Suggs v. Pan American Life Ins. Co., 1:89-cv-829PR.

• Decision Date: 23 March 1994
• Docket Number: No. 1:89-cv-829PR.,1:89-cv-829PR.
• Court: U.S. District Court — Southern District of Mississippi
• Parties: Brian K. SUGGS, Plaintiff, v. PAN AMERICAN LIFE INSURANCE CO., National Insurance Services, Inc., and John Tapper, Individually and d/b/a Tapper & Associates, Defendants.

847 F. Supp. 1324

Brian K. SUGGS, Plaintiff, v. PAN AMERICAN LIFE INSURANCE CO., National Insurance Services, Inc., and John Tapper, Individually and d/b/a Tapper & Associates, Defendants.

No. 1:89-cv-829PR.

United States District Court, S.D. Mississippi, S.D.

March 23, 1994.

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William Lyman Denton, Law Offices of William L. Denton, Patti C. Golden, Patti Golden, Attorney, Biloxi, MS, for Brian K. Suggs.

Fred Mannino, Page, Mannino & Peresich, Biloxi, MS, Daniel D. Whitaker, Carey, Aylward & O'Malley, P.A., Tampa, FL, Constance Charles Willems, McGlinchey Stafford Lang, New Orleans, LA, for Pan American Life Ins. Co., National Insurance Services, Inc. and John Tapper.

MEMORANDUM OPINION AND ORDER

PICKERING, District Judge.

This matter is before the Court on Defendants' Motion for Summary Judgment asserting ERISA preemption of Plaintiff's claims. The Court, having reviewed the briefs of the parties, the authorities cited and being otherwise fully advised in the premises, finds as follows, to-wit;

THE ALLEGATIONS

Plaintiff's complaint alleges breach of contract, fraud in the inducement, negligent and/or intentional misrepresentation, and claims for extracontractual and punitive damages based on the alleged blatant misconduct of the Defendants and the recision of the subject policy. Defendants filed a joint answer generally denying Plaintiff's complaint and affirmatively asserting that the insurance contract at issue is covered by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq.¹ Defendants have moved for summary judgment and request the Court to hold that all of Plaintiff's causes of action arise under state common law and are preempted by the operative provisions of ERISA. 29 U.S.C. § 1144(a). Plaintiff asserts that none of his claims are preempted by ERISA.

FACTUAL BACKGROUND

In November, 1987, the Plaintiff was employed at Poulos Pacer Tire Co. in Biloxi, Mississippi, as a tire changer/mechanic. Through his employer, he was provided with medical insurance coverage offered by Liberty National Insurance Company, which had been secured through Defendant Tapper. At that time, Defendant Tapper approached Plaintiff's employer, David Poulos, and advised him that he could obtain medical insurance at a lower rate for Poulos' employees. However, the Plaintiff had been hospitalized in 1986 for ulcers and pancreatitis and Poulos wanted to be certain that Plaintiff would be covered before he switched policies.

Defendant Tapper first sought coverage for Poulos with Blue Cross and Blue Shield of Mississippi. By his own admission, Defendant Tapper acquired Plaintiff's prior medical records and history and forwarded it to Blue Cross. After reviewing Plaintiff's medical records, Blue Cross declined coverage.

With knowledge that Blue Cross had declined to insure Plaintiff, Defendant Tapper then sought coverage with Defendant Pan American. Tapper filled out the application for all of Poulos' employees, including the Plaintiff, and forwarded it to Pan American who issued coverage effective December 1987. According to Poulos, Tapper assured him at that time that Plaintiff was covered, so he, Poulos, canceled the Liberty National policy. Some two months later, in February 1988, Plaintiff was hospitalized for similar stomach problems for which he had been previously hospitalized. He incurred in excess of sixteen thousand dollars in medical expenses. He then submitted a claim for the expenses to Pan American, who denied the claim. In July, 1988, Pan American rescinded the policy because of alleged misrepresentations by Plaintiff on his application.

The application contained a question about prior hospitalizations within the past twenty-four months which, for Plaintiff, was answered "No". To the contrary, Plaintiff had been hospitalized some twelve to eighteen months prior to the application date for the above noted stomach problems. Tapper has admitted that he filled out the application and answered the question "No", but alleges he did so at the direction of Plaintiff. It is Tapper's explanation that Plaintiff told him the hospitalization was more than twenty-four months prior to the application, which would have made the "No" answer correct. However, the hospital records provided to Defendant Tapper clearly reveal that the "No" answer was not correct. Additionally, plaintiff and his employer, David Poulos, dispute Tapper's version of the application incident and state that Tapper was fully aware of Plaintiff's 1986 hospitalization at the time of the application. Poulos states in his affidavit that he and employee Mona Criswell were present when Suggs told Tapper that he (Suggs) was hospitalized in 1986.

Plaintiff asserts that he was not aware that Tapper had answered this question incorrectly because he did not read the application after Tapper completed it and he was not furnished a copy of the completed application with his policy as required by Miss.Code Ann. § 83-9-11 (1972).

STANDARD OF REVIEW

The Federal Rules of Civil Procedure, Rule 56(c) authorizes summary judgment where "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corporation v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A Judge's function at the summary judgment stage is not himself to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. In making its determination of fact on a motion for summary judgment the court must view the evidence submitted by the parties in a light most favorable to the non-moving party. McPherson v. Rankin, 736 F.2d 175, 178 (5th Cir. 1984). There is no issue for trial unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Although Rule 56 is peculiarly adapted to the disposition of legal questions, it is not limited to that role. Professional Managers, Inc. v. Fawer, Brian, Hardy & Zatzkis, 799 F.2d 218, 222 (5th Cir.1986). "The mere existence of a disputed factual issue, therefore, does not foreclose summary judgment. The dispute must be genuine, and the facts must be material." Id. "With regard to `materiality', only those disputes over facts that might affect the outcome of the lawsuit under the governing substantive law will preclude summary judgment." Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 272 (5th Cir. 1987).

PLAINTIFF'S THEORIES

Plaintiff advances two theories as to why his claims are not preempted by ERISA. First, he argues that the policy of insurance at issue here is not an employee benefit plan under ERISA. Secondly, he argues that his claims for fraud in the inducement and violation of related insurance statutes are not preempted because: 1) they do not relate to an employee benefit plan; and 2) they are based upon state laws which regulate insurance and are thus saved from preemption.

PART I. ANALYSIS REQUIRED TO DETERMINE IF INSURANCE POLICIES ARE COVERED BY ERISA.

Pursuant to 29 U.S.C. § 1002 there are two types of "employee benefit plans". They are "employee welfare benefit plans" and "employee pension benefit plans". This case involves only "employee welfare benefit plans" which ERISA defines as "... any plan, fund, or program ... established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, ... medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment...." 29 U.S.C. § 1002(1).

This Court has attempted to carefully analyze the various steps that must be taken in order to determine whether ERISA is or is not applicable to the insurance policy which is the subject of this suit. This is a tedious and cumbersome process for a case that involves hospital expenses of only some $16,000.² The Court will discuss its frustrations in more detail later, but first will carefully go through the detailed analysis that this Court understands must be made to determine whether ERISA controls.

The Fifth Circuit has devised a comprehensive three part test in determining whether a particular plan or program qualifies as an "employee welfare benefit" plan subject to ERISA preemption. Under that test, the Court must determine whether a plan: (1) exists; (2) falls within the safe-harbor provision established by the Department of Labor; and (3) satisfies the primary elements of an ERISA "employee benefit plan" — established or maintained by an employer or employee organization intending to benefit employees or members. Meredith v. Time Ins. Co., 980 F.2d 352, 355 (5th Cir.1993).

A. FIRST TEST, DOES A PLAN EXIST?

As indicated above, the first step in an analysis of whether ERISA applies is to make a determination of whether or not the particular arrangement is a "plan." The initial inquiry as to whether the "arrangement" is in fact a "plan" is governed by a test first articulated by the Eleventh Circuit in Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982) (en banc), and accepted by this Circuit in Memorial Hosp. System v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir.1990). That test is as follows:

In determining whether a plan, fund or program (pursuant to a writing or not) is a reality a court must determine whether from the surrounding circumstances a

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