Thompson v. American Home Assur. Co.

• Decision Date: 11 September 1996
• Docket Number: 94-6331,Nos. 94-6288,s. 94-6288
• Citation: 95 F.3d 429
• Parties: , 20 Employee Benefits Cas. 1857, Pens. Plan Guide P 23925S Jayedeane THOMPSON, Plaintiff-Appellee, Cross-Appellant, v. AMERICAN HOME ASSURANCE COMPANY, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 429

95 F.3d 429

35 Fed.R.Serv.3d 1238, 20 Employee Benefits

Cas. 1857,

Pens. Plan Guide P 23925S

Jayedeane THOMPSON, Plaintiff-Appellee, Cross-Appellant, v. AMERICAN HOME ASSURANCE COMPANY, Defendant-Appellant, Cross-Appellee.

Nos. 94-6288, 94-6331.

United States Court of Appeals, Sixth Circuit.

Argued Jan. 29, 1996.

Decided Sept. 11, 1996.

Jerry M. Miniard (argued and briefed), Starke & Combs, Florence, KY, for Plaintiff-Appellee, Cross-Appellant.

Joshua J. Kancelbaum (argued and briefed), Chesterland, OH, for Defendant-Appellant, Cross-Appellee.

Before: KEITH and SILER, Circuit Judges; GIBBONS, Chief District Judge. ^*

GIBBONS, Chief District Judge.

These cross-appeals, arising out of the award of benefits under an accidental death benefit insurance policy, present questions of whether the district court properly set aside a default judgment against the insurance company and whether it subsequently erred in granting summary judgment for the beneficiary of the policy.

Appellant and cross-appellee American Home Assurance Co. ("American Home") issued a group Accidental Death and Dismemberment Insurance Policy to employees of Burns International Security Systems, Inc. ("Burns"). Robert Thompson voluntarily purchased the policy as a Burns employee. The beneficiary of the policy in the event of Thompson's death was his ex-wife, appellee and cross-appellant Jayedeane Thompson ("Thompson"). While covered by the policy, Robert Thompson died as a result of autoerotic asphyxiation. American Home appeals the district court's grant of summary judgment to Jayedeane Thompson. Thompson cross-appeals from the lower court's order setting aside a default judgment against American Home and from the district court's ruling that the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq., rather than Kentucky law governed the resolution of the cross-motions for summary judgment. We conclude that the district court's decision to set aside the default judgment was not in error, but vacate the district court's order granting summary judgment, since a genuine issue of material fact exists as to whether the policy at issue was part of an "employee welfare benefit plan" as defined by ERISA and its implementing regulations. The pivotal factual question is whether Burns endorsed the policy within the meaning of the safe harbor provisions of 29 C.F.R. § 2510.3-1(j).

The record on the summary judgment motions establishes the following relevant facts and procedural history. With regard to the policy under which Thompson claims benefits, the record reveals that Burns' personnel administrator gave new employees information regarding the policy, including a brochure which bore Burns' company name on the front cover. Each new employee decided whether to enroll in the policy, and, if he or she chose to do so, returned an enrollment card to the administrator, who entered the information into a computer system so that payroll deductions could be made. The employee paid for the coverage, without any contribution from Burns. Further, Burns received no compensation for its role in enrolling employees into the policy, other than reimbursement for administrative costs. Burns apparently was not responsible for processing or denying claims arising under the policy, which was the function of the underwriter, American Home.

Robert Thompson died on April 14, 1992, and thereafter, Jayedeane Thompson filed her claim for accidental death benefits with American Home. On October 30, 1992 American Home denied her claim, explaining that the policy "does not cover any loss to an insured person caused by or resulting from suicide, attempted suicide or intentionally self-inflicted injury." Thompson appealed administratively, urging that the death was accidental, and citing the coroner's report which found the cause of death to be "accidental asphyxiation due to constriction of the neck." When her appeal was denied, Thompson filed suit against American Home in federal court.

Thompson originally alleged jurisdiction under ERISA. Unable to locate American Home's agent for service of process, she sought to effect service by serving the Secretary of Labor, pursuant to 29 U.S.C. § 1132(d)(1), which provides that when a suit is brought against an ERISA plan, service is deemed to have been effective when made on the Secretary. American Home failed to answer and, accordingly, the court clerk entered default on May 13, 1993, pursuant to Federal Rule of Civil Procedure 55. On June 4, 1993, the court entered a judgment on the default against American Home in the amount of $100,000.00.

On June 15, 1993, American Home moved for relief from judgment under Federal Rule of Civil Procedure 60(b), asserting that the default judgment was void due to failure to effect service and that it therefore should be set aside. American Home further asserted that it was not culpable in the entry of default in that it was never notified of the pendency of the suit and that it had a meritorious defense. The district court set aside the default judgment on August 27, 1993.

On May 31, 1994, Thompson, with leave of court, amended her complaint to allege that jurisdiction was properly based on diversity of citizenship and that Kentucky state law rather than ERISA common law governed. In response, American Home filed a motion for partial summary judgment on the issue of governing law and a motion for summary judgment on the merits. Thompson filed a cross-motion for summary judgment on the merits. The district court disposed of the case in its entirety, in a September 12, 1994 order, finding (1) that ERISA and hence federal common law governed the disposition of this case since the policy was part of an ERISA-regulated "employee welfare benefit plan," and (2) that American Home had improperly construed the terms of the benefit plan and that judgment should be entered in favor of Thompson. These appeals followed.

I. Setting Aside the Default Judgment

Thompson initially argues that the district court erred in setting aside the June 4, 1993, default judgment against American Home. This court reviews a district court's decision to set aside a default judgment for abuse of discretion. Amernational Indus., Inc. v. Action-Tungsram, Inc., 925 F.2d 970, 975 (6th Cir.), cert. denied, 501 U.S. 1233, 111 S.Ct. 2857, 115 L.Ed.2d 1024 (1991); Davis by Davis v. Jellico Community Hospital, Inc., 912 F.2d 129, 132-33 (6th Cir.1990); Marshall v. Monroe & Sons, Inc., 615 F.2d 1156, 1160 (6th Cir.1980). For the following reasons, the court determines that the default judgment was properly set aside under the governing Federal Rules of Civil Procedure.

Federal Rule of Civil Procedure 55 governs defaults and provides that

For good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b).

In making the equitable determination of "good cause" required by Rule 55, the court is required to consider (1) whether the entry of default was the result of willful or culpable conduct; (2) whether a set-aside would prejudice the plaintiff; and (3) whether the defenses raised following the entry of default are meritorious. See United Coin Meter Co., Inc. v. Seaboard Coastline R.R., 705 F.2d 839, 844 (6th Cir.1983) (citing Keegel v. Key West & Caribbean Trading Co., Inc., 627 F.2d 372, 373 (D.C.Cir.1980) and Feliciano v. Reliant Tooling Co., Ltd., 691 F.2d 653, 656 (3d Cir.1982)).

Where a court has entered judgment on a default, however, as it did here, Rule 55 states that a court may set aside that judgment only in accordance with the grounds laid out in Rule 60(b). Fed. R. Civ. Pro. 55(c). See Waifersong Ltd., Inc. v Classic Music Vending, 976 F.2d 290, 292 (6th Cir.1992) ("[A] stricter standard applies for setting aside a default once it has ripened into a judgment."); INVST Financial Group, Inc. v. Chem-Nuclear Systems, Inc., 815 F.2d 391, 398 (6th Cir.1987) ("A default can be set aside for 'good cause shown,' but a default that has become final as judgment can be set aside only under the stricter Rule 60(b) standards for setting aside final, appealable orders."), cert. denied, 484 U.S. 927, 108 S.Ct. 291, 98 L.Ed.2d 251 (1987). Rule 60(b) provides in pertinent part that

(b) ... On motion and upon such terms as are just, the court may relieve a party ... from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; ... (4) the judgment is void; ... or (6) any other reasons justifying relief from the operation of the judgment.

Fed. R. Civ. Pro. 60. Where Rule 60(b) is invoked to set aside a default judgment, the court must both consider the Rule 55 equitable factors as enumerated in United Coin Meter, 705 F.2d at 845, and find that one of the specific requirements of Rule 60(b) is met. Manufacturer's Indus. Relations Ass'n v. East Akron Casting Co., 58 F.3d 204, 209 (6th Cir.1995); Waifersong, 976 F.2d at 292.

Invoking these standards, the district court found that setting aside the default judgment was warranted for two reasons. First, the court held that the default judgment against American Home was void under Rule 60(b)(4), since the court lacked jurisdiction to enter judgment due to a failure to obtain service of process. In reaching this result, the court found that plaintiff's attempt to serve American Home by serving the Secretary of Labor under 29 U.S.C. § 1132(d)(1) was ineffective, since that section only allowed service on the Secretary when a plan was being sued as an entity, and not when, as here, the insurer was being sued. Second, the district court held that Rule 60(b)(1) and/or Rule 60(b)(6) counseled in favor of setting aside the default.

On review, this court finds that the district court did not abuse its discretion in setting aside the default judgment against American Home. Rule 60(b)(1) allows...