Shipley v. Arkansas Blue Cross and Blue Shield

• Decision Date: 30 June 2003
• Docket Number: No. 02-2867.,02-2867.
• Citation: 333 F.3d 898
• Parties: Mary Sue SHIPLEY, Personal representative of the Estate of William D. Shipley, Jr., deceased, Appellant, v. ARKANSAS BLUE CROSS AND BLUE SHIELD, a mutual insurance company, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 898

333 F.3d 898

Mary Sue SHIPLEY, Personal representative of the Estate of William D. Shipley, Jr., deceased, Appellant, v. ARKANSAS BLUE CROSS AND BLUE SHIELD, a mutual insurance company, Appellee.

No. 02-2867.

United States Court of Appeals, Eighth Circuit.

Submitted: January 17, 2003.

Filed: June 30, 2003.

Jeffrey L. Singleton, argued, Little Rock, AR (Martin W. Bowen, on the brief), for appellant.

Mark H. Allison, argued, Little Rock, AR (Allan W. Horne, on the brief), appellee.

Before HANSEN,¹ Chief Judge, BOWMAN and MELLOY, Circuit Judges.

HANSEN, Circuit Judge.

Appellant Mary Sue Shipley appeals the final judgment entered by the district court² in favor of Arkansas Blue Cross and Blue Shield ("ABCBS"), upholding ABCBS's denial of benefits. We affirm the judgment of the district court.

I.

On April 5, 2000, William Shipley completed an enrollment form to obtain health insurance through his employer's benefit plan ("the Plan") administered by Appellee ABCBS. On the form, Shipley answered a number of questions about his medical history. Specifically, he answered "no" to the following questions:

Has any person applying for coverage ever had a known indication of or been treated by a physician for:

1. Chest pain, high blood pressure, shortness of breath, stroke, dizziness, peripheral vascular disease, varicose veins or ulcers, or any other disorder of the heart and circulatory system?

....

3. Tuberculosis, emphysema, C.O.P.D., asthma, or any disorder of the sinuses, lungs, respiratory system?

....

11. Have you ... had any diagnosis, medical treatment, mental or physical impairment, condition or congenital anomaly not mentioned above?

....

16. Is any person taking medication prescribed by a physician? If YES, give name of person, medication, and dosage.

(Appellant's Add. at 11.) Shipley then signed the form which represented that "the statements and answers given in th[e] application [were] true, complete and correctly recorded to the best of [his] knowledge and belief...." (Id.)

On August 28, 2000, after a number of doctor visits relating to respiratory problems, Shipley was diagnosed with cancer and chronic obstructive pulmonary disease ("C.O.P.D."), or emphysema. After investigating Shipley's medical records, ABCBS rescinded his insurance coverage retroactive to its effective date because he had not fully disclosed his medical history. In its letter rescinding coverage, ABCBS noted that Shipley had made a number of doctor visits for related symptoms that he had failed to disclose in his application form, and that ABCBS would have rated the policy differently had Shipley disclosed that information. Specifically, ABCBS noted that: (1) Shipley was seen and treated for chest congestion and an upper respiratory infection on April 7, 1997, and was prescribed Keflex to treat the condition; (2) Shipley was seen and treated for a sinus infection and cough on September 20, 1999, and was diagnosed with acute sinusitis; (3) Shipley was seen and treated for acid reflux and sleep difficulties on November 19, 1999, and after an X-ray revealed expiratory wheezing, he was diagnosed with asthmatic bronchitis for which the doctor prescribed several medications; and (4) on January 21, 2000, Shipley's doctor prescribed an additional drug be added to Shipley's medications.

Shipley appealed ABCBS's rescission decision via letter dated April 6, 2001, but failed to submit any additional evidence. ABCBS denied Shipley's appeal. Shipley then filed this action in district court.³ The district court granted ABCBS's motion for a protective order and determined that the case would be decided on the administrative record under an abuse of discretion standard. The court then granted ABCBS's motion for summary judgment, finding that ABCBS did not abuse its discretion in rescinding the policy because there was substantial evidence that Shipley had misrepresented his medical history.

Shipley filed this appeal, arguing that the district court erred in applying an abuse of discretion standard of review and in concluding that ABCBS's decision was supported by substantial evidence. After Shipley's death on November 14, 2002, his wife, Mary Sue Shipley, was appointed Personal Representative of his estate. Pursuant to Federal Rule of Appellate Procedure 43(a)(1), this court substituted Mary Sue Shipley as the proper party on appeal.

II.

This court reviews de novo the grant of summary judgment, applying the same standard as the district court. See Delta Family-Care Disability and Survivorship Plan v. Marshall, 258 F.3d 834, 840-41 (8th Cir.2001) (reviewing de novo district court's application of abuse of discretion standard in its review of an ERISA plan administrator's decision to terminate benefits), cert. denied, 534 U.S. 1162, 122 S.Ct. 1173, 152 L.Ed.2d 117 (2002). Therefore, if the district court was required to review ABCBS's decision for an abuse of discretion, this court does the same. Under an abuse of discretion standard, this court must determine whether ABCBS's "decision was reasonable; i.e., supported by substantial evidence." Fletcher-Merrit v. NorAm Energy Corp., 250 F.3d 1174, 1179 (8th Cir.2001). "Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Id. (internal quotations omitted).

Appellant argues that the district court should have reviewed ABCBS's decision de novo. The district court specifically rejected this argument and concluded that because the Plan expressly grants the administrator discretionary authority to determine eligibility for benefits,⁴ the Supreme Court's decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), required that it limit its review of the administrator's decision to an abuse of discretion. Although Appellant argued that the enrollment form is not part of the Plan, the district court cited to an integration clause that clearly makes the enrollment form one of the documents that ABCBS has discretionary authority to review. (Appellant's Add. at 19 ("The entire contract of insurance is made up of this policy.... The individual applications also become part of this contract.").) Appellant fails to address the integration clause and instead merely concludes that the enrollment form is not part of the plan and that Bruch does not apply. Because we agree with the district court's findings that the Plan grants discretion to ABCBS and that the enrollment form was integrated into the Plan, Bruch applies, and we reject Appellant's argument that a de novo standard of review was and is required. See Tillery v. Hoffman Enclosures, Inc., 280 F.3d 1192, 1196-97 (8th Cir.2002).

III.

The district court correctly noted that although the Plan is governed by ERISA, there is no ERISA section that discusses the availability of rescission by an insurer in response to misrepresentations in a health insurance application. Therefore, federal common law controls in this case. See McDaniel v. Med. Life Ins. Co., 195 F.3d 999, 1002 (8th Cir.1999) (noting that without a governing ERISA provision, federal common law controls); Mohamed v. Kerr, 53 F.3d 911, 913-14 (8th Cir.) (same), cert. denied, 516 U.S. 868, 116 S.Ct. 185, 133 L.Ed.2d 123 (1995); Anderson v. John Morrell & Co., 830 F.2d 872, 877 (8th Cir.1987) (noting that courts should fashion federal substantive law to fill in gaps in ERISA's express provisions); see also 29 U.S.C. § 1144(a) (2000) (preempting state law in cases involving employee benefit plans); Tingle v. Pac. Mut. Ins. Co., 996 F.2d 105, 107-110 (5th Cir.1993) (holding that state statute regarding misrepresentations in insurance applications is preempted by ERISA, and that in the absence of a specific ERISA provision, federal common law controls). In developing federal common law, we may look to state law for guidance to the extent that state law does not conflict with ERISA or its underlying policies. See McDaniel, 195 F.3d at 1002; Mohamed, 53 F.3d at 913.

In looking to state law, federal courts cannot simply decide what one particular state or a majority of the states has done in similar situations. Rather, federal courts create federal common law by adopting and applying the common law principles that further the policy considerations underlying ERISA. See Singer v. Black & Decker Corp., 964 F.2d 1449, 1453 (4th Cir.1992). After considering the policy implications in this case, we, like a number of our sister circuits, conclude that federal common law allows for the equitable rescission of an ERISA-governed insurance policy that is procured through the material misstatements or omissions of the insured. See, e.g., Sec. Life Ins. Co. of Am. v. Meyling, 146 F.3d 1184, 1191 (9th Cir.1998) (finding that "ERISA must provide a rescission remedy when an insured makes material false representations regarding his health"); Davies v. Centennial Life Ins. Co., 128 F.3d 934, 943-44 (6th Cir.1997) (adopting general principles of contract law to determine the effect of a misrepresentation in an insurance application governed by ERISA); Hauser v. Life Gen. Sec. Ins. Co., 56 F.3d 1330, 1333-35 (11th Cir.1995) (assuming that a right of rescission exists under ERISA-created federal common law); Nash v. Trustees of Boston Univ., 946 F.2d 960, 966-67 (1st Cir.1991) (recognizing fraud in the inducement as a defense under federal common law interpreting ERISA); see also Tingle v. Pac. Mut. Ins. Co., 837 F.Supp. 191, 193 (W.D.La.1993) (ascertaining, on remand, the proper federal common law approach).

This rule is consistent with general contract and insurance law principles, see Restatement (Second) of Contracts, § 164(1) (1981) ("If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the...