Court Opinion

ID: 165364
Source: CourtListenerOpinion
Date Created: 2010-08-14 08:49:35+00
Date Added: 2024-06-11T17:18:45.685533
License: Public Domain

F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                          DEC 21 2004
                            FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                               Clerk

    ANN I. EVANS,

                Plaintiff-Appellant,

    v.                                                    No. 04-6054
                                                    (D.C. No. 03-CV-383-T)
    KIRKE-VAN ORSDEL, a division of                       (W.D. Okla.)
    Seabury & Smith, Inc.; ANNUITY
    BOARD OF SOUTHERN BAPTIST
    CONVENTION,

                Defendants-Appellees.

                            ORDER AND JUDGMENT            *

Before LUCERO , McKAY , and PORFILIO , Circuit Judges.

         After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore

ordered submitted without oral argument.

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      Plaintiff Ann Evans initially brought this action in state court alleging the

wrongful denial of her claim for benefits under a long term disability benefit plan

underwritten by defendant Annuity Board of the Southern Baptist Convention and

administered by defendant Kirke-Van Orsdel. Defendants removed the action to

federal court under 28 U.S.C. § 1441, and then moved for summary judgment on

the grounds that (1) plaintiff’s claim for recovery of benefits under the plan was

barred by her failure to comply with a plan provision mandating exhaustion of all

claim review procedures before recourse to legal action and (2) plaintiff’s claim

for bad faith administration of the plan was not recognized under Oklahoma law

and was factually unsupported in any event. The district court agreed on both

points and dismissed the case. Plaintiff now appeals that decision. We review

the district court’s interpretation of the plan and consequent determination on

summary judgment de novo,      Old Republic Ins. Co. v. Durango Air Serv., Inc.   , 283

F.3d 1222, 1225-26 (10 th Cir. 2002), and affirm.

                   Claim under Plan – Exhaustion Requirement

      While federal procedural law prescribes our standard of review, state

substantive law governs the contract issues presented.    1
                                                              Deepwater Invs., Ltd. v.

Jackson Hole Ski Corp. , 938 F.2d 1105, 1106 (10 th Cir. 1991). Under Oklahoma

1
      Benefit plans for church employees are not governed by the Employee
Retirement Income Security Act, see 29 U.S.C. §§ 1002(33)(A), 1003(b)(2).

                                           -2-
law, if a contract’s terms “are unambiguous, clear and consistent, they are

accepted in their plain and ordinary sense and the contract will be enforced to

carry out the [expressed] intention of the parties.”   S. Corr. Sys., Inc. v. Union

City Pub. Sch. , 64 P.3d 1083, 1088 (Okla. 2002). “The interpretation of a

contract, and whether it is ambiguous is a matter of law for the Court to resolve,”

and “[t]he Court will not create an ambiguity by using a forced or strained

construction, by taking a provision out of context, or by narrowly focusing on the

provision.” Id. at 1088-89.

       The exhaustion provision at issue reads in pertinent part as follows:

       A claimant may appeal KVI’s [defendant Kirk-Van Orsdel’s] final
       denial of a claim by filing an appeal with the Annuity Board within
       60 days of the date of the denial. . . .

       Claim appeals must be submitted in writing to:

       Claims Manager
       Insurance Division
       Annuity Board of the Southern Baptist Convention
       P.O. Box 2190
       Dallas, Texas 75201-2190

                                            ....

       The decision of the [Appeals] Committee [of the Annuity Board] will
       be made in its sole discretion and will be final and binding on all
       parties. You and your Covered Dependents must file a complete and
       timely claim and exhaust all claim review procedures before filing a
       suit in a court or taking any other legal action to obtain benefits
       under the Plan.

App. at 60.

                                             -3-
       Plaintiff sought benefits under the plan by filing an application with

Seabury & Smith, Inc. (S&S), the corporate parent of the plan administrator,

defendant Kirke-Van Orsdel. The application was denied by a letter informing

her that she had a right to appeal. The letter stated that the appeal “must be in

writing and should identify issues and other comments or additional evidence you

wish considered,” but did not specify where it was to be sent or who would be

resolving the matter.    Id. at 195. Plaintiff sent a letter of appeal to S&S,      id. at

196, and thereafter provided additional evidence in support of her claim. These

materials were submitted by S&S “to an independent consultant for a re-review to

determine [her] disability status.”      Id. at 167. In the end, “[i]t was the reviewer’s

opinion that there is no evidence for total disability as defined by the plan,” and

S&S concluded anew that benefits were not available under the plan.              Id. at 168.

Plaintiff was once again told of her right to appeal, in the same general terms

used after the initial decision.      Id. She then commenced this action, without ever

submitting an appeal to the Annuity Board of the Southern Baptist Convention,

the plan’s underwriter and designated final authority over coverage disputes, per

the claim exhaustion provision quoted above.

       Plaintiff argues several points to justify/excuse her noncompliance with

that provision. First, she notes that other references in the plan to the claimant’s

right to appeal use permissive language – the claimant “may appeal” – and insists

                                               -4-
that this is inconsistent with any mandatory interpretation of the exhaustion

provision. The district court’s cogent refutation, which plaintiff never comes to

grips with in her brief, needs no further annotation by us:

      Plaintiff is correct that the Plan does not mandate an appeal of every
      decision; obviously, a claimant can accept a denial of her claim and
      take no further action. However, a claimant intending to pursue
      litigation on her claim is required to complete the appeal process.
      Plaintiff ignores the additional express provision with regard to the
      filing of litigation to enforce rights under the Plan; that provision
      clearly and expressly states that all claim review procedures “must”
      be exhausted before a suit is filed or legal action is taken to obtain
      Plan benefits. Therefore, although pursuit of an appeal is not
      mandated by the Plan per se , it is mandated if the claimant intends to
      pursue legal action. Plaintiff’s attempt to argue otherwise ignores
      the plain language of the Plan.

App. at 225-26 (citation omitted).

      Plaintiff also contends that, in any event, she did appeal the initial denial of

benefits and that, because the plan does not specify how many appeals must be

taken, this should have sufficed to satisfy the exhaustion requirement. This whole

line of argument is misdirected. The   number of appeals taken or foregone is not

the issue; however simple or complicated the initial process of evaluation by the

plan administrator may be, the plan specifies that the determination of the

administrator must at some point be appealed to the underwriter (the Annuity

Board) for a final decision before any legal action on the plan may be instituted.

Plaintiff’s premature resort to court bypassed this critical condition.

                                          -5-
      Plaintiff argues that her appeal to S&S should qualify as the requisite

appeal to the Annuity Board because, under a services agreement between S&S

and the Annuity Board, S&S agreed to “refer to the Annuity Board for final

decision any appeal of a decision by [S&S] concerning a claim for Benefits in

accordance with the claims appeal procedures of the Plan[].”     Id. at 172. This

contention is undercut by two distinct considerations. First of all, the quoted

provision is not in the plan offered to plaintiff by her employer, but in a collateral

contract between the plan’s underwriter and its administrator, and plaintiff makes

no legal argument as to why she may invoke the alleged nonperformance by one

of these parties under their contract to excuse her failure to comply with the plain

terms of the plan. In any event, both the plan and the services agreement indicate

that the administrator has its own internal review process distinct from any

subsequent appeal to the Annuity Board,    see id. at 60 (claim review provision of

plan referring to “the initial and subsequent denial of benefits by [S&S]”), 172

(provision of services agreement stating that S&S “shall maintain its standard

internal claims appeal review process”). Thus, in effect, plaintiff insists that S&S

should have bypassed its own review process and instead initiated an appeal to the

Annuity Board on her behalf to anticipate and cure her future failure to appeal as

directed by the plain terms of the plan. This argument is meritless.

                                           -6-
       Plaintiff also seeks to excuse her noncompliance by assigning blame to the

Annuity Board, arguing that once it became aware that she had begun a review

proceeding with S&S, the Annuity Board should have stepped in, terminated the

ongoing process before S&S, and sua sponte initiated its own final review. This

argument is not supported factually by reference to any plan provision suggesting

such pre-emptive behavior by the Annuity Board would even be permissible, let

alone obligatory, nor is it supported legally by reference to any relevant case

authority. Plaintiff cites   Haskew v. Knights of Modern Maccabees     , 159 P. 493

(Okla. 1916), for the proposition that a beneficial association may be held to have

waived a member’s noncompliance with remedial conditions if the association has

violated its own laws and regulations, but plaintiff has not shown that the Annuity

Board violated any duty here.

       Plaintiff’s argument that she substantially complied with the exhaustion

requirement is equally unavailing. The plan makes it clear that a claim is not

exhausted by any determination of the administrator; the claimant must appeal the

administrator’s decision to the Annuity Board itself before resorting to legal

action. We agree with the district court that the case law relating to substantial

compliance relied on by plaintiff, which deals with proof-of-loss requirements

and holds that prima facie proof is sufficient,    see John Hancock Mut. Life Ins. Co.

v. Highley , 445 P.2d 241, 246 (Okla. 1968) (following     Ins. Co. of N. Am. v.

                                             -7-
Cochran , 159 P. 247 (Okla. 1916)), “does not support plaintiff’s contention that

failing to pursue the next level of a required appeal procedure should be sufficient

to ‘exhaust all claim review procedures’ as provided in the Plan.” App. at 226.

Plaintiff does not merely seek some moderation of evidentiary or proof standards

associated with the required appeal to the Annuity Board; she seeks to excuse her

wholesale failure to take the appeal. If the concept of substantial compliance

were stretched that far, the requirement of     exhaustion of remedies would lose its

substance.

       Plaintiff also contends that the exhaustion provision in the plan violates

Okla. Stat. tit. 36, § 4505, which states that group insurance policies may not

have “any provision relative to notice or proof of loss, or to the time for paying

benefits, or to the time within which suit may be brought on the policy, which is

less favorable to the individuals insured than would be permitted by the standard

provisions required for individual accident and health insurance policies” set out

in Okla. Stat. tit. 36 § 4405. Plaintiff argues that the plan’s exhaustion provision

is invalid under this scheme (though § 4505 and § 4405 do not even address

exhaustion), because the standard three-year limitations period prescribed in

§ 4405(A)(11) is allegedly contravened by the plan’s requirement “that an insured

take an as-of-yet unspecified number of intra-plan appeals from a claim denial

before they are entitled to bring an action.” Aplt. Br. in Chief at 28. Once again,

                                              -8-
plaintiff’s objection fails to focus on the exhaustion deficiency at issue in this

case. However many times a claimant might be allowed to offer additional

evidence and ask the administrator to reconsider its decision, the only specified

condition on legal recourse is completion of an appeal from the administrator’s

decision to the Annuity Board. There is nothing inherently inconsistent between

that requirement and a three-year limitations period, and plaintiff neither cites to

any authority recognizing such an inconsistency as a legal matter nor points to any

evidence of record demonstrating such an inconsistency in practice.

       Plaintiff argues in passing that an exhaustion clause in a contract “cannot

prevent suit from being brought,” citing Okla. Stat. tit. 15 § 216. Aplt. Br. in

Chief at 26 n.7.   2
                       This statute directs that “[e]very stipulation or condition in a

contract, by which any party thereto is restricted from enforcing his rights under

the contract by the usual legal proceedings in the ordinary tribunals, or which

limits the time within which he may thus enforce his rights, is void.” As just

noted above, there is no inherent limitations problem raised by the exhaustion

provision in the plan. And, as for plaintiff’s being restricted from enforcing

rights under the contract, only an extremely broad interpretation of the idea of

2
        Plaintiff goes on to suggest that such a clause is “also likely invalid” under
state constitutional provisions guaranteeing a right to jury trial. Aplt. Br. in Chief
at 26 n.7. No remotely relevant case authority is cited for this facially dubious
proposition. In any event, the point was not raised below,     see R. doc. at 136, and
thus is waived. Monreal v. Potter , 367 F.3d 1224, 1231 (10 th Cir. 2004).

                                              -9-
“restricted” would suggest that a mere exhaustion provision impermissibly

curtails one’s right to enforce contract rights. Plaintiff cites no authority to

suggest such an extreme view. On the contrary, the case law indicates that the

statute voids only those provisions that   preclude judicial enforcement of a

contract – by, for example, compelling binding arbitration of claims or requiring

the consent of one contracting party before another could bring suit – not those

that merely condition enforcement on practically satisfiable procedural

prerequisites, such as providing timely notice of a claim upon which suit is

anticipated. See, e.g. , Cannon v. Lane , 867 P.2d 1235, 1238-39 (Okla. 1993);

Keel v. MFA Ins. Co. , 553 P.2d 153, 157 (Okla. 1976);    Midland Valley R.R. Co. v.

Ezell , 116 P. 163, 164 (Okla. 1911). While the cases do not specifically address

exhausting an administrative claim procedure (that, if favorable, would obviate

any need to bring legal action and that, if not, would impose no impediment to

such action), the thrust of the law is decidedly against plaintiff’s position.

       In sum, plaintiff’s claim under the plan is undercut by her unexcused

failure to satisfy the plan’s exhaustion requirement. The situation is somewhat

different, however, in relation to her bad faith claim. As she notes, this is a tort

cause of action not naturally encompassed within the claim review procedure. We

need not resolve the exhaustion question as to this claim, however. The district

court rejected the claim on the merits, and we do so as well.

                                           -10-
                                     Bad Faith Claim

       The district court rejected plaintiff’s claim against the plan administrator

for bad faith because, at the time of decision, the Oklahoma courts “ha[d] not

recognized a bad faith cause of action against a third-party administrator [and]

[p]laintiff offer[ed] no persuasive authority . . . that the Oklahoma Supreme Court

would recognize such a claim.” App. at 227. Less than a week later, the

Oklahoma Supreme Court issued         Wathor v. Mutual Assurance Administrators,

Inc. , 87 P.3d 559 (Okla. 2004), adopting this circuit’s analysis in       Wolf v.

Prudential Insurance Co. of America       , 50 F.3d 793 (10 th Cir. 1995), to hold that

“[i]n a situation where a plan administrator performs many of the tasks of an

insurance company, has a compensation package that is contingent on the

approval or denial of claims, and bears some of the financial risk of loss for the

claims, the administrator has a duty of good faith and fair dealing to the insured.”

Wathor , 87 P.3d at 563. This fortuitous circumstance does not persuade us to

disturb the district court’s disposition, for a couple of reasons.

       First of all, plaintiff waived any argument for reversal based on       Wathor by

not even mentioning the case in her opening brief, submitted three months after

Wathor was issued. Indeed, although she initially specified the bad faith claim as

one of the issues presented for review, she did not subsequently argue the matter

in her opening brief. An issue listed but not argued in an opening brief is waived.

                                            -11-
Abercrombie v. City of Catoosa     , 896 F.2d 1228, 1231 (10 th Cir. 1990). In their

answer brief, defendants noted plaintiff’s omission but went on to argue why the

claim recognized in    Wathor was in any event unavailable as a matter of law under

the circumstances presented here. In reply, plaintiff finally addressed the

conditions specified in   Wathor for availability of a bad faith claim against a plan

administrator. Consistent with the waiver rule invoked above, however, belated

attention to an issue in a reply brief ordinarily does not preserve a matter for

review. Stump v. Gates , 211 F.3d 527, 533 (10 th Cir. 2000).

       In any event, we agree with defendants that there is no basis in our record

to substantiate application of    Wathor here. There is no evidence that the plan

administrator benefitted financially from the disposition of claims or shared in the

risk of loss involved, and the absence of these factors renders a bad faith claim

unavailable as a matter of law.     See Wathor , 87 P.2d at 563. While    Wathor had

not yet been decided during the summary judgment proceedings here, plaintiff,

who relied on Wolf for her bad faith claim,       see App. at 121, had every reason to

muster whatever evidence there might have been to support bad faith liability

under Wolf then and, hence, under      Wathor now.

       Plaintiff notes, however, that defendants did not argue the unavailability of

the bad faith claim, legally or factually, until their summary judgment reply brief

(when they were responding to her reliance on        Wolf , see App. at 220-21), and

                                           -12-
complains that she did not have a chance to obtain discovery and dispute the

issue. To the extent this objection concerns the inadequacy of discovery, it is

undercut by plaintiff’s failure to file an affidavit under Fed. R. Civ. P. 56(f) to

bring any difficulty in that regard to the district court’s attention.    See DiCesare

v. Stuart , 12 F.3d 973, 979 (10 th Cir. 1993). To the extent it concerns the belated

emergence of the bad faith issue per se, plaintiff could have insisted on filing a

surreply brief, see Beaird v. Seagate Tech., Inc.       , 145 F.3d 1159, 1164-65 (10   th

Cir. 1998); see, e.g. , Meiners v. Univ. of Kan. , 239 F. Supp. 2d 1175, 1179 n.1

(D. Kan. 2002), but she also did not avail herself of this procedure.

       Finally, plaintiff insists that the underwriter Annuity Board may be liable

for bad faith regardless of any limits on such claims with regard to third-party

administrators like S&S. But she advances no argument whatsoever as to why she

should be able to pursue a bad faith claim against the very party who, as a result

of her own noncompliance with the review procedure required in the plan, had no

opportunity to determine the coverage question giving rise to this lawsuit. In any

event, given that the interim change in law complicating the third-party

administrator claim against S&S did not affect the analytically distinct bad faith

claim against the Annuity Board, plaintiff’s failure to address the latter in her

opening brief is even more egregious. The issue is waived and warrants no

further discussion.

                                              -13-
The judgment of the district court is AFFIRMED.

                                          Entered for the Court

                                          John C. Porfilio
                                          Circuit Judge

                               -14-