Schadler v. Anthem Life Ins. Co.

• Decision Date: 17 July 1998
• Docket Number: No. 97-10491,97-10491
• Citation: 147 F.3d 388
• Parties: Anita SCHADLER, Plaintiff-Appellant, v. ANTHEM LIFE INSURANCE COMPANY; Anthem Benefit Services Inc.; Acordia Benefits of the South, Inc.; Allied Signal, Inc.; Allied Signal Technical Services Corporation; Allied Signal Team/White Sands, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 388

147 F.3d 388

Anita SCHADLER, Plaintiff-Appellant, v. ANTHEM LIFE INSURANCE COMPANY; Anthem Benefit Services Inc.; Acordia Benefits of the South, Inc.; Allied Signal Inc.; Allied Signal Technical Services Corporation; Allied Signal Team/White Sands, Defendants-Appellees.

No. 97-10491.

United States Court of Appeals Fifth Circuit.

July 17, 1998.

Rehearing Denied Aug. 13, 1998.

David R. Richards, Santa Fe, NM, for Schadler.

Ken W. Good, Billy D. Anderson, Tyler, TX, for Defendants-Appellees.

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

Before KING and BARKSDALE, Circuit Judges, and DUPLANTIER, ^* District Judge.

KING, Circuit Judge:

In this case under the Employee Retirement Income Security Act, plaintiff-appellant Anita Schadler appeals the district court's determination that she is ineligible to receive benefits under her husband's accidental death and dismemberment policy based upon an exclusion asserted by defendants-appellees for the first time on appeal to the district court. Because we conclude that the plan administrator failed to make the initial benefits determination as required by the plan, we vacate the judgment of the district court and remand with instructions to remand to the plan administrator to make the necessary benefits decision in the first instance.

I. FACTUAL & PROCEDURAL BACKGROUND

Prior to May 1994, James T. Schadler (Mr. Schadler), the late husband of plaintiff-appellant Anita Schadler (Mrs. Schadler), worked as an engineer for Lockheed Corporation (Lockheed) at the White Sands Test Facility in New Mexico. In May 1994, defendant-appellee Allied Signal Team/White Sands (Allied) replaced Lockheed as the contractor operating the White Sands facility, and Mr. Schadler thereby became an employee of Allied on May 3, 1994.

As part of his employment, Allied offered Mr. Schadler a package of employee benefits (the Plan). One option included in the Plan was a voluntary accidental death and dismemberment policy (the VAD&D Policy). Defendant-appellee Anthem Insurance Company (Anthem) underwrote and administered the VAD&D Policy and defendant-appellee Acordia Benefits of the South, Inc. (Acordia) served as its third-party administrator. The VAD&D Policy provided that Mr. Schadler could enroll upon submitting the appropriate paperwork and agreeing to make certain premium payments.

On May 12, 1994, Mr. Schadler died as a result of a mixed-drug intoxication. His autopsy revealed a recent needle puncture that was not associated with resuscitative efforts, and a toxicologic examination of his body fluids revealed "cocaine, Desipramine, and markedly elevated levels of morphine." Mr. Schadler had a history of drug abuse.

Following Mr. Schadler's death, Mrs. Schadler sought payment under various policies included in the Plan, including the VAD&D Policy. In a letter dated April 24, 1995, Anthem explained that Mrs. Schadler was not entitled to recover under the VAD&D Policy because it had never received an enrollment card from Mr. Schadler and had not billed him for coverage under the VAD&D Policy. Anthem therefore concluded that "no VAD&D policy was ever issued to James L. Schadler." ¹

Following Anthem's determination that Mr. Schadler was not covered by the VAD&D Policy, Mrs. Schadler timely filed this action against defendants-appellees Anthem, Anthem Benefit Services, Inc., Acordia Benefits of the South, Inc., Allied Signal, Inc., and Allied Signal Technical Services Corporation (collectively, Defendants) pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. ² She contended in her complaint that Mr. Schadler had completed and returned the VAD&D Policy's enrollment card, and she argued that Anthem's failure to receive the enrollment card was due to an "inadvertent error, omission or failure" on the part of Allied, for which the Plan indicated that an employee may not be deprived of coverage.

On March 6, 1996, Defendants moved for summary judgment, arguing that "no application or premium was ever received and no coverage was ever in force for a VAD&D policy." In the alternative, Defendants argued for the first time that, even if the VAD&D Policy had been in force, recovery was precluded by several exclusions contained therein, which they described as follows: ³

-- Intentionally self-inflicted injuries, or any attempt thereof, while sane or insane.

-- The taking of drugs or poisons or asphyxiation from the inhaling of gas, when done on a voluntary basis. (This does not apply to drugs that are taken on the advice of a physician).

For reasons that remain unclear, in Defendants' Supplemental Motion for Summary Judgment they began to abandon their original lack of coverage defense, stating that, "[r]egardless of whether James Schadler properly enrolled for the benefits in dispute, it is undisputed that the summary and plan at issue included language specifically excluding benefits for intentionally self-inflicted injury." Moreover, Defendants' Proposed Findings of Fact and Conclusions of Law did not mention the lack of coverage defense, stating only that Mr. Schadler's death was excluded from coverage based on the intentionally self-inflicted injury and drug-use exclusions. In response, Mrs. Schadler argued that Defendants could not rely on the drug-use exclusion because it was not listed in the Summary Plan Description (SPD). She also contended that Defendants should not be allowed to rely on the intentionally self-inflicted injury exclusion because they did not assert it until they moved for summary judgment in the district court.

The district court denied Defendants' motion for summary judgment. Following a bench trial consisting of the admission of depositions, affidavits, and other exhibits and of closing arguments by counsel, the district court determined that circuit precedent dictated that Defendants could not deny Mrs. Schadler benefits based upon the drug-use exclusion because it was not listed in the SPD. The court nevertheless found that she was ineligible to receive benefits under the VAD&D Policy because Mr. Schadler's death was the result of illicit drug use, which the court found constituted an intentionally self-inflicted injury and was therefore excluded from coverage. Mrs. Schadler timely appealed the judgment of the district court.

II. DISCUSSION

Mrs. Schadler argues that the district court erred in finding that she was not entitled to benefits. She first contends that ERISA and the regulations promulgated pursuant to it dictate that Defendants should not have been allowed to assert the intentionally self-inflicted injury exclusion for the first time before the district court. Alternatively, Mrs. Schadler asserts that even if Defendants are allowed to rely on the intentionally self-inflicted injury exclusion, it does not preclude her recovery because Mr. Schadler did not intend to injure himself.

Defendants respond that they have asserted the same factual basis for denying the claim throughout the process and that Mrs. Schadler therefore was not prejudiced by their reliance on the intentionally self-inflicted injury exclusion for the first time before the district court. In addition, they argue that the district court's decision that the intentionally self-inflicted injury exclusion precluded recovery is correct. ⁴ Following a brief discussion of the law surrounding suits challenging denials of benefits under ERISA, we address each of these arguments in turn.

A.

As the Supreme Court has explained, "ERISA was enacted 'to promote the interests of employees and their beneficiaries in employee benefit plans' and 'to protect contractually defined benefits.' " Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 113, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989) (citations omitted) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) and Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 148, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985), respectively). Therefore,

ERISA sets certain minimum requirements for procedures and notification when a plan administrator denies a claim for benefits. In a nutshell, ERISA requires that specific reasons for denial be communicated to the claimant and that the claimant be afforded an opportunity for "full and fair review" by the administrator.

Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 688 (7th Cir.1992).

These procedures are set forth in § 1133 of ERISA and in the Department of Labor regulations promulgated pursuant to that section. Section 1133 provides:

In accordance with regulations of the Secretary, every employee benefit plan shall--

(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and

(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

29 U.S.C. § 1133. The Department of Labor Regulations further elaborate on § 1133(1)'s notice requirement. Section 2560.503-1(f) of Title 29 of the Code of Federal Regulations provides as follows:

(f) Content of notice. A plan administrator or, if paragraph (c) of this section is applicable, the insurance company, insurance service, or other similar organization, shall provide to every claimant who is denied a claim for benefits written notice setting forth in a manner calculated to be understood by the claimant:

(1) The specific reason or reasons for the denial;

(2) Specific reference to pertinent plan provisions on which the denial is based;

(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(4)...