Pachuta v. Unumprovident Corp.

• Decision Date: 19 March 2002
• Docket Number: No. CIV. 01-00199 ACKBMK.,CIV. 01-00199 ACKBMK.
• Citation: 242 F.Supp.2d 752
• Parties: Donald M. PACHUTA, M.D., Plaintiff, v. UNUMPROVIDENT CORPORATION, UNUM Life Insurance Company of America, Provident Life and Accident Insurance Company, the Paul Revere Life Insurance Company, et al. Defendants.
• Court: U.S. District Court — District of Hawaii

242 F.Supp.2d 752

Donald M. PACHUTA, M.D., Plaintiff, v. UNUMPROVIDENT CORPORATION, UNUM Life Insurance Company of America, Provident Life and Accident Insurance Company, the Paul Revere Life Insurance Company, et al. Defendants.

No. CIV. 01-00199 ACKBMK.

United States District Court, D. Hawai'i.

March 19, 2002.

COPYRIGHT MATERIAL OMITTED

Daivd R. Harada-Stone, Jerry M. Hiatt, Law Offices of Jerry M. Hiatt, Kamuela, HI, for plaintiff.

John R. Lacy, Kathleen A. Kelly, Randy L.M. Baldemor, Emily Reber Porter, Goodsill Anderson Quinn & Stifel, LLP, Honolulu, HI, for defendants.

ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

KAY, District Judge.

BACKGROUND

This case arises out of an insured's alleged disability and his multiple insurers' refusal to pay on the filed claims. Plaintiff Donald M. Pachuta, M.D. ("Plaintiff or "Pachuta") began to work for Kauai Medical Center ("KMC") in 1992. Pachuta alleges that sometime in mid-1998, he started experiencing symptoms that included loss of memory, an increasing inability to synthesize information, the transposition of numbers and visual-perceptual problems. Pachuta asserts that as a result of these conditions worsening, he ceased practicing medicine. Plaintiff filed claims in 1999 with varying insurance companies on four separate disability insurance policies, all of whom began paying Plaintiff pursuant to each policy. In the fall of 2000, the payments on all four policies were discontinued.

Pachuta filed this lawsuit on March 3, 2001 over the denial of payments by the four plans. The first three policies were individual disability insurance policies purchased by Pachuta ("Plans I-III").¹ Unlike the individual plans, Defendant Unumprovident Corporation ("UNUM" or "Defendant") provided Pachuta's fourth policy, which was issued as a long-term group disability insurance policy to Wilcox Health Systems ("Wilcox") on November 1, 1995 ("Plan IV"). Wilcox was the parent of Pachuta's employer.²

Plaintiff sues each insurer under four theories of recovery: (1) breach of contract; (2) breach of covenant of good faith and fair dealing; (3) unfair and deceptive trade practices; and (4) remedies arising under the Employee Retirement Income Security Act ("ERISA"). While Plaintiffs suit involves a number of defendants and insurance policies, UNUM's motion, filed January 16, 2002, involves only its group policy issued to Wilcox. UNUM moves for summary judgment against all of Plaintiffs state-based claims and for a damage limitation upon Plaintiffs ERISA-based claim.

STANDARD OF REVIEW

Summary judgment shall be granted where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). One of the principal purposes of the summary judgment procedure is to identify and dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The United States Supreme Court has declared that summary judgment must be granted against a party who fails to demonstrate facts to establish an element essential to his case where that party will bear the burden of proof of that essential element at trial. Celotex, 477 U.S. at 322, 106 S.Ct. 2548. "If the party moving for summary judgment meets its initial burden of identifying for the court the portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact [citations omitted], the nonmoving party may not rely on the mere allegations in the pleadings in order to preclude summary judgment." T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987).

Rather, Rule 56(e) requires that the nonmoving party set forth, by affidavit or as otherwise provided in Rule 56, specific facts showing that there is a genuine issue for trial. T.W. Elec. Serv., 809 F.2d at 630. At least some "significant probative evidence tending to support the complaint" must be produced. Id. Legal memoranda and oral argument are not evidence and do not create issues of fact capable of defeating an otherwise valid motion for summary judgment. British Airways Bd. v. Boeing Co., 585 F.2d 946, 952 (9th Cir.1978).

The standard for a grant of summary judgment reflects the standard governing the grant of a directed verdict. See Eisenberg v. Ins. Co. of North America, 815 F.2d 1285, 1289 (9th Cir.1987) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Thus, the question is whether "reasonable minds could differ as to the import of the evidence." Anderson, 477 U.S. at 250-51,106 S.Ct. 2505.

The Ninth Circuit has established that "[n]o longer can it be argued that any disagreement about a material issue of fact precludes the use of summary judgment." California Architectural Bldg. Products, Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir.1987). Moreover, the United States Supreme Court has stated that "[w]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Indeed, "if the factual context makes the nonmoving party's claim implausible, that party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue for trial." Franciscan Ceramics, 818 F.2d at 1468 (emphasis in original) (citing Matsushita, 475 U.S. at 587, 106 S.Ct. 1348). Of course, all evidence and inferences to be drawn therefrom must be construed in the light most favorable to the nonmoving party. T.W. Elec. Serv., 809 F.2d at 630-31.

Discussion

UNUM contends, and Plaintiff concedes, that Plan IV is governed by ERISA.³ Defendant moves for summary judgment against Plaintiffs claims for breach of contract, bad faith tort under Best Place, Inc. v. Penn America Ins. Co., 82 Hawai'i 120, 920 P.2d 334 (1996) and deceptive trade practices under Hawaii statutory law based upon ERISA's preemption clause. In his opposition to UNUM's motion, Plaintiff only defends the bad faith tort count by arguing that it avoids preemption under ERISA's "saving" clause, 29 U.S.C. § 1144(b)(2)(A).

A. ERISA Background

Congress enacted ERISA for the purpose of "protecting] interstate commerce and the interests of participants in employee benefit plans and their beneficiaries." 29 U.S.C. § 1001(b). While the Act's title conveys ERISA's original purpose, which was to regulate pension plans, ERISA also applies to other employee benefits, such as disability insurance provided by employers. 29 U.S.C. § 1002(1). ERISA preempts state law claims that are "related to" an ERISA-regulated employee benefit plan. Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). The preemption clause itself was intended to be limited by ERISA's saving clause. 29 U.S.C. § 1002(1). This exception to ERISA's liberal preemption exempts state laws that "regulate insurance." With the saving clause, Congress clearly intended that regulation of insurance remain within the power of the states.

A number of cases have examined the inherent tension between ERISA's preemption and saving clauses. In Pilot Life Insurance v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), the Supreme Court confirmed that state law claims are preempted if they "relate to" an employee benefit plan but are exempted from preemption if they "regulate insurance." Pilot Life specifically held Mississippi's bad faith tort law, which has similar qualities to Hawaii's tort, applied more broadly than the regulation of insurance. Id. Thus, in Pilot Life, the Court found that this tort claim was preempted by ERISA, because it was a law of general application to all contracts and accordingly not "specifically directed toward" the regulation of insurance. Pilot Life, 481 U.S. at 50-51, 107 S.Ct. 1549. In Pilot Life, the Solicitor General argued, and the Supreme Court agreed, that ERISA's civil enforcement remedy was exclusive; the Court noted that "the federal scheme would be completely undermined if ERISA plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA." Id. at 54, 107 S.Ct. 1549.

In UNUM Life Insurance. Co. of America v. Ward, 526 U.S. 358, 119 S.Ct. 1380, 143 L.Ed.2d 462 (1999), the Supreme Court revisited this tension manifest in ERISA. In Ward, the insurer refused the plaintiffs disability claim because of a late filing. The plaintiff argued that California law required the insurer to show prejudice by the plaintiffs tardiness under the "notice-prejudice rule." Id. The insurer maintained that ERISA preempted California's notice-prejudice rule. As in the case at bar, the issue was whether the state rule was a state law "regulating insurance." The Supreme Court held unanimously that the rule regulated insurance. The Court distinguished its Pilot Life holding by commenting that the "[California] rule firmly applied to insurance contracts, not a general principle guiding a court's discretion in a range of matters." Id. at 372,119 S.Ct. 1380. The Court also reasoned that application of the McCarran-Ferguson Act (15 U.S.C. § 1011 et seq.) militated in favor of the same decision.

1. Applicable Standard for ERISA's Saving Clause

The Supreme Court fashioned out of its cases addressing ERISA's preemption and saving clauses a two-part test for determining whether a state law is exempted through the saving clause from ERISA preemption. First, the Court should appraise the manifest consideration of whether the law in question "fit[s] a common sense understanding of insurance regulation." Second, the Court should additionally evaluate the three specific factors under the McCarran-Ferguson Act, which are whether: (1) the regulation has the effect...