Yarde v. Pan American Life Ins.

• Citation: 67 F.3d 298
• Decision Date: 12 September 1995
• Docket Number: 94-1312,Nos. 94-1167,s. 94-1167
• Parties: Pens. Plan Guide P 23914K NOTICE: Fourth Circuit Local Rule 36(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. Erskine YARDE, Plaintiff-Appellant, v. PAN AMERICAN LIFE INSURANCE COMPANY; Georgetown Industries, Inc.; Georgetown Steel Corporation, Defendants-Appellees. Erskine YARDE, Plaintiff-Appellee, v. PAN AMERICAN LIFE INSURANCE COMPANY; Georgetown Industries, Inc.; Georgetown Steel Corporation, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 298

67 F.3d 298

Pens. Plan Guide P 23914K

NOTICE: Fourth Circuit Local Rule 36(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit.

Erskine YARDE, Plaintiff-Appellant, v. PAN AMERICAN LIFE INSURANCE COMPANY; Georgetown Industries, Inc.; Georgetown Steel Corporation, Defendants-Appellees.

Erskine YARDE, Plaintiff-Appellee, v. PAN AMERICAN LIFE INSURANCE COMPANY; Georgetown Industries, Inc.; Georgetown Steel Corporation, Defendants-Appellants.

Nos. 94-1167, 94-1312.

United States Court of Appeals, Fourth Circuit.

Sept. 12, 1995.

Charles Tucker Smith, Grimes & Smith, Georgetown, SC, for appellant.

L. Hunter Limbaugh, Willcox, Mcleod, Buyck & Williams, Florence, SC, for appellees.

Before ERVIN, Chief Judge, WILLIAMS, Circuit Judge, and CHASANOW, United States District Judge for the District of Maryland, sitting by designation.

OPINION

ERVIN, Chief Judge:

Erskine Yarde and Pan American Life Insurance Company ("Pan American") each appeal the district court's decision in a case litigated under ERISA. Our principal task is to determine whether Yarde has standing to recover a life insurance benefit stemming from the disappearance and presumed death of his brother, Edmund Yarde. Although we continue to interpret ERISA's standing provisions narrowly, we conclude that the facts of this case warrant the application of the derivative standing doctrine that has been employed by several other circuits in the recent past. Yarde is entitled to the $8,000 benefit, but we find that the district court's calculation of interest should be reconsidered in light of delays caused by Pan American. The district court did not err, however, in refusing to penalize Pan American for its failure to provide Yarde with an adequate administrative review procedure or in denying Yarde's request for attorneys' fees. Accordingly, we affirm in part, reverse in part, and remand for further consideration in light of this decision.

I.

On October 21, 1979, Edmund Yarde left work at the Georgetown Steel Corporation and was never seen or heard from again. The following day, when a neighbor went to visit Yarde at his home, she found the door open, the television playing, and the heat on. The police suspected foul play, but his body was never found.

Edmund Yarde's disappearance did not necessarily mean that he had died. Relevant South Carolina law provided that death would not be presumed until seven years elapsed from the time of the disappearance. ¹ Six months after Edmund Yarde disappeared, his mother--whom Edmund had named as his sole beneficiary under his employee benefits plan--died at her home in the Netherlands Antilles. Another six years would have to pass, however, before Yarde would be presumed dead.

When Edmund Yarde's mother, Rosamond Yarde, died in 1980, her other son, Erskine Yarde, contacted Georgetown Steel to inquire about collection of his brother's life insurance benefit. Erskine was his mother's sole heir and assumed that he was thereby entitled to any benefits payable under his brother's employee benefits plan. Georgetown Steel informed Erskine that he could not initiate a claim until his brother had been missing for seven years. No one else has asserted any claim to the life insurance benefit.

In 1986, once the seven year waiting period had elapsed, Yarde contacted Georgetown Steel and requested payment of the insurance benefits. Over the next five years, Yarde complied with several of Pan American's requests to verify both his brother's death and his right to his mother's interest in the death benefits. As a final requirement, Pan American asked Yarde to obtain a certificate of presumptive death for his brother because Edmund's body had never been located. The South Carolina Department of Health and Environmental Control issued a certificate on April 25, 1991, and Pan American received the certificate five days later. This is the date from which Pan American calculated interest when it tendered a settlement to Yarde on May 23, 1991.

The most important facts with respect to this litigation relate to what occurred after May 23, 1991. Not satisfied with the $37.05 worth of interest he had received, Yarde sent the check back to Pan American, explaining that he was entitled to over $12,000 in interest dating back to October 21, 1979--when his brother first disappeared. On June 11, 1991, Pan American responded to Yarde's attorney, Charles Smith, in a letter Smith would later characterize as a denial of Yarde's claim. In actuality, Pan American's June 11, 1991 letter never denied the claim. Instead, it explained that identifying October 21, 1979 as the date of death would have the effect of erasing Yarde's claim to the money. Pan American was not disputing the legitimacy of Yarde's claim. The insurer's point was far more narrow: if death occurred on October 21, 1979, then Yarde failed to file the necessary documents in a timely manner. Yarde's attorney interpreted the June 11, 1991 letter as denying his client's claim and proceeded to request information about Pan American's administrative review procedures. The insurer never responded over the course of a five month period. At no point during this time did Yarde's attorney ever decide to request again the initial sum of $8,037.05 and to challenge separately the denial of interest.

Yarde initially brought this action in South Carolina Circuit Court. State courts and federal district courts are granted concurrent jurisdiction over benefit claims arising under ERISA, 29 U.S.C. Sec. 1132(e)(1), and Pan American chose to remove the action to federal court. The district court's ruling satisfied neither party. The court concluded that, under the doctrine of derivative standing Yarde was entitled to the $8,000 death benefit; that prejudgment interest should only be calculated from April 30, 1991, the date on which Pan American received a certificate of presumptive death; and that Yarde was not entitled to a penalty based on the lack of an administrative review or to attorney's fees. Both parties filed appeals--Pan American claiming that Yarde did not have standing to bring a claim under ERISA and Yarde asserting that he is entitled to a more substantial monetary recovery, namely interest in excess of the amount that the district court ordered Pan American to pay. ²

II.

The primary question on appeal is whether the district court properly concluded that Erskine Yarde ("Yarde") had standing to bring an action under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sec. 1001, et seq. ("ERISA"), although he was neither a plan "participant" nor a "beneficiary" as defined by the Act. In limited circumstances, other circuits have applied the doctrine of derivative standing in order to give a person otherwise unable to file a claim under ERISA an opportunity to receive benefits that properly belong to a plan participant or beneficiary. It is only because the facts of this case are so unique that we are willing to carve out a narrow exception from our general rule allowing only ERISA participants and beneficiaries to challenge plan administrators' denials of claims. Before we consider application of the derivative standing doctrine, we must address the appropriate standard of review to apply to the district court's decision.

A.

Court actions challenging the denial of benefits under 29 U.S.C. Sec. 1132(a)(1)(B) are subject to the standard of review announced in Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989). In those instances in which a fiduciary has been given discretionary authority to determine eligibility benefits, deference must be shown, and we review the fiduciary's actions only for an abuse of discretion. Id. at 111. In a case where discretionary authority is not provided, denials of claims are reviewed de novo. Id. at 115; Doe v. Group Hospitalization & Medical Services, 3 F.3d 80, 85 (4th Cir.1993).

Pan American both insures and administers the payment of benefits under the group insurance contract purchased by Georgetown Steel. Although Pan American qualifies as a fiduciary to the extent that it exercises discretion over the management of the plan, see 29 U.S.C. Sec. 1002(21)(A), we will afford deferential review to the insurer's decisions about eligibility for benefits only if the plan provides Pan American with the authority to make such decisions. See Doe, 3 F.3d at 85. In its briefs, Pan American concedes that a de novo standard of review is to be applied in this instance, and we agree. "When an eligibility determination by plan administrators turns on a question of law, courts have not hesitated to apply a de novo standard of review." Gauer v. Connors, 953 F.2d 97, 99 (4th Cir.1991) (quoting Weil v. Retirement Plan Admin. Comm., 913 F.2d 1045, 1049 (2d Cir.1990), vacated on other grounds, 933 F.2d 106 (2d Cir.1991)).

B.

Civil actions under ERISA may be brought by "participants" or "beneficiaries" to recover benefits due under the terms of an employee benefit plan. 29 U.S.C. Sec. 1132(a)(1)(B). Only employees or former employees of organizations that participate in an employee benefit plan can properly be labelled "participants." 29 U.S.C. Sec. 1002(7); see Bruch, 489 U.S. at 117 (concluding that "the term 'participant' is naturally read to mean either 'employees in, or reasonably expected to be in, currently covered employment, or former employees who have a reasonable expectation of returning to covered employment or who have a colorable claim of vested benefits' ") (internal citations omitted). Edmund Yarde, as an employee of Georgetown Steel, had been a participant in a benefit plan. ERISA defines "beneficiary" as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." 29 U.S.C. Sec....