Opinion
No. 8:96CV305.
January 2000.
MEMORANDUM AND ORDER
I. Introduction
Before me are 1) the plaintiff's statement of appeal (Filing No. 86) of the magistrate's ruling at the pretrial conference striking four of the plaintiff's witnesses and two of his exhibits, and 2) the defendant's motion (Filing No. 87) for summary judgment. The plaintiff originally filed this action in Nebraska District Court seeking declaratory relief in connection with a disability income insurance policy issued by the defendant and offered by his former employer, Western Pathology Consultants, P.C. The defendant removed the action to this court based on diversity and now seeks summary judgment on the plaintiff's only remaining claim, breach of fiduciary duty under 29 U.S.C. § 1109 and 1132(a)(3)(B).
In 1991 the plaintiff applied for the defendant's long-term disability policy on a form prepared by the defendant. In filling out the form, the plaintiff had the help of Richard Mead, a Scottsbluff insurance broker who previously had done insurance work for Western Pathology. Like the professional medical staff at Western Pathology, the plaintiff requested "own occupation" coverage which would have provided the plaintiff with a benefit should he have become disabled from performing the primary duties of his occupation as a pilot. The plaintiff and Mead both testified that the plaintiff carefully read the application before signing it, including a provision that stated that a proposed insured's acceptance would ratify any changes listed under the section entitled "Corrections and Amendments (For Home Office Use Only)" on the application.
During the underwriting process, the defendant decided that it would not offer "own occupation" coverage to the plaintiff because of his high-risk occupation. The defendant noted the change and others in the "Corrections and Amendments" section of the application. The defendant issued a policy with an information sheet indicating that "own occupation" coverage was not included, and sent it to Mead. Mead claims that he did not review the policy when he received it because one of the defendant's employees allegedly told him that the plaintiff's policy would issue without any changes. Mead delivered the policy to Western Pathology. No one at the business office reviewed the policy, nor did the plaintiff himself.
Two years later, the plaintiff experienced a medical condition that resulted in the plaintiff voluntarily surrendering his pilot's medical certificate. He made a claim on the defendant's disability policy, and the defendant to date has paid him the same amount he would have received had the policy contained "own occupation" coverage: $450 a month for the first two years of his disability and $2,700 a month since then. If the plaintiff were able to earn enough income from other employment, the defendant could offset the monthly benefit it pays the plaintiff by the other income he receives. The plaintiff has worked part-time since surrendering his medical certificate, but he has not yet earned enough income to offset the benefit under the policy.
The plaintiff's third amended complaint alleges that the defendant breached its duty of loyalty under ERISA by unilaterally changing the policy application, failing to notify the plaintiff of the policy change, allowing Mead to affirmatively misrepresent that the policy offered "own occupation" coverage, and failing to follow an approved amendment procedure as required by the statute. The plaintiff seeks reformation of the policy or injunctive relief prohibiting the defendant from deleting the "own occupation" benefit.
I have carefully reviewed the record, the parties' briefs and indexes of evidence (Filing Nos. 32 and 91), and the applicable law. I conclude that the plaintiff's appeal should be dismissed and the defendant's motion for summary judgment should be granted.
II. Appeal of Magistrate Judge's Ruling
Magistrate Judge Jaudzemis struck four witnesses and two exhibits from the plaintiff's proposed pretrial order because the plaintiff had failed to disclose them to the defendant during discovery. The defendant's counsel first learned of the witnesses and exhibits when he received a draft version of the pretrial order from the plaintiff's counsel. Filing No. 84 at 4. At the pretrial conference, the plaintiff's counsel apparently explained to the magistrate that the need for the witnesses and exhibits became clear only after Judge Cambridge ruled (Filing No. 43) that the plaintiff's state law claim was pre-empted by ERISA, thus forcing the plaintiff to file an amended complaint under ERISA long after the original discovery deadlines had passed. The plaintiff maintains that the witnesses are critical to his claim that the defendant's agent made material misrepresentations about the plan that is the subject of this suit, and that without the testimony of these witnesses, he will not be able to meet his burden under Varity v. Howe, 516 U.S. 489 (1996). The plaintiff suggests that I should permit the new witnesses and exhibits, then grant the defendant the opportunity to depose the witnesses before trial.
The defendant contends that ERISA has been an issue at least as early as its answer to the original complaint, and certainly since the plaintiff filed his amended complaint in July 1998. Although the magistrate denied (Filing No. 78) the plaintiff's motion to reopen discovery following my order of August 5, 1999 (Filing No. 73), which granted in part and denied in part the defendant's motion to dismiss the third amended complaint, the defendant observes that the plaintiff was free to supplement his initial disclosures or earlier discovery responses with the new witnesses and exhibits. The defendant argues the plaintiff's failure to evaluate the evidence necessary to establish his ERISA claim until this late stage of the litigation is not a sufficient reason to overturn the magistrate's pretrial ruling. Allowing the defendant to depose the new witnesses, the defendant maintains, is not a solution since the defendant would not be entitled to conduct any additional discovery following the depositions to address or rebut the witnesses' testimony.
A magistrate's order in a nondispositive matter will be reversed only if clearly erroneous or contrary to law. NELR 72.3(d). The plaintiff provides no authority to establish that the magistrate's ruling was either. Consequently, the plaintiff's appeal of the magistrate's ruling at the pretrial conference striking the four witnesses and the two exhibits is dismissed.
III. Defendant's Motion for Summary Judgment
A. Legal Standard
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, the court grants summary judgment if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court's function at the summary judgment stage is not to weigh the evidence and determine the truth of the matter; rather, the court must determine whether a genuine issue exists for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). "If no rational trier of fact could find for the nonmoving party, then summary judgment is appropriate." McCormack v. Citibank, N.A., 100 F.3d 532, 537 (8th Cir. 1996). The Eighth Circuit has recognized that primarily legal issues and particularly questions of contract interpretation are issues amenable to summary disposition. See, e.g., Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1326 (8th Cir. 1995); Mumford v. Godfried, 52 F.3d 756, 759 (8th Cir. 1995); and Crain v. Board of Police Comm'r, 920 F.2d 1402, 1405-06 (8th Cir. 1990).
If the moving party meets the initial burden of establishing the nonexistence of a genuine issue, then the burden shifts to the opposing party to produce evidence of the existence of a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party may not rest upon mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. Anderson, 477 U.S. at 256; Krenik v. County of LaSueur, 47 F.3d 953, 957 (8th Cir. 1995).
B. Breach of Fiduciary Duty
The defendant argues that it is entitled to summary judgment on the plaintiff's breach of fiduciary duty claim because the plaintiff cannot establish that either the defendant or Mead was a fiduciary for purposes of the function placed at issue by the plaintiff's third amended complaint. The defendant contends that the plaintiff cannot prove that the defendant or Mead exercised enough discretionary control over management of the plan to be fiduciaries under ERISA.
The plaintiff maintains, however, that the defendant and Mead "exercised actual control over virtually every aspect of the plan administration." Plaintiff's Brief in Opposition to the Defendant's Motion for Summary Judgment at 5 (hereafter, Plaintiff's Brief). The plaintiff claims that the defendant delegated to Mead the "specific administrative responsibility of communicating" to the plaintiff the terms of the policy and the unilateral changes it had made to the application during the underwriting process. Id.
Where, as here, no written plan instrument exists, ERISA fiduciary status is governed by 29 U.S.C. § 1002(21)(A). It provides that a person other than a named plan administrator or plan sponsor may become a plan fiduciary "to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." Id. A person's use of discretion is "the benchmark for fiduciary status under ERISA." Maniace v. Commerce Bank of Kansas City, N.A., 40 F.3d 264, 267 (8th Cir. 1994). A fiduciary under section 1002(21)(A) can be held "liable only "to the extent' he exercises discretionary control . . . or has discretionary administration responsibility." Martin v. Feilen, 965 F.2d 660, 669 (8th Cir. 1992).
The Eighth Circuit has clearly rejected the notion that "an insurance company becomes an ERISA fiduciary merely because it handles claims under an employer's group policy." Kerns v. Benefit Trust Life Ins. Co., 992 F.2d 214, 216 (8th Cir. 1993). An ERISA fiduciary must discharge plan duties "solely in the interest of the participants and beneficiaries and (A) for the exclusive purpose of . . . providing benefits to participants and their beneficiaries." 29 U.S.C. § 1104(a)(1). But insurance companies are not fiduciaries for claimants and beneficiaries under state law, nor are they required to perform claims functions for the "exclusive purpose of . . . providing benefits to participants and beneficiaries." Kerns at 216.
An insurance company may acquire fiduciary status if, for example, it becomes an ERISA plan administrator or performs the review function for claimants appealing denials of a claim. Id. An insurance company that does no more than handle contractual claims under a group policy, however, is not a fiduciary with respect to a plan under section 1002(21)(A). Id. at 216-7. A court must examine each challenged activity of an insurance company to determine if it is a fiduciary with respect to that activity. Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 61 (4th Cir. 1992).
In Kerns, the Eighth Circuit held that an insurance company was not an ERISA fiduciary with respect to the routine functions challenged by the plaintiff in the case: participant and beneficiary notification, premium payment, and policy lapse and reinstatement. In particular, the court ruled "an insurer who is not the plan administrator has no ERISA fiduciary duty to notify plan participants and beneficiaries, unless the policy documents or the insurer's past practices have created an obligation to communicate directly with them." Kerns at 217. The question here, therefore, is whether the defendant's policy documents or past practices obliged it to communicate directly with the plaintiff about its decision to unilaterally amend the plaintiff's application and not provide him with "own occupation" coverage.
The Kerns court's reasoning with regard to the insurance company's fiduciary status also applied to the independent insurance broker who had obtained group insurance policies for the company's employees. Since the broker was neither the named fiduciary nor the plan administrator, he did not have discretionary authority with respect to managing the plan or disposing of its assets. The court ruled that persons who provide professional services to the plan administrator, such as preparing "employee communications material . . . within a framework of policies, interpretations, rules, practices and procedures made by other persons is not a fiduciary." Id. at 218 ( quoting 29 C.F.R. § 2509.75-8 D-2). The question with regard to Mean, therefore, is whether he Atranscend[ed] the normal role' [for a person providing professional services] and exercise[d] discretionary authority." Kerns at 217-8 ( quoting Feilen, 965 F.2d at 669).
The plaintiff claims that the language in the application stating that the proposed insured's acceptance would ratify any changes or amendments requires me to conclude that the defendant and Mead had a contractual duty to notify the plaintiff of the denial of "own occupation" coverage. Plaintiff's Brief at 7. The plaintiff also argues that the defendant had an ongoing practice of allowing Mead to handle various aspects of plan administration, including communicating with plan participants after policies issued.
The defendant's position, however, is that it and Mead conducted themselves no differently than any other insurance broker and company in issuing the disability policy to the plaintiff: The defendant received a routine application for disability insurance from Mead, an agent qualified to handle its products; the defendant passed the application through its normal underwriting process; the defendant sent the policy with a "policy issue information sheet" back to Mead; then Mead delivered the policy to Western Pathology. In a case in which the plaintiffs claimed, like the plaintiff here, that an insurance company improperly altered information on an insurance policy application, the Eighth Circuit held that the defendant insurance company had not acted in a fiduciary capacity under ERISA when it unilaterally made the change on the application. Molasky v. Principal Mutual Life Ins. Co., 149 F.3d 881, 885 (8th Cir 1998). The language in the policy at issue in the case did not require the insurance company to provide special notice to participants or beneficiaries, and the company did not have a past practice of notifying participants and beneficiaries "other than by means of the normal correspondence involved in claims handling and review." Id.
Here, no evidence suggests that the language of the application or the policy required the defendant to notify the plaintiff directly that it had declined to provide the "own occupation" coverage, or that the defendant had a past policy of communicating directly with applicants about decisions to deny requested coverage. Any obligation to notify the plaintiff of the denial of the requested coverage, therefore, "fell squarely on . . . the plan administrator." Id.
The plaintiff argues at length that the defendant handled "virtually every aspect of plan administration," to the point that the defendant became the de facto plan administrator. Plaintiff's Brief at 6-7. I disagree that the defendant ever became Western Pathology's plan administrator. The defendant and Mead performed the traditional roles of insurer and agent throughout the application and issuing process. Neither was involved in plan administration, managing the plan, or disposing of its assets. Hence, neither exercised the degree of discretion that would make them ERISA fiduciaries. Consequently, the plaintiff's claim for breach of an ERISA fiduciary duty must be dismissed.
IT IS THEREFORE ORDERED:
1) The plaintiff's appeal (Filing No. 86) of the magistrate's ruling at the pretrial conference striking four of the plaintiff's witnesses and two of his exhibits is dismissed; and
2) The defendant's motion (Filing No. 87) for summary judgment is granted, and the plaintiff's claim for breach of fiduciary duty is hereby dismissed with prejudice.