Russell v. Massachusetts Mut. Life Ins. Co.

• Decision Date: 16 December 1983
• Docket Number: No. 81-5879,81-5879
• Citation: 722 F.2d 482
• Parties: 115 L.R.R.M. (BNA) 2669, 100 Lab.Cas. P 55,447, 1 Indiv.Empl.Rts.Cas. 319, 4 Employee Benefits Ca 2642 Doris RUSSELL, Plaintiff-Appellant, v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Celia Stevenson, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 482

722 F.2d 482

115 L.R.R.M. (BNA) 2669, 100 Lab.Cas. P 55,447,

1 Indiv.Empl.Rts.Cas. 319,

4 Employee Benefits Ca 2642

Doris RUSSELL, Plaintiff-Appellant, v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Celia

Stevenson, Defendants-Appellees.

No. 81-5879.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 6, 1982.

Decided Dec. 16, 1983.

Brad N. Baker, Baker & Burton, Hermosa Beach, Cal., for plaintiff-appellant.

Richard T. Davis, Adams, Duque & Hazeltine, Pasadena, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before FLETCHER, PREGERSON, and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge.

Doris Russell sued in California Superior Court to recover damages allegedly resulting from the termination of her employment with Massachusetts Mutual Life Insurance Company (Mutual). She also sought damages allegedly resulting from the improper processing of her claim for employee disability benefits. Russell's complaint asserted several causes of action based on Mutual's handling of her disability benefits, including claims for breach of the statutory covenant of good faith and fair dealing under Cal.Ins. Code Sec. 790.03(h)(5) (West Supp.1982), ¹ and breach of fiduciary duty. Russell also asserted a claim for breach of her employment contract and of the implied contractual covenant of good faith and fair dealing. Finally, she alleged the intentional and negligent infliction of emotional distress in connection with both the handling of her disability benefits and the termination of her employment. The relief sought by Russell included both compensatory and punitive damages.

Mutual removed the action to federal district court, alleging that Russell's disability causes of action relating to her benefits were preempted by the Employee Retirement Income Security Act of 1974 (ERISA) The district court granted summary judgment in favor of Mutual as to all claims. ⁴ In determining that Russell was not entitled to relief, the court ruled, as a matter of law, that ERISA governed Russell's claims relating to the benefit plan and preempted all state actions relating to those claims. In addition, the court concluded (1) that Russell's claim for extracontractual damages and punitive damages arising out of the denial of her disability claim was barred under ERISA; (2) that Mutual complied with the provisions for review of ERISA claims pursuant to 29 C.F.R. Sec. 2560.503-1(h) and rendered a timely decision on Russell's appeal; (3) that Mutual did not breach the employment contract or any covenant of good faith and fair dealing in connection with the termination of Russell's employment; and (4) that Cal.Lab.Code Secs. 3600-3601 (West Supp.1982) provided the exclusive remedy for intentional or negligent infliction of emotional distress arising out of the termination of employment.

                29 U.S.C. Sec. 1001 et seq. 2   Mutual then moved for summary judgment as to all claims.  Russell opposed the motion, contending that the state causes of action relating to her disability payments were not preempted by ERISA.  She also argued that if ERISA preemption applied, her causes of action could be brought under ERISA, and that compensatory and punitive damages were available under that statute.  She contended that compensatory damages were not limited to any claimed loss of benefits.  Russell maintained that material questions of fact existed both as to the claims based on the disability payments and those related to the termination of her employment.  Finally, she urged that her claims for the infliction of emotional distress were not preempted under either ERISA or the California Workers' Compensation statute.  Cal.Lab.Code Secs. 3600-3601 (West Supp.1982).  Russell also expressed a desire to amend her complaint to add causes of action under 29 U.S.C. Sec. 1132(c) (1976) and 29 C.F.R. Sec. 2560.503-1(h) (1981), alleging that her disability claim had not been reviewed in a timely manner. 3
                

We agree with the district court that Russell's state law causes of action based on Mutual's handling of her disability claim are preempted by ERISA. We hold, however, that a cause of action exists under ERISA for a breach of fiduciary duty based on an alleged improper or untimely handling of benefit claims. We also hold that ERISA permits the award of compensatory damages proximately caused by such a breach of fiduciary duty and that such damages are not limited to the amount of any

benefit loss. We further hold that, in appropriate circumstances, the statute allows the granting of punitive damages. Next we hold that summary judgment was improper both as to Russell's claims regarding the benefit plan and her pendent state claims regarding the termination of her employment. Finally, we reverse the district court's holding that Russell's exclusive remedy for the intentional infliction of emotional distress resulting from her termination of employment is under the California Workers' Compensation statute, Cal.Lab.Code Secs. 3600-3601 (1982).

BACKGROUND

Russell was employed by Mutual for 15 years as a group claims examiner in Mutual's Los Angeles office. In May 1979, she took a leave of absence because of a disabling back ailment allegedly caused by stress. Russell submitted a report from her chiropractor, Dr. Allred, in support of her claim for disability benefits under Mutual's Employee Salary Continuance Plan (ESCP), and Mutual started to pay benefits under two plans, the ESCP and the Employee Disability Plan (EDP). The ESCP is funded from the assets of the company and provides disability benefits based upon a percentage of the employee's salary. The EDP provides benefits only if the employee is disabled for at least eight weeks and has exhausted all benefits under ESCP. Neither plan involves an insurance policy. Both plans qualify as benefit plans under ERISA. See supra note 2.

In August 1979, Russell's claim for disability was taken before Mutual's Disability Committee, composed of Mutual's chief medical director and four other officers of the company. ⁵ Noting that Russell had taken leaves of absence in 1967 and 1977 due to psychiatric and psychosomatic illnesses causing back pain, the Committee recommended that an independent medical examination be performed by an orthopedic specialist, Dr. Rosco, to verify Russell's injury. On September 18, 1979, Dr. Rosco examined Russell and concluded that she was not, from an orthopedic standpoint, physically disabled. Based solely on this report, the Committee determined that Russell's disability salary benefits should be terminated.

Mutual also decided to fire Russell. Mutual argues that this decision was based on an understanding by Cecilia Stevenson, Russell's supervisor, that Russell was unwilling to relocate to the new group claims department in Hacienda Heights, California. Russell contends that she was never asked directly about her intentions regarding the new office, and that she never stated that she definitely would not relocate. On October 17, 1979, Russell was advised by letter that both her salary continuance benefits and her employment would be terminated.

On October 22, 1979, Russell sent a letter to Mutual requesting an appeal of the decision as to salary continuance benefits. She maintained that her benefits claim should be reviewed on the basis of her entire medical record, psychological as well as physical. The request for appeal was received by the plan administrator, Robert Johnson, sometime between October 25 and October 30, 1979. Mutual requested additional information with respect to Russell's allegations of psychosomatic illness.

Prior to and during this appeal process Russell's husband, Ronald, who worked for a different employer, was also disabled and without salary. Russell contends that, because of the financial duress, she and her husband were forced to cash out his retirement savings plan. The economic loss of lifetime benefits from the retirement plan Russell argues, is a result of Mutual's wrongful denial of her disability claim.

On November 27, 1979, Russell produced the additional information regarding her appeal, including a report from Russell's psychiatrist, Dr. Ziferstein, who had determined that Russell's back pains were caused by psychological problems. Johnson submitted this new evidence to the Committee for review. The committee then scheduled another independent medical examination of Russell, this time with Dr. Faerstein, a psychiatrist. Faerstein also concluded that Russell was temporarily disabled because of a psychiatric illness.

Based on this additional information, Russell's employment status and salary continuance benefits were reinstated as of March 11, 1980. Russell has since been paid all salary continuance benefits due and is presently receiving long-term disability benefits under Mutual's disability plan. Russell filed this action to recover damages she claims to have suffered as a direct result of Mutual's alleged untimely and improper handling of her disability claim and its alleged wrongful termination of her employment.

I. ERISA PREEMPTION OF STATE LAW CLAIMS

Recognizing the increasing growth, scope and complexity of private employee benefit plans throughout the United States and the inadequacy of the existing standards governing these plans, Congress determined that it was necessary to enact a comprehensive legislative scheme to remedy the problems and afford security, stability, and uniformity in the area. 29 U.S.C. Sec. 1001(a). To provide for the financial soundness and the fair and equitable administration of such plans, ERISA was enacted in 1974. 29 U.S.C. Sec. 1001(a) (1982).

Our inquiry here is whether Russell's state law causes of action based on Mutual's processing of her disability claim under an ERISA regulated benefit plan are preempted and, if so, whether ERISA provides Russell with an actionable claim against Mutual, as...