Dakotacare Administrative Services, Inc.; Principal Mutual Life Insurance Co.;
and Platte Community Memorial Hospital, Inc.,
[2001 DSD 21]
DENYING PLATTE'S MOTION FOR SUMMARY JUDGMENT
Timothy W. Bjorkman, Bjorkman & Fink, PC, Bridgewater, SD
Attorney for Plaintiff
Dennis Duncan, Freiberg, Zimmer, Duncan & Nelson, Parker,
Attorney for DakotaCare
Roberto A. Lange, Davenport, Evans, Hurwitz & Smith, Sioux
Attorney for Principal Mutual Life
Jeffrey A. Cole, Freiberg, Zimmer, Duncan & Nelson,
Attorney for DakotaCare Administrative Services
Roger A. Sudbeck, Boyce, Murphy, McDowell & Greenfield,
Sioux Falls, SD
Attorney for Platte Community Memorial Hospital's
Filed Aug 22, 2001
Hon. Karen E. Schreier, United States District Judge
[¶1] Sarah Fink alleges that Platte Community Memorial Hospital made negligent misrepresentations when it failed to fully inform Sarah of her rights under COBRA. Platte moves for summary judgment. Platte alleged in its answer that ERISA preempts Sarah's state cause of action for negligent misrepresentation and denies that it communicated false or erroneous information.
[¶2] Sarah is the daughter of Marvin and Margaret Fink. In 1997, Margaret resigned from her position as the Director of Nursing at Platte and accepted a position with Holden Village, a remote church retreat located in Washington. Before leaving Platte, Margaret elected to enroll in DAKOTACARE's COBRA plan offered through Platte. Sarah was insured under this plan as a dependent because she was under the age of 24 and a full-time student.
[¶3] In December of 1997, Margaret received a letter from Lorraine Plooster, an administrative assistant with Platte. The letter stated that Platte was switching insurance carriers from DAKOTACARE to Lincoln Mutual effective January 1, 1998, and enclosed an application. There is a dispute as to whether the letter informed Margaret that she was required to switch to Lincoln Mutual if she wished to continue her COBRA coverage. Neither party retained a copy of the letter. On December 23, 1997, Margaret informed Platte that she would not switch to Lincoln Mutual because she decided to participate in her new employer's group health insurance plan with Principal Mutual Life Insurance Company. Margaret submitted her Principal application for health insurance on December 13, 1997.
[¶4] On December 27, 1997, Sarah voluntarily admitted herself to McKennan Hospital in Sioux Falls, South Dakota. Sarah was diagnosed with schizo-affective disorder. Due to the remote location of Holden Village and the lack of outside communication, Margaret and Marvin were not aware of Sarah's hospitalization until December 29, 1997, when Marvin called relatives while in town. Despite her knowledge that DAKOTACARE no longer insured Platte or its employees as of January 1, 1998, Margaret mailed a premium check on December 29, 1997, to DAKOTACARE to continue her COBRA coverage.
[¶5] In January of 1998, Margaret visited Platte to obtain a copy of her resume. Plooster asked Margaret to complete several forms confirming that she refused coverage by Lincoln Mutual. Margaret completed the paperwork and again indicated that she did not wish to be covered by Lincoln Mutual. Margaret was not informed that she needed to switch to Lincoln Mutual to continue her COBRA coverage.
[¶6] On December 29, 1997, McKennan Hospital called DAKOTACARE to verify Sarah's coverage. Authorization was given for the policy limits. Sarah was released from McKennan on February 4, 1998. On January 30, 1998, after determining that Platte cancelled its DAKOTACARE insurance, DAKOTACARE refunded the premium check Margaret had sent on December 29 and denied coverage to Sarah after January 1, 1998.
[¶7] Under Rule 56(c) of the Federal Rules of Civil Procedure, a movant is entitled to summary judgment if it can show that "there is no genuine issue as to any material fact and that [the movant] is entitled to judgment as a matter of law." Lambert v. City of Dumas, 187 F3d 931, 934 (8th Cir. 1999). In determining whether summary judgment should issue, the court must view the evidence and inferences reasonably drawn therefrom "in the light most favorable to the nonmoving party." Lambert v. City of Dumas, 187 F3d 931, 934 (8th Cir. 1999) (citing Enterprise Bank v. Magna Bank of Missouri, 92 F3d 743, 747 (8th Cir. 1996); Adkison v. G.D. Searle & Co., 971 F2d 132, 134 (8th Cir. 1992)). The burden is on the moving party to establish the absence of a genuine issue of material fact and that it is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); see also Enterprise Bank, 92 F3d at 747; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 1356-57, 89 L. Ed. 2d 538 (1986).
[¶8] Sarah's sole cause of action against Platte is a state-law cause of action that Platte committed the tort of negligent misrepresentation. Margaret claims that she was not informed that her COBRA coverage would end if she failed to convert to the Lincoln Mutual policy, and that if she had known, she would have elected to switch to Lincoln Mutual. As a result of failing to convert to the new policy, Sarah, as Margaret's dependent, was uninsured during her hospitalization. In its answer, Platte alleged that the state-law cause of action was preempted by ERISA.
[¶9] "ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries by regulating the creation and administration of employee benefit plans." Kuhl v. Lincoln Nat'l Health Plan of Kansas City, Inc., 999 F2d 298, 301 (8th Cir. 1993) (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44, 107 S. Ct. 1549, 1551, 95 L. Ed. 2d 39 (1987)). ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan... ." 29 USC § 1144(a).
[¶10] The Supreme Court has provided guidance to determine the scope of preemption by formulating a two-part inquiry into whether a state law relates to an employee benefit plan covered by ERISA. See Prudential Ins. Co. v. Nat'l Park Med. Ctr., 154 F3d 812, 819 (8th Cir. 1998). "A law relate[s] to a covered employee benefit plan for purposes of § 514(a) if it  has a connection with or  reference to such a plan." California Div. of Labor Standards Enforcement v. Dillingham Constr., 519 U.S. 316, 117 S. Ct. 832, 837, 136 L. Ed. 2d 791 (1997).
[¶11] The state-law cause of action of negligent misrepresentation does not reference ERISA. When there is no specific reference to ERISA in the state law, a court must direct its preemptive inquiry into the objectives of the ERISA statute, as well as the nature of the effect of the state law on ERISA plans. See Prudential, 154 F3d at 821-22. The Eighth Circuit has set forth several factors to be considered when determining the effect of a state law on an ERISA plan. See Johnston v. Paul Revere Life Ins. Co., 241 F3d 623, 630 (8th Cir. 2001). These factors include:
(1) whether the state law negates a plan provision; (2) the effect on primary ERISA entities and impact on plan structures; (3) the impact on plan administration; (4) the economic impact on the plan; (5) whether preemption is consistent with other provisions of ERISA; and (6) whether the state law at issue is an exercise of traditional state power.
Id. at 630. The court should look to the totality of the state statute's impact on the ERISA plan. See Wilson v. Zoellner, 114 F3d 713, 719 (8th Cir. 1997).
[¶12] When examining these factors, three weigh heavily in favor of preemption, namely the impact on plan administration, whether preemption is consistent with other ERISA provisions, and whether the state law at issue is an exercise of state power. First, Sarah's claim against Platte arose from the administration of an ERISA plan, namely lack of notice of a qualifying event under the plan. Thus, application of the state law in this case would have an impact on plan administration. See Johnston, 241 F3d at 630.
[¶13] Second, Sarah's cause of action is based on a claim of improper administration of an ERISA plan. Congress provided a remedy for such situations and intentionally preempted other remedies under state laws. See Ingersoll-Rand v. McClendon, 498 U.S. 133, 138-39, 111 S. Ct. 478, 482-83, 112 L. Ed. 2d 474 (1990); Painter v. Golden Rule Ins. Co., 121 F3d 436, 439 (8th Cir. 1997). The remedy provided by Congress is set forth in 29 USC § 1132(6)(1)(B), which provides a plan beneficiary or participant a civil remedy in the amount of $100 a day from the date of failure or refusal for failure to notify. A state-law cause of action based on failure to properly administer a plan would defeat Congress's intention to provide a "comprehensive, uniform federal scheme for regulation of employee benefit plans." Kuhl, 999 F2d at 301 (citing Ingersoll-Rand, 498 U.S. at 137, 111 S. Ct. at 481). Thus, preemption would be consistent with other provisions of ERISA.
[¶14] Third, for Sarah to be successful in her state-law action against Platte, the court would have to recognize a new cause of action of negligent nondisclosure. This cause of action has previously been rejected by the South Dakota Supreme Court because the court found that the defendant had no duty to disclose the information. See Taggart v. Ford Motor Credit Co., 462 NW2d 493, 503 (S.D. 1990). The state-law cause of action for negligent disclosure at issue has not been a traditional state power. Thus, examining the totality of the state statute's impact on the plan, the court finds that this cause of action is preempted by ERISA.
[¶15] Preemption "converts an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule." Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65, 107 S. Ct. 1542, 1547, 95 L. Ed. 2d 55 (1987). "Complete preemption not only displaces substantive state law, but also 'recharacterizes' preempted state law claims as 'arising under' federal law... ." McClelland v. Gronwaldt, 155 F3d 507, 516 (5th Cir. 1998). The court must determine whether Sarah's claims as recharacterized under ERISA are within the scope of § 502(a) of ERISA. See Kuhl, 999 F2d at 304.
[¶16] In her third amended complaint, Sarah alleges that Platte was negligent in communicating insurance information to her. ERISA requires the plan administrator to notify qualified beneficiaries of qualifying events. See 29 USC § 1166(a)(4). A plan administrator is defined as
(i) the person specifically so designated by the terms of the instrument under which the plan is operated; or
(ii) if an administrator is not so designated, the plan sponsor; or
(iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe.
29 USC § 1002(16)(A).
[¶17] A plan administrator is not designated in the instrument under which the plan in question operates. If a plan administrator is not designated, the plan sponsor is the plan administrator. See 29 USC § 1002(16)(A)(ii). A plan sponsor is defined as "the employer in the case of an employee benefit plan established or maintained by a single employer... ." 29 USC § 1002(16)(B). Platte is the sole employer offering and maintaining an employee welfare benefit plan. As a result, Platte is the plan sponsor and thus, the plan administrator under the statutory definitions.
[¶18] Platte, therefore, owed a duty to notify all qualified beneficiaries of their rights when the qualifying event caused by switching insurance carriers occurred. Qualified beneficiaries include dependent children of an employee. See 29 USC § 1167(3)(A). Sarah, as a dependent child of Margaret, was a qualified beneficiary under the plan. As a result, Platte had a duty to notify Sarah of all qualifying events.
[¶19] The next question is whether Platte's failure to notify Sarah of a qualifying event falls within the scope of § 502(a) of ERISA. Section 502(a) of ERISA, which is codified at 29 USC § 1132(a), provides in pertinent part:
(a) A civil action may be brought --
(1) by a participant or beneficiary --
(A) for the relief provided for in subsection (c) of this section ... .
Subsection (c) of 29 USC § 1132 provides in pertinent part:
(c)(1) Any administrator ...
(B) who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary ... may in the court's discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper.
Thus, a cause of action exists under § 502(a) of ERISA for failure of a plan administrator to provide information which such administrator is required by ERISA to furnish to a plan participant or beneficiary.
[¶20] Sarah's state-law claim when recharacterized does set forth a cause of action under § 502(a) of ERISA. An issue of material fact exists regarding whether Sarah received the notice of the termination of the DAKOTACARE plan from Platte. As a result, Platte is not entitled to summary judgment on the recharacterized cause of action under ERISA.
[¶21] Platte also moves for summary judgment against DAKOTACARE and Principal on their cross-claims which seek contribution and indemnity from Platte. "Contribution is appropriate where there is a common liability among the parties, whereas indemnity is proper where one party has a greater liability or duty which justly requires him to bear the whole of the burden as between the parties." Degen v. Bayman, 200 NW2d 134, 136 (S.D. 1972).
[¶22] By prior order, the court granted summary judgment in favor of DAKOTACARE and Principal on all causes of action. Because DAKOTACARE and Principal are not liable to Sarah, Platte is entitled to summary judgment on the co-defendants' cross claims as a matter of law.
[¶23] Based on the preceding discussion, it is hereby
[¶24] ORDERED that defendant Platte's motion for summary judgment on the complaint (Docket 114) is denied.
[¶25] IT IS FURTHER ORDERED that Platte's motion for summary judgment on the cross-claims of DAKOTACARE and Principal (Docket 114) is granted.