Smith v. Jefferson Pilot Life Ins. Co.

• Decision Date: 02 February 1994
• Docket Number: No. 92-8934,92-8934
• Citation: 14 F.3d 562
• Parties: , 17 Employee Benefits Cas. 2433 Crawford B. SMITH, Jr., and Jeannie Smith, Plaintiffs-Appellees, v. JEFFERSON PILOT LIFE INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 562

14 F.3d 562

62 USLW 2564, 17 Employee Benefits Cas. 2433

Crawford B. SMITH, Jr., and Jeannie Smith, Plaintiffs-Appellees, v. JEFFERSON PILOT LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 92-8934.

United States Court of Appeals Eleventh Circuit.

Feb. 2, 1994.

Marien C. Kelly, Atlanta, GA, Ray L. Allison, Columbus, GA, for plaintiffs-appellees.

Jerome M. Rothschild, Layfield, Rothschild & Morgan, Columbus, GA, William H. Young, III., Columbus, GA, for defendant-appellant.

Appeal from the United States District Court for the Middle District of Georgia.

Before ANDERSON and CARNES, Circuit Judges, and MERRYDAY ^*, District Judge.

ANDERSON, Circuit Judge:

Plaintiffs Crawford B. Smith, Jr. and Jeannie Smith brought this suit against Jefferson-Pilot Life Insurance Company in the Superior Court of Muscogee County, Georgia, seeking damages for tortious termination of Jeannie Smith's major medical health coverage. The defendant removed the case to federal court based on diversity. The plaintiffs filed a motion for partial summary judgment contending (1) that the dependent medical coverage provided to Jeannie Smith was not a plan under the Employee Retirement and Income Security Act ("ERISA"), and (2) that even if the coverage were part of an ERISA plan, the state statute underlying their tort claim escapes preemption through application of the ERISA "saving clause", 29 U.S.C. Sec. 1144(b)(2)(A). The district court granted the plaintiffs' motion on both grounds, and this court granted the defendant permission to make an interlocutory appeal of the district court ruling. For the following reasons, we reverse on both grounds, and remand the case to the district court.

I. FACTS AND PROCEDURAL HISTORY

On August 1, 1981, plaintiff Crawford Smith began his employment with Pilot Life Insurance Company, a predecessor of the defendant, as a commission agent. ¹ Smith elected to participate in the insurance plan offered by the defendant to its agents entitled "Group Life and Medical Insurance Plan for Agents and General Agents" (the "Plan"). The Plan was insured through an insurance policy, Group Insurance Policy No. 3469, issued by the defendant, who was both the employer and insurer. All costs of the insurance for agents were paid by the defendant to the Plan. The Plan included a dependent coverage feature whereby eligible dependents of the agents could obtain medical coverage. To obtain dependent coverage, agents were required to make a contribution for the premium. Only agents of the defendant and eligible dependents were able to participate in the Plan. Plaintiff Crawford B. Smith elected to obtain coverage for his wife, Jeannie Smith, through the Plan.

Jeannie Smith suffered a cerebral vascular accident in December of 1981, resulting in ongoing medical costs from that time until her death in June of 1990. The defendant paid these costs pursuant to the dependent coverage feature from 1981 until May 1986. The defendant maintains that the dependent coverage lapsed at that time for nonpayment of the employee contribution. Smith argues that the defendant tortiously terminated the dependent coverage. The termination of this coverage in 1986 forms the basis of this lawsuit.

When Crawford Smith elected to pay for the dependent coverage feature, he authorized Jefferson-Pilot to deduct the premium for his wife's coverage from his compensation account. Crawford Smith's original Request for Group Insurance, dated July 7, 1981, contained the following authorization to deduct a monthly contribution:

I authorize [Jefferson-Pilot] to deduct the above monthly amount from my monthly compensation. I agree if there are insufficient funds at that time, I must remit my personal check to [Jefferson-Pilot] to continue my coverage. I understand this check must be received by [Jefferson-Pilot] at it's Home Office not later than 30 days after the due date and if not received, all insurance lapses.

The record indicates that Smith's dependent coverage payments had technically been one month in arrears since the second month. This happened because Jefferson-Pilot made no deduction from Smith's compensation account for September 1981, even though Smith's account contained sufficient funds for the deduction. ² Smith did not send a check to cover the contribution, and he received no request for back payment. The missing deduction from September 1981 did not become an issue until the coverage was terminated in 1986. Following the Jefferson-Pilot error in failing to deduct the September 1981 premium, the monthly premiums were properly deducted from October 1981 until 1986. However, Jefferson-Pilot now argues that each such deduction actually paid the previous month's premium. We refer to this as the long-standing arrearage.

On March 31, 1986, Crawford Smith's compensation account contained insufficient funds to cover the computerized deduction to be made on the next business day. Jefferson-Pilot sent correspondence to Smith dated April 7, 1986, requesting payment of the premium for the dependent coverage by check. Smith purchased a money order on April 16, 1986 and sent it to the defendant, and the payment was credited to Smith's account on April 28, 1986. This date was 27 days after the normal date on which the premium would be paid; thus, it fell within the 30 day grace period established by the terms of the Plan. However, including the long-standing arrearage, the payment was credited to his account 57 days after it was due. Under that calculation the coverage had lapsed the very day after the premium would normally have been paid.

Two months later the same thing happened again, as discussed below, but this time the defendant took the position that the policy had lapsed. On May 31, 1986, Smith's compensation account again fell below the amount of the dependent coverage premium. Thus, the account contained insufficient funds on Sunday, June 1, 1986 to cover the deduction made by computer for the dependent coverage premium. The record shows that $90 in commissions were credited to the plaintiff's account on Monday June 2, 1986, which would have covered the required contribution. On June 12, commissions were credited to Smith's account that would have paid another month's premium. By then, however, according to the defendant's position, the coverage had lapsed for failure to make contributions required by the Plan within thirty days of the due date. Jefferson-Pilot's position is that, because of the long-standing one-month arrearage, the May 1 premium was 30 days overdue on June 1, and thus the coverage lapsed when the premium was not paid that day. Jefferson-Pilot states that it notified Smith that his premium had not been paid on June 5 and that Smith did not respond. Therefore, on June 20, 1986, Jefferson-Pilot sent Smith a termination letter. That letter, sent to the plaintiff's office in Macon, Georgia, was intended to notify Smith that his coverage had lapsed for failure to pay the May contribution. Thus, Smith's coverage was terminated either 19 days after the premium was due on June 1, based on the procedures that had been in place since September 1981, or 49 days after it was due under the defendant's argument. Although Smith received statements reflecting the monthly deductions from his account; these statements did not state that the monthly deduction in fact paid the prior month's premium, as defendant now argues. Smith apparently learned of defendant's position for the first time during discovery. Smith's efforts to reinstate the coverage failed. Jefferson-Pilot paid no more benefits to Jeannie Smith for claims under the policy.

On August 10, 1987, Crawford Smith and his wife sued Jefferson-Pilot in state court seeking actual and punitive damages for tortious termination of the dependent coverage. Based on diversity, Jefferson-Pilot removed the case to the United States District Court for the Middle District of Georgia. After extensive discovery, the defendant filed a motion for summary judgment on November 8, 1991, stating that the dependent coverage feature was part of an ERISA plan and that ERISA preempted the state law cause of action. On December 7, 1991, the plaintiff filed a cross motion for partial summary judgment, claiming first that the dependent coverage feature was not an ERISA plan. Alternatively, the plaintiff argued that even if the dependent coverage were part of an ERISA plan, the tort claim escapes preemption through the ERISA "savings clause", 29 U.S.C. Sec. 1144(b)(2)(A), which excepts practices that regulate the business of insurance from preemption. The plaintiff grounded this argument on the theory that the tort claim is based on the defendant's violation of a Georgia statute, O.C.G.A. Sec. 33-24-44(d), which requires written notice of cancellation of insurance coverage. Since the Georgia statute regulates insurance, according to the plaintiff, it is "saved" from preemption, as is the tort cause of action based on its violation. The district court issued an order granting the plaintiff's partial motion on both grounds and denying the defendant's motion on April 20, 1992. On August 19, 1992, the district court certified this order for immediate interlocutory review pursuant to 28 U.S.C. Sec. 1292(b). We granted permission to appeal on September 28, 1992.

II. STANDARD OF REVIEW

We have plenary review of summary judgments, and we apply the same legal standards that controlled the district court. Miranda v. B & B Cash Grocery Store, 975 F.2d 1518, 1532 (11th Cir.1992). We review the facts in the light most favorable to the non-movant and resolve all factual disputes in favor of the non-movant.

III. DISCUSSION

A. ERISA Governs the Dependent Coverage Feature.

Congress enacted ERISA, 29 U.S.C. Sec. 1001 et seq., to protect "the interests of participants in employee benefit plans and their beneficiaries...." 29 U.S.C. Sec. 1001. ERISA governs "employee benefit plans," Id. at Sec. 1003, and all ...