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Malbrough v. Kanawha Ins. Co.

United States District Court, W.D. Louisiana

April 29, 2013

CARMEN MALBROUGH, ET AL.
v.
KANAWHA INSURANCE CO., ET AL

For Carmen Malbrough, Lionel Simon, Plaintiffs: Aaron James Broussard, LEAD ATTORNEY, Broussard & Hart, Lake Charles, LA.

For Kanawha Insurance Co, Defendant: Layna S Cook, LEAD ATTORNEY, Errol J King, Jr, Baker Donelson et al (BR), Baton Rouge, LA.

For Gilchrist Construction Co L L C, Defendant: L Lane Roy, LEAD ATTORNEY, Elizabeth Page Everett, Preis & Roy (LAF), Lafayette, LA.

For Gilchrist Construction Co L L C Group Life & Accidental Death & Dismemberment Insurance Policy, Defendant: L Lane Roy, LEAD ATTORNEY, Preis & Roy (LAF), Lafayette, LA.

PATRICIA MINALDI, UNITED STATES DISTRICT JUDGE. MAGISTRATE JUDGE KAY.

OPINION

Page 685

MEMORANDUM RULING

PATRICIA MINALDI, UNITED STATES DISTRICT JUDGE.

Before the court is a Motion for Summary Judgment [Doc. 24], filed by the defendant, Kanawha Insurance Company (" Kanawha" ). The motion is opposed by the plaintiffs, Carmen Malbrough and Lionel Simon [Docs. 30, 35]. Kanawha then filed a Reply [Doc. 37]. Also before the court is a Motion to Continue Kanawha's Motion for Summary Judgment and Allow Discovery [Doc. 27], filed by the plaintiffs, which is opposed by Kanawha [Doc. 33]. For the reasons stated herein, the plaintiff's Motion to Continue Kanawha's Motion for Summary Judgment and Allow Discovery is GRANTED and Kanawha's Motion for Summary Judgment is DENIED as premature. The defendants may file a renewed Motion for Summary Judgment after the plaintiffs have been given the chance to conduct discovery.

FACTUAL BACKGROUND

This lawsuit arises out of the denial of life and accidental death insurance benefits allegedly due to the plaintiffs as beneficiaries of an insurance policy insuring the late Ronald Simon.

Page 686

Mr. Simon was provided life insurance through a Group Term Life Insurance Policy (" the Policy" ) issued to his employer, Gilchrist Construction Company, by Kanawha Insurance Company.[1] Under the Policy, Gilchrist is the policyholder, plan administrator, and fiduciary, and employees (such as Mr. Simon) are listed as " covered persons" or " insureds." [2] Pursuant to the Policy, Gilchrist allegedly provided employees with " Certificates of Group Term Life Insurance for Class I All Eligible and Active Full Time Hourly Employees of Gilchrist Construction Company" (essentially, the plan summary documents),[3] although the plaintiffs contest that there is no evidence Mr. Simon ever received this information.[4]

According to both the Policy documents and the Certificate, the maximum combined basic and supplemental group life insurance available under an employee's policy could not exceed five times their basic annual earnings.[5] The documents provide the same limits for accidental death and dismemberment benefits.[6] As Mr. Simon earned roughly $30,000 a year, therefore, the maximum basic and supplemental group life insurance he could receive was $150,000, and the maximum death and dismemberment benefits he could receive was $150,000 (or, $300,000 total).[7]

While Kanawha determined the premiums, Gilchrist was delegated the responsibility of furnishing information on premiums, distributing applications for coverage, transmitting Certificates to employees, calculating the premium amount for employees covered under the Policy, and withholding the appropriate amount of premiums from the employees' pay.[8] According to Kanawha, each month, Gilchrist would write a check to Kanawha for the entire amount of the premiums from all of the employees to pay Kanawha for the entire Policy.[9]

Related to Gilchrist's administrative responsibilities, Gilchrist was responsible for setting up a website through which Gilchrist employees could purchase coverage.[10] The plaintiffs aver an error on Gilchrist's website permitted Mr. Simon to purport to elect $350,000 of basic life insurance and $350,000 of accidental death insurance ($700,000 total), despite the fact that Mr. Simon was technically only allowed to elect $300,000 total.[11] Gilchrist deducted the premiums for that amount of insurance from his paycheck from the day he purchased coverage until his death, which occurred roughly a year later.[12]

Mr. Simon died on December 21, 2010 from injuries he sustained in a work-related accident.[13] After Mr. Simon's death,

Page 687

the plaintiffs filed claims as the named beneficiaries under his life and accidental death insurance policies.[14] Kanawha directly paid each of the plaintiffs $150,000 in benefits in February 2011, for a total of $300,000.[15] However, Kanawha refused to pay the full $700,000 of coverage which Mr. Simon had attempted to elect for accidental death insurance and life insurance, because that amount exceeded the maximum coverage available to him under the terms of the Policy.[16]

On September 15, 2011, the plaintiffs filed this lawsuit against Gilchrist and Kanawha in the 31st Judicial District Court for Jefferson Davis Parish, Louisiana to recoup the difference between what they were paid and what they would have been paid under the $700,000 policy allegedly promised to Mr. Simon by Gilchrist and Kanawha, plus attorney's fees, legal interest, and any other legal remedies available.[17] In their petition, they based their claims against the defendants on the theories of ratification (i.e., because the defendants failed to recognize their error during Mr. Simon's lifetime, they " ratified" the contract and owe the full $700,000) and detrimental reliance (i.e., Ronald Simon relied to his detriment on the misleading information on the Gilchrist website, because he might have shopped elsewhere for insurance if he knew his benefit amounts were so low)[18]

The defendants then removed the case to this court on the basis of federal question jurisdiction because the case arises under Employee Retirement Income Security Act of 1974 (" ERISA" ), 29 U.S.C. § 1001, et seq. [19]

LAW & ANALYSIS

In the plaintiffs' Motion to Continue Kanawha's Motion for Summary Judgment and Conduct Discovery, the plaintiffs allege that, while evidence in ERISA cases is usually restricted to the administrative record and discovery is not permitted, here, there was no administrative review and hence no administrative record. They note that after Kanawha denied their claim for additional benefits above the $300,000 amount, Kanawha never told them where, how, or when to submit evidence in support of their claim to make an administrative record; neither Gilchrist nor Kanawha gave them an opportunity to request evidence; and, the defendants did not respond fully to the requests for information the plaintiffs did make. They also requested permission from Kanawha to conduct discovery, but this request was denied.

The plaintiffs conclude that it would be unfair for Kanawha to have the benefit of all of its records to support its Motion for Summary Judgment, when the plaintiffs only

Page 688

have an incomplete accounting of what happened, particularly because the person who was insured under the Policy, Mr. Simon, is deceased. As such, the defendants must provide the plaintiffs with some of the information so that they can have a better understanding of what happened and more fully respond to the pending Motion for Summary Judgment. The plaintiffs' list of requested information includes the following: (1) the administrative services contract between Gilchrist and the plan administrator for the years 2009-2010; (2) copies of any materials and documents believed to have been supplied to Mr. Simon; (3) copies of any documents or applications completed by Mr. Simon; (4) the amount of insurance that corresponds with the premiums paid by Mr. Simon; (5) who received the premiums; (6) a copy of all applications and forms filled out by Mr. Simon at any time that pertains to his life insurance policy; (7) proof that Ronald Simon was provided with a copy of the policy prior to his death; and, (8) information that clearly demonstrates the source of the funds used by the Plan to make payments to this claim.

In response, Kanawha asserts that an administrative record does exist in this case, and that Kanawha provided the plaintiffs with many of the documents they sought, but that submission of the entire administrative file is not necessary absent the issuance of an ERISA Case Order from this court. Further, citing to the Fifth Circuit case Crosby v. Louisiana Health Service and Indemnity Co., 647 F.3d 258 (5th Cir. 2011), Kanawha asserts that discovery in an ERISA case is limited to issues such as: (1) whether the administrative record is complete; (2) whether the administrator complied with procedural regulations; and, (3) whether there exists a conflict of interest created by the administrator's dual role. Finally, Kanawha notes that discovery would be futile for the purposes of its Motion for Summary Judgment, since the main information relevant to that motion the plaintiffs seek is whether Mr. Simon was provided a copy of the Policy. Kanawha argues, citing an Eastern District of Michigan case ( O'Connor v. Provident Life & Accident Co., 455 F.Supp.2d 670 (E.D. Mich. 2006)) and a Louisiana Third Circuit case ( Credeur v. Continental Assurance Co., 502 So.2d 214) (La.App. 3 Cir. 1987)), that the errors or omissions of Gilchrist on its website cannot bind Kanawha, and that the clear terms of the Policy only allowed Mr. Simon to elect up to $300,000 in benefits.

A. Scope of Discovery

Turning to Crosby, the court notes that while Kanawha is technically correct that discovery in ERISA cases can be very limited, the Crosby court specifically addressed " the scope of admissible evidence and permissible discovery in an ERISA action to recover benefits under 29 U.S.C. § 1132(a)(1)(B)." Crosby, 647 F.3d at 260. In this case, there is an issue of whether the plaintiffs are even seeking relief under this provision of ERISA.

Under § 1132(a)(1)(B), " [a] civil action may be brought (1) by a participant or beneficiary ... (B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." The Supreme Court has found that the text of § 1132(a)(1)(B) does not allow courts to enforce the terms of a plan summary furnished by a plan administrator, because § 1132(a)(1)(B) only authorizes enforcement of the " terms of the plan." CIGNA Corp. v. Amara, ___ U.S. ___, 131 S.Ct. 1866, 1878, 179 L.Ed.2d 843 (2011). As such, plan summaries provide communication with beneficiaries about the plan, but their statements do not themselves

Page 689

constitute the terms of the plan. Id. Admittedly, in this case, we do not have a " plan summary" that contradicts the Policy - the plan summary itself was the Certificate that Kanawha alleges Gilchrist gave to its employees, but the plaintiffs assert Mr. Simon never received. Instead, the court is faced with a website that the plan administrator, Gilchrist, set up so that employees could elect benefits. This website thus falls into a vague " other" category, somewhere in the ether between plan summary documents and the Policy itself. The undersigned finds it sufficient for this inquiry, however, that the website itself is not the Policy, and because § 1132(a)(1)(B) only authorizes enforcement of the plan itself (here, the terms of the Policy), the plaintiffs cannot pursue their claims for relief under § 1132(a)(1)(B).

If the plaintiffs are not proceeding under § 1132(a)(1)(B), then what provision are they proceeding under instead? The plaintiffs argue that their claims actually fall under the equitable " catchall" relief of § 1132(a)(3). They cite the Fifth Circuit cases Varity Corp. v. Howe, 516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), and Musmeci v. Schwegmann Giant Supermarkets, Inc., 332 F.3d 339 (5th Cir. 1999), two cases in which the courts allowed plaintiffs to pursue " equitable relief" under ERISA § 1132(a)(3) in situations where a straightforward claim for benefits under § 1132(a)(1)(B) would not make the claimants whole.

In a previous ruling on Gilchrist's Motion for Judgment on the Pleadings, this court noted that Varity and its ilk were distinguishable from this case. In Varity, for example, the plaintiffs were asking for equitable relief because they were asking for reinstatement of their welfare benefit plans - i.e., the plaintiffs were asking for the equitable " taking back" of benefits they had earned but had been repossessed by the defendants. Varity, 516 U.S. at 489. This court, in its previous ruling, relied on the Fifth Circuit's Amschwand v. Spherion Corp., 505 F.3d 342 (5th Cir. 2007), overruled by Gearlds v. Entergy Servs., Inc., 709 F.3d 448 (5th Cir. 2013), to find that it was clear that since the plaintiffs were not asking for the return of ill-gotten proceeds, but were instead asserting damages because of the defendants' alleged breaches, this sounded in legal damages, not equity.[20] This court concluded that, in light of Amschwand, the only " equitable" ...


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