Finally, plaintiffs contend that, under developing federal common law, defendants' conduct in promising lifetime coverage, and then terminating that coverage, at a time when it was not necessary for the economic well-being of the defendants to terminate that coverage, and when defendants were aware that plaintiffs had relied upon the representations and/or promises and were uninsurable, constitutes such an egregious breach of their fiduciary duties under ERISA, and/or a bad faith denial of benefits under ERISA,...
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