Morstein v. National Ins. Services, Inc.

• Decision Date: 19 August 1996
• Docket Number: No. 94-9152,94-9152
• Citation: 93 F.3d 715
• Parties: , 20 Employee Benefits Cas. 1729, Pens. Plan Guide (CCH) P 23925E Margery A. MORSTEIN, Plaintiff-Appellant, v. NATIONAL INSURANCE SERVICES, INC.; Pan American Life Insurance Company; the Shaw Agency; Scott Hankins, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 715

93 F.3d 715

65 USLW 2152, 20 Employee Benefits Cas. 1729,

Pens. Plan Guide (CCH) P 23925E

Margery A. MORSTEIN, Plaintiff-Appellant, v. NATIONAL INSURANCE SERVICES, INC.; Pan American Life Insurance Company; the Shaw Agency; Scott Hankins, Defendants-Appellees.

No. 94-9152.

United States Court of Appeals Eleventh Circuit.

Aug. 19, 1996.

Edward Francis Danowitz, Danowitz & Ryder, Atlanta, GA, for Appellant.

Michael T. Thornton, Linda Fitzgerald, Office of Michael T. Thornton, Atlanta, GA, for Appellees.

Appeal from the United States District Court for the Northern District of Georgia.

Before TJOFLAT, Chief Judge, and KRAVITCH, HATCHETT, ANDERSON, EDMONDSON, COX, BIRCH, DUBINA, BLACK, CARNES and BARKETT, Circuit Judges.

BIRCH, Circuit Judge:

This case was taken en banc to clarify the law in our circuit regarding state law preemption by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461 (1988). In this appeal, we must decide whether state law claims asserted against an independent insurance agent and his agency for fraudulent inducement to purchase and negligence in processing an application for an ERISA-governed insurance plan sufficiently relate to an employee benefit plan within the meaning of section 514(a) of ERISA, 29 U.S.C. § 1144(a), so as to be preempted. Because we find that the state law claims in this case do not sufficiently relate to the employee benefit plan to be preempted by ERISA, we reverse the district court's grant of summary judgment in favor of the insurance agent and his agency.

I. FACTS

Plaintiff-appellant, Margery Morstein, is the president, director, and sole shareholder of Graphic Promotions, Inc. ("Graphic"). At all times relevant to this appeal, Morstein was one of two employees of Graphic. In 1991, Morstein met with Scott Hankins, an insurance broker and employee of the Shaw Agency, for the purpose of obtaining a replacement policy of major medical insurance for herself and Graphic's other employee. The policy was to be administered by National Insurance Services, Inc. ("National") and underwritten by Pan-American Life Insurance Company ("Pan-American"). ¹ Morstein alleges that, during her meeting with Hankins, she advised him that any policy of major medical insurance that would replace her current policy would be unacceptable if it excluded from coverage medical treatment related to any preexisting medical condition. Morstein asserts that Hankins assured her that the policy that he proposed would provide the same coverage for preexisting conditions as her current policy. The policy offered by Hankins was issued to Graphic, and Graphic paid the initial premium.

Over one year after the policy was issued, Morstein underwent total hip replacement surgery. When she submitted a claim for payment for this procedure, National refused payment because it asserted that Morstein's surgery treated a preexisting condition, which she failed to disclose during the application process. National then rescinded the policy and refunded to Graphic the premium payments that were made on behalf of Morstein. Morstein claims that Hankins and the Shaw Agency fraudulently induced her to purchase a policy of major medical insurance and, therefore, that she allowed a separate full-coverage insurance policy to lapse. She further alleges that Hankins and the Shaw Agency were negligent in processing her application for insurance and that she has state law claims against them for negligence and fraud. ²

Morstein filed an action in state court and alleged negligence, malfeasance, misrepresentations, and breach of contract. Defendants removed the action to federal court on the basis that Morstein's claims were governed by ERISA. The district court denied Morstein's motion to remand and found that defendants were entitled to summary judgment as to the state law claims against them. The district court concluded that Morstein's claims "clearly relate to the employee benefit plan established by Graphic Promotions; therefore, those claims are preempted by ERISA." R2-29-3. Morstein appealed the district court's grant of summary judgment, and the original appellate panel in this case reluctantly affirmed the district court's grant of summary judgment and held that it was bound by our decision in Farlow v. Union Cent. Life Ins. Co., 874 F.2d 791 (11th Cir.1989). Morstein v. National Ins. Servs., Inc., 74 F.3d 1135, 1138-39 (11th Cir.), vacated and reh'g en banc granted, 81 F.3d 1031 (11th Cir.1996).

The original panel found the facts in this case to be duplicative of the facts in Farlow. ³ Id. at 1137. The panel, therefore, was bound to adhere to the holding of Farlow that ERISA preempted a designated beneficiary's state law misrepresentation and negligence claims against an insurance company and its agent. ⁴ Following our decision in Farlow, several district courts in our circuit were faced with similar state law claims and attempted to distinguish their cases from Farlow. See Wiesenberg v. Paul Revere Life Ins. Co., 887 F.Supp. 1529, 1532-33 (S.D.Fla.1995) (reasoning that the decision in Farlow was ambiguous with regard to whether its holding applied to independent insurance agent as well as the insurance company, and turning to law in other circuits to support its holding that Wiesenberg's state law fraud claims against the insurance agency and its agent were not preempted by ERISA); Barnet v. Wainman, 830 F.Supp. 610, 611-12 (S.D.Fla.1993) (finding no preemption of plaintiff's claims against insurance agent for fraudulent misrepresentation because, unlike Farlow, the scope of coverage of plaintiff's claim would not be the focus of the litigation); Martin v. Pate, 749 F.Supp. 242, 246-47 (S.D.Ala.1990) (finding "the applicability of Farlow to the facts of this case" to be "questionable" and holding that plaintiff's state law claim of fraudulent misrepresentation of coverage of policy was not preempted), aff'd mem. sub nom. Martin v. Continental Investors, 934 F.2d 1265 (11th Cir.1991).

Our decisions in the ERISA preemption area have been neither consistent nor clear. Since Farlow was decided, the Supreme Court and several other circuit courts have issued opinions that clarify the purpose and intent of the ERISA state law preemption doctrine. Furthermore, the conflict among the district courts in our circuit demands that we revisit this issue and attempt to provide some clear guidance in the morass of ERISA preemption law. We find it helpful, therefore, to trace the development of the preemption doctrine before applying the words of the statute to this case.

II. ANALYSIS

Morstein alleges that the district court erred in applying the preemption doctrine under ERISA to bar her state law claims and thus erred in granting summary judgment in favor of Hankins and the Shaw Agency. We review a grant of summary judgment de novo. Forbus v. Sears Roebuck & Co., 30 F.3d 1402, 1404 (11th Cir.1994), cert. denied, 513 U.S. 1113, 115 S.Ct. 906, 130 L.Ed.2d 788 (1995).

A. ERISA Legislative History

The Supreme Court has described the overall intent of ERISA as follows: "ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983); see also Lordmann Enters., Inc. v. Equicor, Inc., 32 F.3d 1529, 1533 (11th Cir.1994), cert. denied, 516 U.S. 930, 116 S.Ct. 335, 133 L.Ed.2d 234 (1995). Section 514(a) of ERISA provides that its provisions "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 are not exempt under section 1003(b) of this title." 29 U.S.C. § 1144(a). ⁵ Unfortunately, the statute does not define the term "relate to," and it has fallen to the courts to deduce Congress's intent and to apply this interpretation to the facts of each case that arises. A search through the volumes of legislative history of ERISA provides little information regarding federal preemption of state law.

The Supreme Court in Shaw relied heavily on the statements of Representative Dent and Senators Williams and Javits in support of its conclusion that the intent of Congress was to preempt broadly. Shaw, 463 U.S. at 99-100, 103 S.Ct. at 2901. Both Representative Dent and Senator Williams emphasized the intent of Congress to preempt broadly state and local regulation of employee benefit plans. Representative Dent called the preemption doctrine "the crowning achievement of this legislation," and promised that it would "eliminat[e] the threat of conflicting and inconsistent State and local regulation." 120 Cong.Rec. 29,197 (1974). Senator Williams stated that preemption was "intended to apply in its broadest sense to all actions of State or local governments, or any instrumentality thereof, which have the force or effect of law." Id. at 29,933. Only Senator Javits remarked that the final language of the preemption clause was a product of compromise between the House and Senate versions of the bill and that further evaluation of preemption policy was necessary. ⁶

B. Supreme Court Case Law

Because the legislative history is sparse, it has fallen to the courts to interpret the phrase "relate to" and give it meaning in the context of the facts that arise in each particular case. ⁷ The Supreme Court noted as early as 1981 that defining boundaries of the preemption doctrine would not be an easy task. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525, 101 S.Ct. 1895, 1907, 68 L.Ed.2d 402 (1981). In Alessi, retired employees challenged a provision in their employer-provided pension plan, which provided that an employee's retirement benefits are offset by any worker's compensation awards for which the employee is eligible, as violating a New Jersey statute that prohibited these offsets. Id. at 507-08, 101 S.Ct. at 1898. The Court...