Peterson v. Equitable Life Assurance Society

• Decision Date: 06 April 1999
• Docket Number: No. 97-C-0766-C.,97-C-0766-C.
• Parties: William A. PETERSON, Plaintiff, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Defendant.
• Court: U.S. District Court — Western District of Wisconsin

57 F.Supp.2d 692

William A. PETERSON, Plaintiff, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Defendant.

No. 97-C-0766-C.

United States District Court, W.D. Wisconsin.

April 6, 1999.

COPYRIGHT MATERIAL OMITTED

Thomas W. St. John, Friebert, Finerty & St. John S.C., Milwaukee, WI, for Peterson, William A., plaintiff.

Paul E. Benson, Matthew MacLean, Michael, Best & Friedrich, Milwaukee, WI, for Equitable Life Assurance Society, defendant.

OPINION AND ORDER

CRABB, District Judge.

This civil action for disability benefits is before the court on the motions of both parties for partial summary judgment. Defendant Equitable Life Assurance Society is seeking to be relieved of liability for a depression-based disability claim filed by its former agent, plaintiff William A. Peterson, under an individual disability insurance policy. In addition, defendant seeks a judicial determination that plaintiff's group disability and health policies are part of an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001-1461, and a determination that plaintiff's state law claims for breach of contract, injunctive relief and breach of the duty of good faith are preempted by ERISA. Plaintiff is seeking summary judgment on defendant's counterclaims and certain affirmative defenses. Diversity jurisdiction is present. 28 U.S.C. § 1332. Plaintiff and defendant are citizens of different states and more than $75,000 is in controversy.

The case arises out of differences of opinion between the parties as to plaintiff's entitlement to disability insurance benefits under group and individual disability policies obtained by plaintiff while he was an agent for defendant. Plaintiff is suing for breach of contract, contending that defendant breached the terms of the individual disability policy, the group disability policy and a group health policy. In addition, plaintiff is alleging bad faith termination of his disability benefits and, in the event defendant prevails on its position that the group policies are governed by ERISA, violations of various provisions of ERISA. He wants declaratory relief establishing that he has the right to continue to receive total disability benefits and the right not to undergo repeated examinations and analyses of his physical and mental health; injunctive relief ordering defendant both to reinstate the total disability benefits to which he believes he is entitled under the policies and to refrain from ordering him to undergo additional medical examinations; and compensatory damages, punitive damages, reasonable costs and attorney fees.

In response, defendant has asserted a number of affirmative defenses, only a few of which are relevant to the pending motions: that plaintiff's claims are barred by the terms of the policies under which he is suing; that plaintiff made material misrepresentations on his applications for insurance so that defendant is entitled to deny or reduce his claims under those policies; and that plaintiff's claim is barred under the doctrines of estoppel, waiver and laches. In addition, defendant has counterclaimed for breach of contract on the ground that plaintiff breached both the letter and spirit of his agency contract with defendant by knowingly and intentionally withholding pertinent information about his prior medical history when he applied for the policies in question; for breach of fiduciary duty arising out of plaintiff's duty to defendant to represent the company in an honest manner and protect it from intentional falsehoods; for intentional misrepresentations in his application for disability insurance; for strict responsibility misrepresentation; and for negligent misrepresentation.

I conclude that the language of plaintiff's individual disability insurance policy bars defendant from contesting its liability for plaintiff's depression-based claim of disability unless it can show that plaintiff was diagnosed or treated for depression during the two years preceding the effective date of the policy; alternatively, that the provisions governing incontestability in Wis.Stat. § 632.76 and in the policy have this effect; that plaintiff's group disability insurance policies are governed by ERISA and for that reason, his state law claims are preempted; that defendant cannot proceed on its counterclaims, because they are barred either by the applicable statutes of limitations or by the incontestability clause; and that defendant cannot assert the affirmative defenses that are the subject of this order.

At the outset, one issue requires brief mention. Plaintiff asserts that defendant is acting without justification in denying liability because the factual predicate for such a denial is "demonstrably false." According to plaintiff, he made no misstatements on his insurance application because he had never been diagnosed with "major depression" until June 1992, when he met with Dr. Goldbloom, a psychiatrist to whom he had been referred for diagnosis and treatment by his regular treating physician.

If plaintiff is arguing that he had never been diagnosed as having a major depression he might have some room for argument. I am perplexed, however, at his assertion that he had never been diagnosed or treated for any kind of depression. Although defendant has not proposed the substance of plaintiff's medical records as fact, it has summarized them in response to plaintiff's proposed findings. The physician notes in those records undermine plaintiff's assertion that he never knew he had depression. See, e.g., note from Dr. Caplan on September 24, 1975: "Since my suspicion for depression is quite high in this patient, I have advised him to take Elavil 75 mg. daily at night"; note of same day from Dr. J.V. Beardsley, describing the results of a test taken by plaintiff and adding, "There is mild to moderate depression accompanying this response as well"; note of November 11, 1975, from Dr. Caplan: "I believe he has a depressive reaction, peptic ulcer disease; both of which are currently improved with his medications"; note of January 31, 1981, from Dr. D.D. Norenberg: "No new symptoms, discussed possible underlying depression. He concurs with continuing Desipramine and is given a new prescription for Desipramine 75 mg"; note of September 14, 1982, from Dr. Norenberg: "We discussed depression. He realizes he has a problem and he does want to see a psychiatrist."

In the face of these medical records, I cannot say that defendant's factual predicate for its motions is "demonstrably false." Plaintiff's constant reiteration of this theme undermines the force of its arguments on other issues.

For the purpose of deciding the pending motions, I make the following findings of fact.

UNDISPUTED FACTS

Plaintiff William A. Peterson is an individual domiciled in Wisconsin. Defendant Equitable Life Assurance Society is a New York corporation with its principal place of business in New York City.

Plaintiff applied for a position with defendant in its La Crosse office in December 1986, and was hired after a series of interviews. After a lengthy training period, during which he was treated as an employee and paid a training allowance and service fees as a salary, plaintiff executed an "Agent's Contract," setting forth the terms and conditions of his agency with defendant. The agreement included a provision that nothing contained in it was to be construed as creating the relationship of employer-employee between plaintiff and defendant. In addition, it provided that plaintiff might participate in defendant's benefit program to the extent to which he was qualified. After plaintiff finished his training, he received no salary or wage or any vacation time. All of his income from defendant came in the form of commissions on insurance policies he sold.

Sometime before plaintiff started his training, he received a copy of defendant's "Agent's Benefits" book, which contained a summary plan description of the company's benefits. Plaintiff chose to participate in defendant's group life insurance plan, dependent life insurance plan and the group health and disability insurance plans at issue in this case. Defendant chose the specific products to be offered in the benefit program, the insurers for the products, the level of benefits, the applicable deductibles, if any, and any waiting periods. Individual agents and employees had no involvement in determining any of the elements of the program. Participation in the program was voluntary. An agent's eligibility for benefits was determined by his or her level of productivity.

Under the group life insurance plan that defendant makes available, defendant pays the first $50,000 of coverage. The employee pays the premiums for any amounts above $50,000. Defendant offers employees and agents a cafeteria plan for group health insurance, for which it pays the majority of the premium cost. The insurance is self-funded by defendant, using a 501(C)(9) trust. Defendant pays all of the costs of retirement benefits. Defendant performed all the administrative tasks for the individuals who participated in its employee benefit program and arranged for premium payment by payroll deduction.

On or about January 20, 1988, plaintiff applied for an individual policy of long-term disability insurance with defendant. He filled out the "Agent's Report" section of the application as well. In response to Question 4(b) on the application, plaintiff answered "no" to the question, "Have you ever been treated for or had any known indication of: ... [b] ... nervous system disorder; emotional, psychological or mental disease or disorder?"

In reliance on the representations plaintiff made in his application, defendant issued him a policy of disability insurance, effective January 20, 1988. The policy provides for payment of monthly income for a disability caused by sickness or injury that precludes engaging in the...