Case Title: Weems v. Jefferson-Pilot Life Ins. Co., Inc.

Citation: 663 So. 2d 905

Docket Number: 1920981

State: alabama

Court: Alabama Supreme Court

Date: 1995-05-05T00:00:00Z

Document:
663 So. 2d 905 (1995)
Willard WEEMS and Julia Weems
v.
JEFFERSON-PILOT LIFE INSURANCE COMPANY, INC., et al.
No. 1920981.

Supreme Court of Alabama.
May 5, 1995.
Rehearing Denied June 16, 1995.
*906 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.
*907 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:
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 *908 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.
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:
(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 the covered employee does not contribute to the premium." Id. at 1149. Under circumstances similar in all relevant respects to those involved in this case, this Court held that "a group insurer is required to notify a participant of cancellation or modification of the policy if the interests of the participant are adversely affected thereby." Id. at 1150.
Subsequently, at least two federal courts squarely addressed arguments identical to the one made here by the Weemses, namely, that the Newton rule is "saved" by § 1144(b)(2)(A). Both courts rejected those arguments. In Presley v. Blue Cross-Blue Shield of Alabama, 744 F. Supp. 1051 (N.D.Ala.1990), the court explained:
Applying these factors, the court concluded that the Newton rule did not "regulate insurance," as that concept is expressed in § 1144(b)(2)(A). More specifically, the court concluded that the Newton rule did not constitute "an integral part of the policy relationship between the insurer and the insured." It reasoned:
Presley, 744 F. Supp.  at 1061. More recently, the Court of Appeals for the Eleventh Circuit, like the court in Presley, concluded that "the Newton rule does not ... constitute an `integral relationship between the insurer and the insured,'" and, consequently, that § 1144(b)(2)(A) did not exempt from preemption state-law claims based on Newton. Willett v. Blue Cross & Blue Shield of Alabama, 953 F.2d 1335, 1341 n. 6 (11th Cir.1992).
We are unable to conclude that these courts erred in determining that the Newton rule fails to satisfy the criteria for exemption from preemption. Thus, the trial court did not err in holding that the Weemses's "state law claims for breach of contract[,]... bad faith, fraud, negligence, wantonness and willfulness," were preempted by ERISA. To the extent that the trial court so held, its judgment is affirmed.
The Weemses' federal-law claims alleged that Jefferson-Pilot (1) had breached fiduciary duties, and (2) had "interfered with [their] rights to receive ERISA benefits." The trial judge granted Jefferson-Pilot's partial motion for a summary judgment, agreeing with its contention that ERISA does not authorize recovery of punitive damages, or of "extracontractual" damages, that is, "`[d]amages that would give a beneficiary more than he or she is entitled to receive under the strict terms of the plan.'" Lawrence v. Jackson Mack Sales, Inc., 837 F. Supp. 771, 786 (S.D.Miss.1992), aff'd, 42 F.3d 642 (5th Cir. 1994).
In Haywood v. Russell Corp., 584 So. 2d 1291 (Ala.1991), this Court, relying extensively on Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S. Ct. 478, 112 L. Ed. 2d 474 (1990), discussed at length the availability of extracontractual damages under ERISA. Indeed, it interpreted that case as holding that state and federal "courts are authorized to award damages, both extracontractual, and even punitive, where the facts support them, ... though they are not specifically provided for in ERISA." 584 So. 2d  at 1297 (emphasis added). Because Haywood's conclusions regarding the species of damages recoverable under ERISA are so pertinent to *910 the disposition of that issue in this case, we here incorporate the following extensive excerpt:
"753 F. Supp.  at 347.
"H.R.Rep. No. 801, 100th Cong., 2d Sess, p. 2, at 63 (1988) (emphasis added [in Haywood]).
Haywood 584 So. 2d  at 1295-98. (Emphasis added except as noted.)
*913 Since Haywood was decided, a number of courts have discussed Ingersoll-Rand and have reached varying conclusions as to its meaningsome cases concluding that it does not authorize extracontractual or punitive damages, see e.g., Harsch v. Eisenberg, 956 F.2d 651 (7th Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 61, 121 L. Ed. 2d 29 (1992); McRae v. Seafarers' Welfare Plan, 920 F.2d 819 (11th Cir.1991); Zimmerman v. Sloss Equipment, Inc., 835 F. Supp. 1283 (D.Kan. 1993); Roberts v. Thorn Apple Valley, Inc., 784 F. Supp. 1538 (D.Utah 1992); and others concluding that Ingersoll-Rand does authorize such remedies; see, e.g., East v. Long, 785 F. Supp. 941 (N.D.Ala.1992) (per Acker, J.); International Union, United Automobile, Aerospace & Agricultural Implement Workers v. Midland Steel Prods. Co., 771 F. Supp. 860 (N.D.Ohio 1991); cf. Lawrence v. Jackson Mack Sales, Inc., 837 F. Supp. 771 (S.D.Miss.1992) (some species of extracontractual damagesbut not punitive damagesare recoverable under ERISA). However, this Court still understands Ingersoll-Rand as it did when it released Haywood. Therefore, the Weemses' ERISA claims are not defective for the reason on which the trial court's summary judgment expressly rests, namely, that ERISA does not authorize recovery of punitive damages, or of extracontractual damages. The judgment of the trial court, to the extent that it so held, is reversed.
The resolution of the issue addressed in Part II, supra, also essentially disposes of the issue presented in the final portion of the partial summary judgment, that is, whether the Weemses have a right to a trial by jury on their ERISA claims. This conclusion follows, because the right to recover compensatory and punitive damages "leads inexorably to the right of trial by jury," as guaranteed by U.S. Const. amend. VII. Haywood, 584 So. 2d  at 1298.
In opposition to this proposition, Jefferson-Pilot relies on Ex parte Gurganus, 603 So. 2d 903 (Ala.1992) (per Houston, J., with one Justice concurring, five Justices concurring in the result, and one Justice concurring in part). However, Gurganus held only that an action brought pursuant to § 1132(a)(1)(B),[2] to determine the insurer's right to cancel an ERISA-regulated plan, was equitable in nature, and, consequently, did not carry a right to a trial by jury. Although the author of Gurganus also suggested that Alabama courts are bound by the statutory construction employed in the Court of Appeals for the Eleventh Circuit, which holds that plaintiffs are not entitled to a jury trial on claims brought pursuant to § 1132(a)(1)(B), Blake v. Unionmutual Stock Life Ins. Co. of America, 906 F.2d 1525 (11th Cir.1990), that view was shared by only one other Justice, and, consequently, does not represent the position of this Court or represent binding precedent.
On the contrary, the correct rule, briefly stated, is that "[t]his Court may rely on a decision of any federal court, but it is bound by the decisions of the United States Supreme Court." Gurganus, 603 So. 2d  at 908 (Shores, J., concurring specially) (emphasis in original); see also Amerada Hess Corp. v. Owens-Corning Fiberglass Corp., 627 So. 2d 367, 373 n. 1 (Ala.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1610, 128 L. Ed. 2d 338 (1994). This rule is especially applicable if Eleventh Circuit doctrine conflicts with the law as expressed in cases decided in the other circuits. Id. Cf. Sullivan v. LTV Aerospace & Defense Co., 850 F. Supp. 202, 214 (W.D.N.Y.1994) (ERISA plaintiff "seeking legal relief" is entitled under the Seventh Amendment to a jury trial); International Union, United Automobile, Aerospace & Agricultural Implement Workers v. Midland Steel Prods. Co., 771 F. Supp. 860, 865 (N.D.Ohio 1991) (ERISA plaintiffs "seeking punitive or compensatory damages, remedies at law, ... are entitled under the Seventh Amendment to a trial by jury"); McDonald v. Artcraft Electric Supply Co., 774 F. Supp. 29, 36 (D.D.C.1991) (ERISA plaintiffs seeking "traditional legal relief" are *914 entitled under the Seventh Amendment to a trial by jury); Gangitano v. NN Investors Life Ins. Co., 733 F. Supp. 342 (S.D.Fla.1990) (Seventh Amendment requires a jury trial in actions seeking legal relief, pursuant to § 1132(a)(1)(B)); Vicinanzo v. Brunschwig & Fils, Inc., 739 F. Supp. 882 (S.D.N.Y.1990).
The trial court, to the extent it concluded that a plaintiff is never entitled to a jury trial on claims brought pursuant to § 1132(a)(1)(B), erred. Therefore, that portion of the partial summary judgment so holding is reversed.[3]
In summary, the judgment is affirmed to the extent it held that the state-law claims were preempted by ERISA. The judgment is reversed to the extent it held that ERISA does not authorize recovery of punitive damages or of extracontractual damages and to the extent it held that a plaintiff is never entitled to a jury trial on claims brought pursuant to § 1132(a)(1)(B). The judgment of the trial court is, therefore, affirmed in part and reversed in part. The cause is remanded for further proceedings consistent with this opinion.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
HORNSBY, C.J., and ALMON, SHORES, KENNEDY, and INGRAM, JJ., concur.
MADDOX and HOUSTON, JJ., concur in part; concur in the result in part; and dissent in part.
HOUSTON, Justice (concurring in part; concurring in the result in part; and dissenting in part).
I concur with that portion of the opinion that holds that the state law claims were preempted by ERISA. That holding is consistent with my understanding of the law since 1989. See HealthAmerica v. Menton, 551 So. 2d 235, 249-56 (Ala.1989) (Houston, J., dissenting). I concur in the result as to that portion of the opinion that reverses the judgment to the extent that the opinion holds that ERISA does not authorize the recovery of punitive damages or damages in excess of those provided for by the contract. Haywood v. Russell Corp., 584 So. 2d 1291, 1298-99 (Ala.1991) (Houston, J., concurring specially). I dissent from that portion of the majority's opinion that holds that the Weemses are entitled to a jury trial on claims brought pursuant to § 1132(a)(1)(B). Blake v. Unionmutual Stock Life Ins. Co. of America, 906 F.2d 1525 (11th Cir.1990); Ex parte Gurganus, 603 So. 2d 903 (Ala.1992).
MADDOX, J., concurs.
[1]  For coverage of his wife Julia, Willard Weems authorized deductions from his wages at the rate of approximately $33 per month.
[2]  Section 1132(a)(1)(B) provides that "[a] civil action may be brought ... by a participant or beneficiary ... to recover benefits due to him under the terms of his plan, or to clarify his rights to future benefits under the terms of the plan."
[3]  We must reiterate that we express no opinion as to the validity of the merits of the Weemses' claims. Our discussion in this case must be construed as confined to the precise grounds on which the trial court expressly based its summary judgment. This approach is particularly appropriate in view of the fact that these grounds are the only ones fully developed in the parties' briefs.