Tester v. Reliance Standard Life Insurance

• Decision Date: 24 September 1998
• Docket Number: No. 97-1589,97-1589
• Citation: 228 F.3d 372
• Parties: (4th Cir. 2000) DOUGLAS Y. TESTER, as Personal Representative of the Estate of Annie Ruth Tester, Deceased, Plaintiff-Appellee, v. RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant-Appellant. . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 372

228 F.3d 372 (4th Cir. 2000)

DOUGLAS Y. TESTER, as Personal Representative of the Estate of Annie Ruth Tester, Deceased, Plaintiff-Appellee, v RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 97-1589.

UNITED STATES COURT OF APPEALS, FOR THE FOURTH CIRCUIT.

Argued: September 24, 1998.

Decided: September 25, 2000.

Appeal from the United States District Court for the District of South Carolina, at Greenville.

G. Ross Anderson, Jr., District Judge. (CA-96-2545-6-13) COUNSEL ARGUED: Michael J. Burns, CHRISTIE, PABARUE, MORTENSEN & YOUNG, P.C., Philadelphia, Pennsylvania, for Appellant. Robert Edward Hoskins, FOSTER & FOSTER, L.L.P., Greenville, South Carolina, for Appellee. ON BRIEF: James A. Young, CHRISTIE, PABARUE, MORTENSEN & YOUNG, P.C., Philadelphia, Pennsylvania; Heyward E. McDonald, MCDONALD, MCKENZIE, RUBIN, MILLER & LYBRAND, Columbia, South Carolina, for Appellant.

Before WIDENER, WILLIAMS, and MICHAEL, Circuit Judges.

Affirmed by published opinion. Judge Widener wrote the opinion, in which Judge Williams and Judge Michael joined.

OPINION

WIDENER, Circuit Judge:

Defendant, Reliance Life Insurance Co. (Reliance), appeals the district court's judgment awarding death benefits to plaintiff, Douglas Tester. Mr. Tester, as a personal representative of the estate of his wife Annie Ruth Tester, filed this complaint in district court alleging that Reliance improperly withheld death benefits due him in violation of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. S 1001, et seq. The first cause of action alleged that pursuant to 29 U.S.C. S 1132(a)(1)(B) Reliance wrongfully refused to pay him death benefits under a group accidental death insurance plan issued by Reliance and administered by Mrs. Tester's employer, The Bibb Company (Bibb). Alternatively, the second cause of action alleged that Reliance should pay Mr. Tester death benefits because it breached a fiduciary duty to Mrs. Tester under 29 U.S.C. S 1104 by failing to advise her that her coverage under the group plan terminated at the beginning of February 1995, thus denying her the opportunity to exercise conversion privileges available under the plan. Under either theory, Mr. Tester sought payment of $50,000 in death benefits, plus attorney's fees and costs pursuant to 29 U.S.C.S 1132(g).

After denying motions for summary judgment, the district court conducted a bench trial. The court found that the Reliance policy covered Mrs. Tester at the time of her death and was of opinion that Reliance improperly denied Mr. Tester death benefits under the group insurance plan. The district court further held, alternately, that Reliance breached a fiduciary duty owed to Mrs. Tester by failing to notify her of its claimed coverage termination which deprived her of the opportunity to convert her coverage under the policy. The court entered judgment in the amount of $50,000 plus interest and costs against Reliance. Reliance then filed this appeal. For the reasons stated below, we affirm the district court's judgment on the first cause of action. We conclude that the policy covered Mrs. Tester at the time of her death and that Reliance owed death benefits pursuant to 29 U.S.C. S 1132(a)(1)(B).¹

Mrs. Tester began working for Bibb on June 1, 1993. At the time of her death, she was on medical leave from her position as a creeler weaver at Bibb's plant in Greenville, South Carolina. Her regular work schedule consisted of thirty-six hours one week and forty-eight hours the next.

Reliance issued a policy for group accident coverage to Bibb that became effective August 1, 1993. Bibb distributed a Certificate of Insurance to each participating employee that explained the basic policy terms and conditions. Mrs. Tester's coverage under the policy became effective on September 1, 1993 and provided for a death benefit to the designated beneficiary of $50,000. Mrs. Tester named her husband as her sole beneficiary under the policy.

The policy provided the conditions under which Reliance could terminate an employee's coverage. The policy states:"An Insured Person's coverage will terminate on the first of the following to occur: . . . The first of the Policy month coinciding with or next following the date the Insured Person ceases to be in a class eligible for this insurance."² The policy defines whether an employee qualifies as a member of a class eligible for insurance according to this provision: "ELIGIBILITY: Each active, Full-time and Part-time employee, except any person employed on a temporary or seasonal basis, according to the following classifications: Class 1: salaried employee, Class 2: hourly employee." Further, the policy defines a "Full-time" or "Part-time" employee as one who works "a minimum of 20 hours during [the] person's regularly scheduled work week."

The last day that Mrs. Tester worked on the job in the plant at Bibb was January 8, 1995. On that day, she took an approved medical leave because of health problems unrelated to her later accidental death. Subsequently, Mrs. Tester, on February 15, 1995, died from injuries sustained as a passenger in an automobile accident on that same day, at which time she had not yet returned to work. Mr. Tester applied for death benefits on March 29, 1995, and Bibb submitted his application to Reliance. Before receiving the application, Reliance was unaware of Mrs. Tester's leave of absence or her recent death. Shawn Abner, a Senior Claims Examiner for Reliance, wrote to Bibb on April 5, 1995 requesting information concerning Mrs. Tester's last day of work. On April 10, 1995, Miss Abner was told that the last day that Mrs. Tester actually worked was January 8, 1995.

Miss Abner reviewed Mr. Tester's claim application, the policy language, and the information regarding Mrs. Tester's last day of work and concluded that Mrs. Tester's coverage had terminated on February 1, 1995, the first of the month next following the beginning of medical leave because Mrs. Tester ceased to be a"member of the eligible class" on January 8, 1995. She advised Bibb and Mr. Tester in writing that no benefits were available and explained the procedures for requesting a review of Reliance's decision. On February 13, 1996, Mr. Tester filed for a review of Reliance's decision upon the grounds that Bibb still considered Mrs. Tester to be an employee as of the date of her death. Reliance reviewed the appeal and, on March 14, 1996, affirmed its denial of benefits, explaining that Bibb's perspective on Mrs. Tester's employment status did not change the contractual terms, which required Mrs. Tester to be an"active" employee at the time of her death. It then took the position that the coverage ended January 8, 1995.³

In August 1996, Mr. Tester filed this ERISA action in district court to recover the death benefits. After conducting a bench trial, the district found that the term "active" in the eligibility provision of the policy was vague and ambiguous. The court ruled that Reliance improperly denied Mr. Tester benefits because Mrs. Tester was an "active" employee under the policy's terms and entitled to coverage as of the date of her death. Reliance then appealed, challenging the district court's finding that the policy's terms were ambiguous and the district court's awarding of benefits to Mr. Tester. Therefore, we consider whether Mrs. Tester was an "active" employee under the terms of the policy and eligible for coverage at the time of her death, thus requiring Reliance to pay Mr. Tester death benefits.

In cases involving the denial of benefits under an ERISA plan, a reviewing court must review the denial de novo unless the terms of the plan give the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan. See Quisenberry v. Life Insurance Company of North America, 987 F.2d 1017, 1021 (4th Cir. 1993); Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 107 (1989). The district court reviewed Reliance's denial of benefits de novo, and Reliance does not challenge this standard on appeal. Therefore, we apply the same standard as the district court and review Reliance's denial de novo.

In reviewing the terms of an ERISA plan, we are mindful that ERISA plans are contractual documents, and "established principles of contract and trust law" govern their interpretation. See Haley v. Paul Revere Life Ins. Co., 77 F.3d 84, 88 (4th Cir. 1996). As with other contractual provisions, we construe the plan's terms without deferring to either party's interpretation. See Firestone Tire, 489 U.S. at 112; Wheeler v. Dynamic Eng'g Inc., 62 F.3d 634, 638 (4th Cir. 1995) (stating that an ERISA plan should be interpreted "under ordinary principles of contract law"). Furthermore,"[w]here a term is ambiguous, we must construe it against the drafter, and in accordance with the reasonable expectations of the insured." Bailey v. Blue Cross & Blue Shield of Virginia, 67 F.3d 53, 57 (4th Cir. 1995) (quoting Wheeler, 62 F.3d at 638).

The insurance policy defines class eligibility according to its eligibility provision. This provision states that "each active, Full-time and Part-time employee, except any person employed on a temporary or seasonal basis, according to the following classifications: Class 1: salaried employee, Class 2: hourly employee." The policy further defines "Full-time" or "Part-time" employee as one who works a minimum of 20 hours during [the] person's regularly scheduled work week." Therefore, the policy provides coverage for an employee if the employee is "active" and works a minimum of 20 hours during the employee's regularly scheduled work week. The definition of "active" is necessary in determining whether Mrs. Tester was eligible for coverage at the time of her death. The policy, however, is ambiguous as to the meaning of "active" because it neither defines "active," nor provides criteria for determining when an employee is"active...