Rivera v. Benefit Trust Life Ins. Co.

• Citation: 921 F.2d 692
• Decision Date: 02 January 1991
• Docket Number: 90-1247,Nos. 89-3419,s. 89-3419
• Parties: Reuben RIVERA and Kimberly Rivera, a minor, by her father and next friend, Reuben Rivera, Plaintiffs-Appellees, v. BENEFIT TRUST LIFE INSURANCE COMPANY, a corporation, and General Engineering Works, Incorporated, a corporation, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 692

921 F.2d 692

Reuben RIVERA and Kimberly Rivera, a minor, by her father and next friend, Reuben Rivera, Plaintiffs-Appellees, v. BENEFIT TRUST LIFE INSURANCE COMPANY, a corporation, and General Engineering Works, Incorporated, a

corporation, Defendants-Appellants.

Nos. 89-3419, 90-1247.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 5, 1990.

Decided Jan. 2, 1991.

Richard C. Leng, Chicago, Ill., for plaintiffs-appellees.

Joseph J. Hasman, Daniel A. Engel, Reid J. Rozen, Peterson, Ross, Schloerb & Seidel, Chicago, Ill., for defendants-appellants.

Before BAUER, Chief Judge, WOOD, Jr., Circuit Judge, and PELL, Senior Circuit Judge.

HARLINGTON WOOD, Jr., Circuit Judge.

This appeal involves the denial of medical benefits under a group health insurance policy. Defendants, Benefit Trust Life Insurance Company ("Benefit Trust") and General Engineering Works, Inc. ("General Engineering"), appeal from the district court's orders granting judgment in favor of plaintiffs and awarding plaintiffs prejudgment interest and attorneys' fees.

I. BACKGROUND

As a result of a ruptured appendix, Kimberly Rivera underwent an appendectomy in June 1984. In July, Kimberly was examined by her physician, Dr. Kiefer, in connection with her progress subsequent to the appendectomy. Kimberly's mother, Cathy Rivera, accompanied her daughter to this appointment and Dr. Kiefer informed them that Kimberly had recovered well from the surgery. However, during the examination Dr. Kiefer told Kimberly and Mrs. Rivera that Kimberly had a slight curvature of her spine. Dr. Kiefer assured them that this condition was very common in adolescent girls, but that they should "keep an eye on it." Shortly after the July appointment, Mrs. Rivera informed Reuben Rivera, Kimberly's father, that Kimberly had recovered well from the appendectomy and that Dr. Kiefer had found a slight curvature of Kimberly's spine which was a common condition in adolescent girls.

In August 1984, Mr. Rivera applied to Benefit Trust for major medical insurance coverage for his wife and children under the group plan offered by his employer, General Engineering. The application form requested the applicant, to the best of his knowledge and belief, to disclose certain types of existing medical conditions of the proposed insureds. One of the questions asked: "Has any person proposed for coverage ever had or been treated for or consulted a physician about ... [a]rthritis, rheumatism or gout; back, spine or skeletal disorder; bone, muscle, or joint disorder?" Mr. Rivera answered "No." Mr. Rivera answered affirmatively when asked "Are all named persons requesting coverage now in good health, free from any physical defect, injury or disease, and not under medical care?" Benefit Trust then accepted the Rivera family for dependent coverage.

Sometime in December 1984, Kimberly began experiencing back pain. Mrs. Rivera took Kimberly to see Dr. Kiefer in January 1985, and he referred Kimberly to a specialist. The specialist diagnosed Kimberly's condition as scoliosis--a lateral curvature of the spine--and informed the Riveras that surgery would be required. In July 1985, Kimberly underwent surgery that successfully corrected her condition. Mr. Rivera submitted claims in connection with Kimberly's treatment to Benefit Trust for payment of medical benefits under the policy. Following a claims investigation, Benefit Trust denied coverage for medical costs incurred for treatment of Kimberly's scoliosis. Benefit Trust's denial of coverage was based on its position that Mr. Rivera had misrepresented Kimberly's back condition on the application for the policy that he had completed in August 1984.

The Riveras filed suit against Benefit Trust and General Engineering in Illinois state court seeking recovery of approximately $22,000 in unpaid medical bills relating to Kimberly's treatment for scoliosis. Because plaintiffs' state law claim is preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001 et seq., the defendants achieved removal to federal jurisdiction in the district court through 28 U.S.C. Sec. 1446. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62, 107 S.Ct. 1542, 1545, 95 L.Ed.2d 55 (1987); Lister v. Stark, 890 F.2d 941, 944 (7th Cir.1989).

After a bench trial, the district court granted judgment in favor of plaintiffs and awarded $22,018.71 in compensatory damages, $11,140.34 in prejudgment interest, and $16,203.75 in attorneys' fees. Defendants contend that the district court erroneously found that Reuben Rivera had not misrepresented his daughter's medical condition, and that the district court's award of prejudgment interest and attorneys' fees was an abuse of discretion. This court has jurisdiction under 28 U.S.C. Sec. 1291 and we now affirm.

II. DISCUSSION

A. Misrepresentation

In defending the denial of benefits for Kimberly's treatment, defendants argue that Reuben Rivera misrepresented his daughter's medical condition on his application for coverage. Defendants rely on Illinois law in seeking to avoid liability under plaintiff's policy. Under Illinois law, a misrepresentation in an application for insurance is not of itself grounds for denial of coverage. Roberts v. Nat'l Liberty Group of Cos., 159 Ill.App.3d 706, 111 Ill.Dec. 403, 512 N.E.2d 792 (1987). However, an insurance company may deny coverage because of a misrepresentation in an application if the misrepresentation "shall have been made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard to the company." ILL.REV.STAT. ch. 73, para. 766. ¹

Defendants argue that they properly denied coverage under Illinois law because the curvature of Kimberly's spine was material to their acceptance of the application. Moreover, the parties stipulated to the materiality of Kimberly's medical condition and further stipulated that Benefit Trust would not have issued a policy under these circumstances without a rider or limitation. Nevertheless, we need not reach the issue of materiality unless we are willing to reverse the district court finding that there was no initial misrepresentation. The Illinois statute under which defendants seek to avoid liability on the policy first requires the existence of a misrepresentation. The misrepresentation bars recovery if it is either made with the actual intent to deceive or is material to acceptance of the risk. The trial judge found that Reuben Rivera did not misrepresent his daughter's medical condition on the application for insurance and therefore since there was no misrepresentation the question of materiality is irrelevant.

In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the Supreme Court held that "a denial of benefits challenged under Sec. 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." The defendants do not allege, nor do we find, that the plan conferred discretionary authority upon the administrator and we therefore review the denial of benefits by defendants under a de novo standard of review. Exbom v. Central States, SE & SW Areas Health & Welfare Fund, 900 F.2d 1138, 1141 (7th Cir.1990). However, in conducting our review, we are bound by the district court's factual findings unless they are clearly erroneous. FED.R.CIV.P. 52(a); see also Fallon v. Illinois, 882 F.2d 1206 (7th Cir.1989). Rule 52(a) demands even greater deference to the trial court's factual findings when they are based upon determinations of credibility. Anderson v. Bessemer City, 470 U.S. 564, 575, 105 S.Ct. 1504, 1512, 84 L.Ed.2d 518 (1985).

The trial judge had the opportunity to assess the credibility of Reuben Rivera at trial and found that he answered truthfully the questions in the application for insurance. Rivera testified that although his wife mentioned to him the doctor's statement concerning Kimberly's slight curvature of the spine, he was more concerned with his daughter's recovery from the appendectomy. Dr. Kiefer did not use the term "scoliosis" when talking to Mrs. Rivera, nor did he recommend any treatment for the slight curvature. Additionally, Dr. Kiefer indicated that a slight curvature of the spine was common among adolescent girls. Rivera testified that at the time he filled out the application for insurance he had forgotten about the matter of the curvature of Kimberly's spine. The trial judge stated that he believed Rivera's testimony that he did not recall his wife's comment at the time he filled out the application. The trial judge further found that even if Rivera remembered the comment, the slight curvature of Kimberly's spine was not a disorder or defect at that time and therefore Rivera answered the application truthfully. The trial judge accepted Rivera's characterization of the events and we do not find the trial judge's factual determination clearly erroneous. Based upon our acceptance of the district court's findings of fact, we are unconvinced that Rivera misrepresented his daughter's medical condition on the application for insurance.

B. Prejudgment Interest

The award of prejudgment interest for a federal law violation is governed by federal common law. Gorenstein Enters., Inc. v. Quality Care-USA, Inc., 874 F.2d 431 (7th Cir.1989). The Supreme Court has held that "[p]rejudgment interest is an element of complete compensation." West Virginia v. United States, 479 U.S. 305, 310-11, 107 S.Ct. 702, 706-07, 93 L.Ed.2d 639 (1987); see also General Motors Corp. v. Devex Corp., 461 U.S. 648, 655-56, 103 S.Ct. 2058, 2062-63, 76 L.Ed.2d 211 (1983). The growing recognition of the time value of money has led this court to rule that "prejudgment interest should be presumptively available to victims of federal law violations. Without it,...