Weems v. Jefferson-Pilot Life Ins. Co., Inc.

• Decision Date: 05 May 1995
• Docket Number: JEFFERSON-PILOT
• Parties: 19 Employee Benefits Cas. 2953, Pens. Plan Guide P 23912J Willard WEEMS and Julia Weems v.LIFE INSURANCE COMPANY, INC., et al. 1920981.
• Court: Alabama Supreme Court

Page 905

663 So.2d 905

19 Employee Benefits Cas. 2953, Pens. Plan Guide P 23912J

Willard WEEMS and Julia Weems v. JEFFERSON-PILOT LIFE INSURANCE COMPANY, INC., et al.

1920981.

Supreme Court of Alabama.

May 5, 1995.

Rehearing Denied June 16, 1995.

R. Willson Jenkins of Jester & Jenkins, Florence, for appellants.

A. Stewart O'Bannon III of O'Bannon and O'Bannon, Florence, for appellees.

COOK, Justice.

Willard and Julia Weems appeal from a summary judgment entered against them in their action against Jefferson-Pilot Life Insurance Company, Inc. ("Jefferson-Pilot"), in which they seek compensatory and punitive damages, based on Jefferson-Pilot's failure to pay a claim for insurance benefits. We affirm in part; reverse in part; and remand.

The following facts are essentially undisputed. In 1988, A.C. Johnson Trucking Company ("Johnson"), employed Willard Weems as its "marketing manager." In the same year, Johnson began providing major medical, life, and disability insurance for its employees, through a policy underwritten by Jefferson-Pilot. This arrangement also allowed Johnson's employees to purchase coverage for their dependents through monthly payroll deductions. ¹

Johnson failed to pay Jefferson-Pilot the premiums due for the months of December 1988 and January and February 1989. This delinquency resulted in an automatic termination of coverage, subject to a 60-day grace period. Johnson eventually paid the arrearage, and coverage of its employees was reestablished. However, by October 1, 1989, Johnson's premium payments were again three months overdue, and Jefferson-Pilot notified Johnson that the policy had been canceled, effective July 31, 1989. Once again, Johnson paid the arrearage, and coverage, which was thus reestablished, continued uninterrupted until March 1990. On April 23, 1990, Jefferson-Pilot notified Johnson that it had not received the March premium, and, further, stated that Johnson would receive "a notice of confirmation of termination," absent receipt of the amount of delinquent premiums within 15 days.

Johnson did not pay the premiums; nevertheless, on May 5, 1990, Jefferson-Pilot's "Underwriting Department" authorized a six-month plan renewal. Before July 27, 1990, Jefferson-Pilot contacted Johnson at least once more regarding the delinquent premiums. On that date, however, having received no payment, Jefferson-Pilot sent Johnson a letter stating that its insurance plan had been canceled, effective April 30, 1990. On August 1, 1990, Johnson, for the first time, notified its employees of the lapse of coverage.

Meanwhile, on June 5, 1990, Weems suffered a heart attack and required emergency hospitalization. Jefferson-Pilot, through its "insurance plan's notification procedures," was apprised of Weems's condition, and, on three different occasions, it "certified," or approved, his hospitalization, through June 28, 1990. Weems initially incurred $18,000 in medical expenses. Before July 27, 1990, Jefferson-Pilot paid in excess of $6,000 of Weems's expenses. After that date, however, Jefferson-Pilot ceased paying claims, and, in addition, successfully sought reimbursement from Weems's medical providers.

On January 4, 1991, the Weemses sued Johnson, alleging (1) breach of contract and fiduciary duty, (2) fraud, and (3) conversion of payroll deductions. The Weemses eventually amended their initial complaint to include numerous claims against Jefferson-Pilot, alleging violations of state and federal law. More specifically, their state-law claims alleged that Jefferson-Pilot had breached duties owed to the Weemses (1) to inform them of Johnson's failure to pay insurance premiums; (2) to continue coverage through July 27, 1990; and (3) to pay the medical expenses to which the Weemses were contractually entitled. Their state-law claims against Jefferson-Pilot also included allegations of (4) fraud and (5) bad faith refusal to pay Weems's medical expenses.

The Weemses' federal-law claims against Jefferson-Pilot alleged violations of the Employee Retirement Income Security Act of 1974, 29 U.S.C.S. §§ 1001-1461 ("ERISA"). More specifically, the Weemses alleged that Jefferson-Pilot had, by failing to notify them that premium payments were delinquent, and by retroactively terminating coverage, (1) fraudulently, negligently, wantonly, or intentionally "interfered with [their] rights to receive ERISA benefits," and, (2) fraudulently, negligently, wantonly, or intentionally breached fiduciary duties, as those duties are expressed in §§ 1104-05. The Weemses alleged, among other things, that "[a]s a proximate result of [Jefferson-Pilot's] conduct," Willard Weems had suffered a loss of wages, accompanied by pain and emotional distress; had incurred liability for past medical treatment; and had incurred a medical condition, for which, he contends, he will be unable to obtain alternative coverage.

The Weemses sought compensatory and punitive damages for the alleged violations of their state-law rights. For alleged violations of rights arising under ERISA, they sought the following specific remedies:

"1. Recovery of monetary damages for medical expenses incurred by ... Willard Weems, pursuant to 29 U.S.C. Sec. 1109; 29 U.S.C. Sec. 1132(a)(3) and 29 U.S.C. 1132(a)(1)(b); and 29 U.S.C. 1105(a)(1) and (a)(3); 29 U.S.C. 1104(a) and (b).

"2. Compensatory and punitive damages for lost wages through payroll deductions from March of 1990 through August 1 of 1990 for wages that could have been used to pay for dependent coverage.

"3. Compensatory damages for the emotional anxiety and frustration in being misled into believing that [his] medical expenses were to be paid and for becoming personally obligated to pay for such medical expenses.

"4. Interest on wages and medical expenses.

"5. Attorney's fee costs as permitted by 29 U.S.C. 1132(g)(2)(D).

"6. Punitive and compensatory damages for the Defendants' intentional, wanton, reckless, and negligent interference with [his] right to receive plan benefits, for fraudulently misrepresenting to the [Weemses] that there was an ERISA plan in force and effect, for failing to inform the Plaintiffs of the suspension/termination of plan coverage in a timely manner; for failing to timely notify [them] of nonpayment of premiums, for interfering with [their] right to seek alternative health insurance, and for unlawfully converting wages deducted to pay for dependent coverage.

"7. Future medical expenses to insure that [Weems] will have adequate financial resources to care for any future heart condition and continue treatment.

"8. Such other legal and equitable relief to which [Weems] may be entitled."

Jefferson-Pilot moved for a partial summary judgment, contending that ERISA preempts the claims "sound[ing] in tort"; that ERISA does not authorize recovery of "extracontractual" and punitive damages; and that ERISA does not authorize jury trials in actions brought pursuant to its provisions. The trial court granted Jefferson-Pilot's motion, holding that the "state law claims for breach of contract[,] ... bad faith, fraud, negligence, wantonness and willfulness" are preempted by ERISA. It further held that ERISA does not authorize recovery of "extracontractual or punitive damages," or allow the resolution of claims by a jury. The trial judge made the partial summary judgment final, pursuant to Ala.R.Civ.P. 54(b), and the Weemses appealed. We confine our discussion to the precise grounds cited above as bases for the summary judgment.

I. ERISA Preemption

ERISA § 514(a), codified at 29 U.S.C. § 1144(a), sets forth in the following terms the scope of the statutory scheme's preemptive effect:

"Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title."

(Emphasis added.) " 'A law "relates to" an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.' " Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139, 111 S.Ct. 478, 483, 112 L.Ed.2d 474 (1990) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2899-2900, 77 L.Ed.2d 490 (1983)). "Under this 'broad common-sense meaning,' a state law may 'relate to' a benefit plan, and thereby be preempted, even if the law is not specifically designed to affect such plans, or the effect is only indirect." Id., 498 U.S. at 139, 111 S.Ct. at 483 (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987)). Moreover, the scope of preemption "includes all laws, decisions, rules, regulations, or other State action having the effect of law, of any State." ERISA, § 1144(c).

The Weemses concede, as they must, that their state law claims "relate to" an ERISA plan. However, they contend that those claims are excepted from preemption by the application of § 1144(b)(2)(A), which states: "Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." Their claims are "saved," they argue, by the provisions of § 1144(b)(2)(A), because, they insist, the rule this Court announced in Newton v. United Chambers Insured Plans, 485 So.2d 1147 (Ala.1986), constitutes an Alabama law "regulat[ing] insurance." They contend, in other words, that their state-law claims against Jefferson-Pilot are viable, based on the duty arising under Newton.

Newton involved a question certified to this Court from the United States District Court for the Southern District of Alabama. That court inquired whether Alabama law required "a group insurer [to] notify a participant of termination of the policy for [the employer's] non-payment of the premium where...