Smart v. State Farm Ins. Co.

• Citation: 868 F.2d 929
• Decision Date: 15 February 1989
• Docket Number: No. 88-1910,88-1910
• Parties: 10 Employee Benefits Ca 2060 Alton J. SMART, Plaintiff-Appellant, v. STATE FARM INSURANCE CO., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 929

868 F.2d 929

10 Employee Benefits Ca 2060

Alton J. SMART, Plaintiff-Appellant, v. STATE FARM INSURANCE CO., Defendant-Appellee.

No. 88-1910.

United States Court of Appeals Seventh Circuit.

Argued Nov. 9, 1988.

Decided Feb. 15, 1989.

James E. Doyle, Jr., Doyle & Ritz, Madison, Wis., for plaintiff-appellant.

Claude J. Covelli, Boardman, Suhr, Curry & Field, Madison, Wis., for defendant-appellee.

Before CUMMINGS, WOOD, Jr., and CUDAHY, Circuit Judges.

CUMMINGS, Circuit Judge.

Plaintiff Alton J. Smart appeals from the district court's grant of summary judgment in favor of defendant State Farm Insurance Company ("State Farm"). Smart alleges that State Farm failed to pay a claim for medical expenses under a group insurance policy issued by State Farm to employees of the Chippewa Health Center, which is owned and operated by the Lac Du Flambeau Band of the Lake Superior Chippewa Tribe ("Chippewa Tribe" or "Tribe"). The district court determined that this action for benefits arises under Section 502(a)(1)(B) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1132(a)(1)(B), and consequently State Farm's decision to deny benefits to Smart could only be reversed if the decision was arbitrary and capricious. Brown v. Retirement Committee of Briggs & Stratton, 797 F.2d 521, 525 (7th Cir.1986), certiorari denied, 479 U.S. 1094, 107 S.Ct. 1311, 94 L.Ed.2d 165 (1987). Smart argues that ERISA does not govern an employee benefits plan established and operated by an Indian Tribe for Tribe employees, or, alternatively that State Farm's decision to deny him benefits was arbitrary and capricious.

I. Facts And Procedural History

Smart is an enrolled member of the Bad River Band of the Chippewa Tribe and an employee of the Chippewa Health Center, which is owned and operated by the Lac Du Flambeau Band of the Tribe within the boundaries of its reservation. State Farm issued to the Chippewa Health Center a group health policy offering medical and hospital benefits to employees and eligible dependents. Smart applied and became insured under the policy. In late September 1985, Smart decided to enroll his minor son, Brian Jackson, in the health plan and obtained the necessary application forms. On October 30, 1985, Smart submitted the application to enroll Brian. State Farm returned the application because Smart had failed to complete questions concerning Brian's medical history. Included in the incomplete medical history were questions asking whether Brian had any sickness or mental or physical impairment, had consulted any doctor for any reason within the past five years, or been told hospitalization was required. Smart answered those questions in the negative and resubmitted the application in November 1985. State Farm then added Brian as a beneficiary effective December 1, 1985.

Allegedly unknown to Smart, Brian had been examined by a psychologist for drug and alcohol abuse as well as for emotional difficulties. On October 20, 1985, while Smart was out of town, Brian was detained in the Milwaukee County Juvenile Detention Center. While there, on that same date he was interviewed and tested by Dr. Burton S. Silberglitt, a clinical psychologist. Dr. Silberglitt later submitted an undated report to the Milwaukee County Department of Social Services and the Milwaukee County Court recommending psychotherapy, with an emphasis placed on overcoming anxieties related to familial relations and the elimination of drug and alcohol abuse. The record does not show when the report was completed or filed with the Social Services Department or the County Court.

On December 23, 1985, approximately two months after Dr. Silberglitt's examination and one month following Smart's application, Brian was admitted to the Kettle Moraine Hospital in Oconomowoc, Wisconsin, for drug and alcohol abuse. He remained an in-patient until January 31, 1986. Subsequent to Brian's discharge from the hospital, Smart filed a claim with State Farm for reimbursement of expenses associated with Brian's hospitalization. During its investigation of the claim, State Farm discovered Dr. Silberglitt's report. Because the hospitalization expenses for which Smart sought reimbursement were for drug and alcohol abuse, which figured prominently in Dr. Silberglitt's earlier report and recommended treatment, State Farm denied the claim on July 8, 1986. Smart protested the adverse decision in September 1986 and was informed by David Clark, a State Farm representative, that Dr. Silberglitt's recommendations indicated that Brian had a pre-existing condition as defined in the policy which was not disclosed on the enrollment application. A pre-existing condition, defined as an "injury or sickness for which medical advice or treatment was recommended or received by a physician within a six month period preceding the effective date of coverage ... or the existence of symptoms which would cause an ordinarily prudent person to seek diagnosis, care or treatment within a six month period preceding the effective date of coverage....", constitutes ground for exclusion under the policy.

Smart filed this action on September 28, 1987, in the Circuit Court for Wood County, Wisconsin, protesting State Farm's refusal to reimburse him for Brian's hospitalization expenses. On October 19, 1987, State Farm removed this action to the Western District of Wisconsin, premising federal jurisdiction upon Section 502(a)(1)(B) of ERISA (29 U.S.C. Sec. 1132(a)(1)(B)). The district court granted State Farm's motion for summary judgment on April 7, 1988, simultaneously filing an opinion (App. A-6--A-10).

The issue on appeal is whether the district court erred in concluding that ERISA controls this dispute. Smart maintains his argument raised in the district court that, because his employer is an independent sovereign, viz., an Indian Tribe that is signatory to a treaty with the federal government, ERISA does not apply. He argues that enforcing federal legislation such as ERISA on an independent sovereign Tribe would have the resulting, and congressionally unintended, effect of hindering its right of self-governance. The parties agree that if ERISA does not govern this dispute, then the district court was without jurisdiction and the dispute should be resolved by a Wisconsin state court applying Wisconsin law.

Alternatively, Smart argues that if ERISA does control this dispute, then the district court erred by granting summary judgment in favor of State Farm. According to plaintiff, State Farm's decision to deny his claim was arbitrary and capricious and therefore should have been reversed by the district court.

II. Discussion

A. Appropriateness of Summary Judgment

Summary judgment is properly granted only when no genuine issues exist as to any material facts, and when the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). All facts must be construed in the light most favorable to the party opposing the motion for summary judgment and inferences drawn in that party's favor. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); Beard v. Whitley REMC, 840 F.2d 405, 410 (7th Cir.1988). The party opposing summary judgment may not simply rest on the pleadings, but rather must affirmatively demonstrate by specific factual showings that there is a genuine issue of fact requiring trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). If there is no triable issue, the district judge should enter judgment. The proper standard for entering judgment pursuant to a motion for summary judgment mirrors that of a directed verdict, Fed.R.Civ.P. 50(c), viz., the district court must direct a verdict if under the governing law, there can be but one reasonable conclusion as to the verdict. Anderson, 477 U.S. at 250, 106 S.Ct. at 2511 (additional citations omitted).

On appeal, since the district court has concluded that no factual issues remain, this Court reviews the record and the district court's determinations de novo. Whether a genuine issue of material fact exists is a legal determination, subject to appellate review. Brock v. American Postal Workers Union, 815 F.2d 466, 469 (7th Cir.1987). If the record indicates that inferences could have been made which are more favorable to the party opposing summary judgment, and contrary to those inferences actually drawn by the district court, so that a different verdict could possibly result, then summary judgment should be reversed. Munson v. Friske, 754 F.2d 683, 690 (7th Cir.1985).

B. Applicability of ERISA to an Indian Tribe Employer

Indian Tribes are " 'distinct, independent political communities, retaining their original natural rights' in matters of local self-government." Santa Clara Pueblo v. Martinez, 436 U.S. 49, 55, 98 S.Ct. 1670, 1675, 56 L.Ed.2d 106 (1978), citing Worcester v. Georgia, 6 Pet. 515, 559, 8 L.Ed. 483 (1832). And while Indian Tribes still have the power and authority to govern and regulate internal affairs through the enactment and enforcement of substantive law, Santa Clara Pueblo, 436 U.S. 49, 98 S.Ct. 1670 (membership in Tribe); United States v. Quiver, 241 U.S. 602, 36 S.Ct. 699, 60 L.Ed. 1196 (domestic relations); Jones v. Meehan, 175 U.S. 1, 20 S.Ct. 1, 44 L.Ed. 49 (1899) (rules of inheritance), they are no longer possessed of the "full attributes of sovereignty." United States v. Kagama, 118 U.S. 375, 381-82, 6 S.Ct. 1109, 1112-13, 30 L.Ed. 228 (1886). Their sovereignty is not absolute, for Congress has plenary power to limit, modify or even eliminate the powers of self-governance which Tribes may have traditionally possessed. Santa Clara Pueblo, 436 U.S. at 56, 98 S.Ct. at 1676 (additional citations omitted); see also F. Cohen, Handbook of Federal Indian Law 282 (1982 ed.). Unlike the States, Indian Tribes...