Ward v. Management Analysis Co. Employee Disability Ben. Plan

Decision Date03 February 1998
Docket NumberNo. 95-56269,95-56269
Citation135 F.3d 1276
Parties, 21 Employee Benefits Cas. 2416, 98 Cal. Daily Op. Serv. 912, 98 Daily Journal D.A.R. 1199 John E. WARD, Plaintiff-Appellant, v. MANAGEMENT ANALYSIS COMPANY EMPLOYEE DISABILITY BENEFIT PLAN, and Unum Life Insurance Company of America, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Brooks L. Iler, Iler & Iler, Janice R. Mazur, Mazur & Mazur, San Diego, California, for plaintiff-appellant.

Russell G. Petti, Bannan, Green, Smith, Frank & Rimac, Los Angeles, California, for defendants-appellees.

Appeal from the United States District Court for the Southern District of California Marilyn H. Huff, District Judge, Presiding. D.C. No. CV-94-1454-MHH.

Before FLETCHER and TROTT, Circuit Judges, and JENKINS, * District Judge.

JENKINS, District Judge:

John E. Ward ("Ward"), former President and CEO of Management Analysis Company ("MAC"), brought this action under § 502 of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132, seeking to recover benefits pursuant to his former employer's long-term disability plan. The United States District Court for the Southern District of California granted summary judgment in favor of the Management Analysis Company Employee Disability Benefit Plan (the "MAC Plan") and UNUM Life Insurance Company of America ("UNUM") on the ground that Ward's claim for benefits under UNUM's long-term disability policy was untimely under the notice and proof of claim provisions of that policy. In light of our ruling in a related case, Cisneros v. UNUM Life Insurance Company of America, 134 F.3d 939 (9th Cir.1998), that under California law, UNUM must show actual prejudice resulting from a claimant's untimely submission of proof of a claim before it may deny benefits under a plan governed by ERISA, we reverse the judgment in favor of UNUM and the MAC Plan and remand the case for further proceedings. We also remand for a determination of whether MAC received timely notice and proof of Ward's claim of disability while acting as a plan fiduciary and agent of UNUM, should that determination become decisive of the question of timeliness.

I

Effective November 1, 1983, UNUM issued a Group Long Term Disability Policy to MAC as an insured employee welfare benefit plan governed by ERISA. An employee certificate booklet summarizing the plan benefits was prepared and distributed in quantity to MAC employees, including Ward.

Ward served as President and Chief Executive Officer of MAC until, after being asked to resign by the Board of Directors on May 5, 1992, he resigned on May 8, 1992. In May of 1992, Ward was already suffering from diabetic neuropathy, and avers that prior to his resignation, he had begun experiencing severe and disabling leg pain resulting from that condition.

The nature and extent of his illness and resulting disability were diagnosed by December of 1992. In early 1993, Ward applied for and received state disability benefits, and contacted the MAC human resources division to discuss extension of his continuation insurance coverage under COBRA. In July 1993 he received a determination that he was eligible for Social Security disability benefits, a copy of which he forwarded to the MAC human resources division.

Ward states that he was actually unaware of the availability of the MAC Plan long-term disability benefits until April 1994, when he discovered a booklet describing the coverage among papers in his safety deposit box. Ward completed an application for long-term disability benefits and forwarded the same to MAC. MAC completed the employer information section of the application and forwarded the same to UNUM.

UNUM received notice and proof of Ward's claim on April 11, 1994. By letter dated April 13, 1994, UNUM informed Ward that his claim for benefits was denied as untimely under the terms of the policy. Through counsel, Ward requested that UNUM review the denial of his claim, and by letter dated July 12, 1994, UNUM informed Ward that it had reviewed his claim and affirmed its denial because it was "beyond the time frame stipulated in the policy."

Plaintiff filed his complaint against the MAC Plan to recover his claimed benefits under ERISA on September 15, 1994. UNUM appeared as a defendant and filed an answer on behalf of itself and the MAC Plan on November 23, 1994. On August 8, 1995, the district court granted the defendants' motion for summary judgment, concluding that under the terms of UNUM's policy as written, "plaintiff's claim was late and therefore defendant was not obligated to honor plaintiff's claim for long-term disability benefits."

The district court entered judgment on August 17, 1995, and Ward filed a timely notice of appeal.

II

We review the district court's grant of summary judgment de novo. Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). Whether ERISA preempts state law is a question of law which we review de novo. Inland Empire Chapter of Associated General Contractors v. Dear, 77 F.3d 296, 299 (9th Cir.1996). We also review de novo the principles of contract interpretation as applied to the facts, including the district court's interpretation of insurance policy language. O'Neill v. United States, 50 F.3d 677, 682 (9th Cir.), cert. denied, 516 U.S. 1028, 116 S.Ct. 672, 133 L.Ed.2d 521 (1995).

III

While in his brief Ward lists several issues and makes a series of assertions concerning agency theory under Elfstrom v. New York Life Ins. Co., 67 Cal.2d 503, 432 P.2d 731, 63 Cal.Rptr. 35 (1967), fiduciary duty under ERISA, and the potential liability of the MAC Plan, the appellees aptly restate the central issue now before us on appeal: "Did the District Court correctly hold that the plaintiff failed to timely submit written notice and proof of claim to UNUM as required by the express terms of the MAC Plan and applicable federal law under ERISA?"

UNUM expressly conditions payment of benefits upon submission of proof of claim within the time limits set forth in the policy. Section VI.F.2 of UNUM's policy provides that proof "may not be given later than one year after the time proof is otherwise required," in this instance, "no later than 90 days after the end of the [90-day] elimination period." 1 Section VI.I provides that benefits will be paid "[w]hen the company receives proof of claim." Read together, these provisions logically and unambiguously establish that, under the policy, timely submission of proof is a condition precedent to payment of benefits.

Under the admitted facts of this case, Ward became permanently disabled on May 5, 1992. Using Ward's disability onset date of May 5, 1992, UNUM calculated that his proof of claim must have been received no later than November 5, 1993 in order to be deemed timely under the policy provisions. 2 Ward did not submit notice or proof of his claim directly to UNUM until April 11, 1994. Ward's submission of notice and proof of his claim plainly was untimely under the express terms of the UNUM policy.

However, in light of our recent opinion in Cisneros v. UNUM Life Insurance Company of America, 134 F.3d 939 (9th Cir.1998), untimeliness under the express terms of the policy does not end the inquiry, at least as to consequence. Cisneros holds that a claimant's failure to submit timely proof of claim does not necessarily result in the denial of benefits. Cisneros acknowledges that the California "notice-prejudice" rule remains in force respecting benefit plans governed by ERISA as a state law "which regulates insurance" under ERISA's savings clause, 29 U.S.C. § 1144(b)(2)(A). Under the "notice-prejudice" rule, the insurer of an ERISA benefit plan may not deny benefits by reason of untimely notice or submission of proof of claim unless the insurer proves that it has suffered actual prejudice because of the delay. Id. at 673-75. 3

Contrary to UNUM's assertion in its brief, we are not persuaded that passage of time alone establishes prejudice as a matter of law. See id. at 673, 675 (citing Shell Oil Co. v. Winterthur Swiss Ins. Co., 12 Cal.App.4th 715, 15 Cal.Rptr.2d 815, 845 (1993)). Whether UNUM suffered actual prejudice as a result of Ward's untimely notice remains a genuine issue of material fact. See Select Ins. Co. v. Superior Court, 226 Cal.App.3d 631, 276 Cal.Rptr. 598, 602 (1990). Thus, we reverse the district court's judgment in favor of UNUM.

Because neither the plan administrator nor the district court addressed the question of whether the notice-prejudice rule applied to Ward's claim, neither the plan administrator nor the district court determined whether UNUM suffered actual prejudice flowing from Ward's untimely notice and proof of claim. 4 Accordingly, we remand the case to the district court with instructions to remand to the plan administrator for a factual determination as to whether UNUM suffered actual prejudice by virtue of Ward's untimely submission of proof.

IV

Ward addresses the timeliness of his claim in another way: he asserts that actual notice of his disability given to MAC as early as March of 1993 operates as notice to UNUM as early as March of 1993 because under California law, an employer who participates in the administration of a group insurance policy acts as an agent of the insurer. He relies on Elfstrom v. New York Life Ins. Co., 67 Cal.2d 503, 432 P.2d 731, 63 Cal.Rptr. 35 (1967), as authority for this proposition. Ward further asserts that if the Elfstrom rule is somehow preempted by ERISA, this court should adopt a like rule as a matter of federal common law. Moreover, Ward asserts that MAC breached its duties as an ERISA co-fiduciary to inform him of the availability of long-term disability benefits under the UNUM policy, to receive notice of his claim, and to assist him in furnishing appropriate proof of his claim to UNUM, breaches which Ward contends UNUM was obliged to remedy. See 29 U.S.C. § 1105(a) ("a...

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