Swint v. Protective Life Ins. Co.

Decision Date08 November 1991
Docket NumberCiv. A. No. 89-0376-RV.
Citation779 F. Supp. 532
PartiesWilliam E. SWINT, et al., Plaintiffs, v. PROTECTIVE LIFE INSURANCE COMPANY, et al., Defendants.
CourtU.S. District Court — Southern District of Alabama

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Nathan P. Friedlander, C.S. Chiepalich, Mobile, Ala., for William E. Swint, et al.

Joseph Babington, Warren Herlong, Mobile, Ala., for Protective Life Ins. Co.

John Richardson, Mobile, Ala., for Ward Intern. Trucks, Inc.

ORDER

VOLLMER, District Judge.

Plaintiffs, William E. Swint and his wife, Louise Von Swint, as guardian and next friend of Roy Ivie (the "Swints"), brought this action pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and certain amendments made to ERISA by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), codified at 29 U.S.C. § 1161 et seq. Plaintiffs' complaints essentially emanate from the "termination" or "denial" by defendant Protective Life Insurance Company ("Protective Life") of health insurance coverage on Roy Ivie seven months following Roy Ivie's catastrophic injury in a September 1987, automobile collision. Beginning on March 2, 1987, said coverage was provided to Mr. Swint, as a full-time Ward employee, and to Mrs. Swint and Roy Ivie, as dependents of Mr. Swint, pursuant to a policy issued by defendant Protective Life through an employee welfare benefit plan (the "Plan") funded and sponsored by defendant Ward International Trucks, Inc. ("Ward"), the company by which Mr. Swint was employed.

More specifically, plaintiffs contend that Protective Life breached its fiduciary duties under ERISA when it made a determination to provide insurance coverage to Roy Ivie on the information it initially obtained and thereafter, on April 4, 1988, following further investigation into the coverage issue, "terminated" or "denied" additional payments to Roy Ivie under the aforementioned policy. Alternatively, plaintiffs contend that each defendant breached its fiduciary obligations under ERISA when it failed to recognize that Roy Ivie had made a COBRA election to continue coverage under the policy or when it failed, during Roy Ivie's incompetency, to make a COBRA election on his behalf.

Furthermore, the Swints maintain that each defendant violated either their ERISA fiduciary obligations or the COBRA amendments to ERISA when they failed, following Mr. Swints' notification to them of the occurrence of a qualifying event involving Roy Ivie, to inform Mr. Swint and/or Roy Ivie of Roy Ivie's right to elect, and to elect on behalf of Roy Ivie, continuation coverage under COBRA. Finally and alternatively, plaintiffs assert that Protective Life should be estopped from asserting and/or deemed to have waived its right to deny coverage to Roy Ivie (1) due to its failure to make an adequate and timely inquiry into the issue of Roy Ivie's eligibility for dependant coverage until after the period for Roy to elect continuation coverage under COBRA apparently had lapsed, or (2) due to its own conduct in determining from the information received that coverage would be provided and, months later, avowedly prompted by documentation requirements imposed by its excess insurance carrier, revisited the coverage issue and determined that coverage, indeed, was not available.

A bench trial was held in this case on the liability issues only, commencing on Monday, July 22, 1991.1 After due and proper consideration of the arguments of counsel, of all evidence presented by counsel, which evidence was not excluded by the court, of the agreed upon contentions of fact contained in the parties' joint "pretrial order" (see tab 61), and of the facts to which the parties stipulated, on the record, the first morning of trial, the court issues the following findings of fact and conclusions of law.

Findings of Fact
A. The Principals

Defendant Ward International Trucks, Inc. ("Ward"), is a corporation, the principal place of business of which is located in Mobile, Alabama. As a local International Harvester Trucks franchisee, Ward is engaged in business in and affecting interstate commerce and, in fact, maintains an additional office in Pensacola, Florida. At all times material to this action, Ward employed approximately forty employees, including plaintiff William E. Swint.

Defendant Protective Life Insurance Company ("Protective Life") is an insurance business entity alleged to be organized and existing under Alabama law. Protective Life has its principal place of business in Birmingham, Alabama, and does business in Mobile County, Alabama.

In March 1987, Ward established an employee welfare benefit plan under ERISA. Ward funded this plan by applying for and purchasing a medical and life group insurance policy (the "Policy") from Protective Life. As will be discussed more fully hereinafter, the Policy, which no longer is in effect but which was implemented on March 1, 1987, and was in effect at all times material to this action, covered each Mobile-based, full-time Ward employee. Additionally, the Policy covered each full-time employee's eligible defendants for which the employee elected dependant coverage.

Alvin McPherson ("McPherson") is the independent insurance broker/agent who was hired by Ward in 1987 to "shop" for group insurance coverage for Ward. McPherson negotiated the purchase of the Policy by Ward from Protective Life and, in fact, later handled the process by which Ward enrolled its employees for coverage under the Policy.

John Sturdivant ("Sturdivant") is, and at all times material to this action was, the secretary/treasurer of Ward. In his capacity as secretary/treasurer, Sturdivant was involved in the enrollment of Ward employees in the group insurance program and handled disputes regarding the same.

Brenda Doss ("Doss") is, and was at all times material hereto, the office manager of Ward. As office manager, Doss was responsible for distributing insurance certificates to Ward employees, processing group insurance claims, and answering specific questions regarding coverage under the Policy.

Sue Sweatt ("Sweatt") was a claims examiner with Protective Life during the events made the basis of this suit. Sweatt processed the initial claims filed on Roy Ivie's behalf against the Policy and was the first Protective Life employee with whom Ward employees had contact following Roy Ivie's accident.

Patrick West ("West") was an assistant manager and claims review examiner in Protective Life's group health claims department during the events made the basis of this suit. Following a routine review of and investigation into Roy Ivie's file, West made a determination on April 4, 1988, that Roy Ivie was not eligible for coverage under the Policy or for COBRA continuation coverage.

John Wright ("Wright") is, and was at all times during his involvement with this case, vice-president and senior associate counsel for, and a stockholder in, Protective Life Corporation, the parent corporation of Protective Life. Wright integrally was involved in making the April 4, 1988, determination that Roy Ivie was not eligible for coverage under the Policy or under COBRA.

The plaintiffs herein are William E. Swint and his wife, Louise Von Swint, as guardian and next friend of Roy Ivie. Mr. Swint, a fifty-four (54) year old man who has an eighth grade education, has been employed as a diesel engine mechanic by Ward since it was formed in May 1985. Roy Ivie is the natural child of Louise Von Swint and step-son of William E. Swint. Louise Von Swint was appointed legal guardian of Roy Ivie on December 18, 1987, by the Probate Court of Jackson County, Mississippi. Roy Ivie, who, as noted, was grievously injured in an automobile collision in September 1987, remained mentally incompetent from the date of the collision through the date of trial.

B. Ward's ERISA Employee Welfare Benefit Plan and the Protective Life Policy

As noted, effective March 1, 1987, Ward established an employee welfare benefit plan under ERISA, which plan was funded by Ward's purchase of the Policy from Protective Life.2 Also, as noted, the Policy covered each full-time Ward employee and each employee's eligible dependents for which the employee elected dependent coverage. Under the express terms of the Policy, Ward paid one hundred percent (100%) of the group health insurance premiums for its full-time employees, and each employee was responsible for paying one hundred percent (100%) of the group health insurance premiums attributable to that employee's covered, eligible dependent(s).

The Policy, which consisted of the insurance certificate and riders and endorsements thereto, provided for various types of insurance coverage, including medical care insurance, for full-time employees and covered dependents. The overall maximum benefit for all covered charges under the medical care insurance provisions of the policy was one million dollars ($1,000,000.00).

Under the Policy, moreover, the filing of claims directly with Protective Life was prohibited; instead, the Policy instructed claimants to "give claims to Employer who will verify insurance status and file them with us."3 The Policy, however, reserved to Protective Life responsibility for examining, processing, and paying all claims which Protective Life "decided" were payable thereunder and, further, states that "no claim for benefits which are clearly ... outside the coverage of the Policy will be considered a valid claim."4 Protective Life interpreted that provision of the Policy as giving it the authority to make coverage eligibility determinations.

The insurance certificate, copies of which were distributed to each covered Ward employee, including Mr. Swint, consisted, inter alia, of a general description of persons who were eligible for health insurance coverage and of medical conditions and procedures for which coverage was available. Of relevance to the present action are...

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