Shaw By and Through Zollner v. PACC Health Plan, Inc.

• Decision Date: 29 December 1995
• Citation: 322 Or. 392,908 P.2d 308
• Parties: Ronald E. SHAW, By and Through Thomas Zollner, Personal Representative of the Estate of Ronald E. Shaw, deceased, Respondent on Review, v. PACC HEALTH PLAN, INC., an Oregon corporation, Petitioner on Review, and United Employer Benefit Corporation, an Oregon corporation, Respondent, and Holly Hart, dba Old Wives' Tales Restaurant, Defendant. CC 9106-04101; CA A76072; SC S41799.
• Court: Oregon Supreme Court

Page 308

908 P.2d 308

322 Or. 392

Ronald E. SHAW, By and Through Thomas Zollner, Personal Representative of the Estate of Ronald E. Shaw deceased, Respondent on Review, v. PACC HEALTH PLAN, INC., an Oregon corporation, Petitioner on Review and United Employer Benefit Corporation, an Oregon corporation, Respondent and Holly Hart, dba Old Wives' Tales Restaurant, Defendant.

CC 9106-04101; CA A76072; SC S41799.

Supreme Court of Oregon In Banc.

Argued and Submitted May 1, 1995.

Decided Dec. 29, 1995.

I. Franklin Hunsaker, of Bullivant, Houser, Bailey, Pendergrass & Hoffman, Portland, argued the cause for petitioner on review. With him on briefs were Chrys A. Martin and Lori R. Metz.

Cynthia L. Barrett, Portland, argued the cause and filed the brief for respondent on review.

Jeffrey C. Carey, Portland, filed a brief on behalf of amici curiae American Council of Life Insurance, Health Insurance Association of America, and Standard Insurance Company. With him on the brief were Phillip E. Stano and Theresa L. Sorota, Washington, D.C.

CARSON, Chief Justice.

The issue in this case is whether the trial court correctly granted the motion of defendant PACC Health Plan, Inc. (hereinafter "PACC"), for summary judgment on the ground that plaintiff's ¹ state claims were preempted by the federal Employee Retirement Income Security Act (ERISA). 29 U.S.C. § 1001 et seq.

Defendant Holly Hart (hereinafter "employer") operates a restaurant in which she employed plaintiff as a server. In 1990, employer decided to purchase health insurance for her employees, and hoped to obtain health coverage for her employees by January 1991. She began working with an insurance broker, Mary Hummel (hereinafter "the broker"), who was employed by defendant United Employer Benefit Corporation (hereinafter "UEBC"), to investigate various plans. In August 1990, the employees completed medical history forms, which employer gave to the broker. The broker submitted those medical history forms, along with other application materials, to one insurance carrier. That carrier approved the group's application in October 1990, and provided an estimate for the cost of coverage.

Over the next two months, employer reviewed that carrier's plan information, as well as information from several other carriers, including PACC. In comparing the plans, employer realized that the first carrier's deductible for each employee was twice as high as PACC's, despite the fact that both carriers would charge employer identical premiums for each employee. Consequently, on December 26, 1990, the broker gave employer an application form for PACC's health plan. Employer completed the application form, but the employees did not complete updated medical history forms. Instead, employer redated the medical history forms that the employees had completed in August 1990 to December 1990. The broker then submitted the application and the redated medical history forms to PACC. ² The broker told employer that her employees' health coverage should begin by January 1, 1991.

PACC received employer's application and the employees' medical history forms on January 2, 1991. A senior medical underwriter preliminarily approved the application and forwarded it to her supervisor, the director of underwriting, for routine review. However, before the application had received final approval, plaintiff, one of the employees who was to be covered under the proposed plan, became ill and was hospitalized on January 9, 1991. His diagnosis was a respiratory condition known as pneumocystis, a condition that often occurs in people with Acquired Immune Deficiency Syndrome (AIDS). Plaintiff tested positive for Human Immunodeficiency Virus (HIV) at that time. On January 10, 1991, when employer learned that plaintiff was hospitalized, she called the broker and asked whether the application had been approved. The broker told her that it still was pending.

On either January 10 or 11, 1991, a nurse employed by PACC, who visited the hospital daily to pick up PACC's claim forms and to monitor the quality of care provided to PACC's insureds, learned that plaintiff was ill and suspected that plaintiff might have AIDS. The nurse called PACC's director of underwriting, whom she told about her suspicions. ³ The director reexamined employer's application and noticed that the medical history forms submitted with the application had not been completed within 45 days of the application date, as PACC required. PACC requested that each member of the group provide an updated medical history form.

The employees completed new forms on January 15, 1991, which the broker submitted to PACC. Plaintiff's new form was dated December 31, 1990, and reflected his condition as of that date, because employer thought thatplaintiff's coverage should be effective as of January 1, 1991. On January 16, upon final review, PACC decided to deny employer's application for insurance coverage, allegedly for reasons other than plaintiff's medical condition. ⁴ Employer learned of the denial on January 17, 1991. PACC did not cover any claims related to plaintiff's hospitalization in January 1991.

Plaintiff filed this complaint, alleging common law claims against employer, UEBC, and PACC. Plaintiff claimed that: 1) PACC breached its oral promise to employer, made through the broker, to provide insurance coverage by January 1, 1991; 2) PACC and UEBC negligently processed employer's application; 3) PACC and UEBC denied employer's application in bad faith because, after learning that plaintiff was HIV positive, they conspired to create a pretextual basis for denying employer's application; and 4) employer breached her oral promise to plaintiff that insurance coverage would be provided effective January 1, 1991.

Before trial, plaintiff settled his claim against employer. The trial court granted PACC's motion for summary judgment on the ground that plaintiff's claims against PACC were preempted by ERISA. Trial proceeded against UEBC on the claims that UEBC had negligently processed the application and that it had breached a fiduciary duty by denying employer's application for insurance in bad faith. At the conclusion of plaintiff's case, the court granted UEBC's motion to dismiss the claim for bad faith denial of the application and breach of fiduciary duty. The claim for negligent processing of employer's application went to a jury, which returned a verdict for UEBC.

Plaintiff appealed the order granting PACC's motion for summary judgment and the order granting UEBC's motion to dismiss the claim for bad faith denial of the application and breach of fiduciary duty. The Court of Appeals affirmed the dismissal of the claim for bad faith denial and breach of fiduciary duty against UEBC, but reversed the order granting PACC's motion for summary judgment. Shaw v. PACC Health Plan, Inc., 130 Or.App. 32, 43, 881 P.2d 143 (1994). As to the order granting the motion for summary judgment, a majority of the panel held that plaintiff's claims "are not preempted, because plaintiff is seeking to enforce rights that arise outside of an ERISA plan and do not relate to it." Id. at 42, 881 P.2d 143. One judge dissented, maintaining that plaintiff's common law claims were preempted by ERISA. Id. at 43, 881 P.2d 143 (De Muniz, J., concurring in part and dissenting in part).

PACC petitioned for review in this court, arguing that plaintiff's claims against it were preempted. We allowed PACC's petition for review and now affirm the decision of the Court of Appeals.

Article VI, paragraph 2, of the United States Constitution, the "Supremacy Clause," provides:

"This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding."

The Supremacy Clause gives Congress the power to preempt state law. Federal preemption may occur "by express provision, by implication, or by a conflict between federal and state law." New York Blue Cross v. Travelers Ins., 514 U.S. ----, 115 S.Ct. 1671, 1676, 131 L.Ed.2d 695 (1995). In this case, PACC argues that Congress expressly preempted plaintiff's common law claims through the preemption provision contained in 29 U.S.C. section 1144, below. ⁵ We are faced, therefore, with a question of statutory interpretation: We must determine whether Congress intended to preempt the type of claim brought here when it enacted ERISA. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 103 S.Ct. 2890, 2898, 77 L.Ed.2d 490 (1983) ("In deciding whether a federal law pre-empts a state statute, our task is to ascertain Congress' intent in enacting the federal statute at issue."); Wilson v. Piper Aircraft Corporation, 282 Or. 61, 80, 577 P.2d 1322, on recons. 282 Or. 411, 579 P.2d 1287 (1978) (Linde, J., concurring) ("The question of federal preemption is essentially one of statutory interpretation or, if one prefers, of Congressional intent." (internal quotation marks omitted)).

29 U.S.C. section 1144(a), the ERISA preemption provision, provides, in part:

"[T]he provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title * * *." (Emphasis added.)

29 U.S.C. section 1003(a) provides, in part:

"[T]his subchapter shall apply to any employee benefit plan if it is established or maintained--

"(1) by any employer engaged in commerce or in any industry or activity affecting commerce[.]" (Emphasis added.)

An "employee welfare benefit plan" is defined, in part, to be

"any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by...