Morstein v. National Insurance Services, Inc. , 74 F.3d 1135 ( 1996 )

United States Court of Appeals,
Eleventh Circuit.
No. 94-9152.
Margery A. MORSTEIN, Plaintiff-Appellant,
v.
NATIONAL INSURANCE SERVICES, INC.; Pan American Life Insurance
Company; The Shaw Agency; Scott Hankins, Defendants-Appellees.
Feb. 12, 1996.
Appeal from the United States District Court for the Northern
District of Georgia. (No. 1:92-cv-2686-RLV), Robert L. Vining,
Jr., District Judge.
Before KRAVITCH and BIRCH, Circuit Judges, and GOODWIN*, Senior
Circuit Judge.
BIRCH, Circuit Judge:
This appeal focuses upon the preemption doctrine under the
Employee Retirement Income Security Act of 1974 ("ERISA"). 29
U.S.C. §§ 1001-1461 (1985). The district court found that
Morstein's state law claims related to the employee benefit plan
established by her employer and, therefore, those claims were
preempted by ERISA. We affirm the decision of the district court.
I. BACKGROUND
Plaintiff-appellant, Margery Morstein, is the president,
director, and sole shareholder of Graphic Promotions, Inc.
("Graphic"). At all times relevant to this appeal, Morstein was
also one of two employees of Graphic. In 1991, Morstein met with
Scott Hankins, an insurance broker and employee of the Shaw Agency,
for the purpose of obtaining a replacement policy of major medical
*
Honorable Alfred T. Goodwin, Senior U.S. Circuit Judge for
the Ninth Circuit, sitting by designation.
insurance for herself and Graphic's other employee. The policy was
to be administered by National Insurance Services, Inc.
("National") and underwritten by Pan-American Life Insurance
Company.1 Morstein alleges that during her meeting with Hankins,
she advised him that any policy of major medical insurance that
would replace her current policy would be unacceptable if it
excluded from coverage medical treatment related to any preexisting
medical condition. Morstein asserts that Hankins assured her that
the policy that he proposed would provide the same coverage for
preexisting conditions as her current policy. The policy offered
by Hankins was issued to Graphic, and Graphic paid the initial
premium.
Over one year after the policy was issued, Morstein had
surgery involving a total hip replacement. When she submitted a
claim for payment for this procedure, National refused payment
because it asserted that Morstein's surgery involved a preexisting
condition, which she failed to disclose during the application
process. National then rescinded the policy and refunded the
premium payments to Graphic that were made on behalf of Morstein.
Because she claims that Hankins and the Shaw Agency fraudulently
induced her to purchase a policy of major medical insurance,
Morstein allowed a separate full-coverage insurance policy to
lapse. In doing so, she further alleges that Hankins and the Shaw
Agency were negligent in processing her application for insurance
and that she has state law claims against them for negligence and
1
Morstein voluntarily dismissed National Insurance Services
and Pan-American Life Insurance Company before the commencement
of this appeal, although defendants in the original action.
fraud.
Morstein filed an action in state court, alleging negligence,
malfeasance, misrepresentations, and breach of contract.
Defendants removed the action to federal court on the basis that
Morstein's claims constituted an ERISA action. The district court
denied Morstein's motion to remand and found that defendants were
entitled to summary judgment as to the state law claims against
them. The district court concluded that Morstein's claims "clearly
relate to the employee benefit plan established by Graphic
Promotions; therefore, those claims are preempted by ERISA." R2-
29-3. Morstein now appeals the district court's grant of summary
judgment. We review a grant of summary judgment de novo. Forbus
v. Sears Roebuck & Co., 30 F.3d 1402, 1404 (11th Cir.1994) (citing
RJR Nabisco, Inc. v. United States, 955 F.2d 1457, 1459 (11th
Cir.1992)), cert. denied, --- U.S. ----, 115 S. Ct. 906, 130 L. Ed. 2d
788 (1995).
II. DISCUSSION
Morstein alleges that the district court erred in applying
the preemption doctrine under ERISA to bar her state law claims.
Section 1144(a) of ERISA provides that its provisions "shall
supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan described in section
1003(a)...." 29 U.S.C. § 1144(a) (1985) (emphasis added). A state
law "relates to" an employee benefit plan if the law "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, 2900, 77 L. Ed. 2d 490 (1983)). The Supreme
Court has endorsed a broad interpretation of the phrase "relate to"
that extends to preempt certain state law tort and contract actions
brought by employees. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41,
47-48, 107 S. Ct. 1549, 1553, 95 L. Ed. 2d 39 (1987). The Supreme
Court does acknowledge some limits to ERISA preemption: "[s]ome
state actions may affect employee benefit plans in too tenuous,
remote, or peripheral a manner to warrant a finding that the law
"relates to' the plan." Shaw, 463 U.S. at 100 n. 21, 103 S. Ct. at
2901 n. 21 (citation omitted).
In determining whether Morstein's state law claims against
Hankins and the Shaw Agency are related to Graphic's employee
benefit plan, we must examine our circuit precedent in this area.
The facts of the case before us are analogous to those in Farlow v.
Union Cent. Life Ins. Co., 874 F.2d 791 (11th Cir.1989). In
Farlow, plaintiff was a shareholder, president, and member of the
board of directors of Pace-Plus, Inc. Farlow and his wife were
designated beneficiaries under Pace-Plus's employee benefit plan.
The Farlows alleged that an insurance agent induced them to
purchase a new group health life insurance plan, and that the
insurance agent fraudulently misrepresented that, among other
things, the new policy would provide the same coverage as the
company's old policy. Id. at 792. After switching to the new
policy, Farlow's wife became pregnant. The Farlows then discovered
that, unlike Pace-Plus's old policy, the new policy did not provide
maternity or pregnancy coverage. Id.
Our court found the conduct alleged by the Farlows to be
"intertwined" with the refusal to pay benefits:
[T]he conduct alleged in these claims is not only
contemporaneous with [the insurer's] refusal to pay benefits,
but the alleged conduct is intertwined with the refusal to pay
benefits. Finding the Farlows' state law claims not wholly
remote in content from the [insurer] plan, we reject the
Farlows' contention that simply because their claims invoke
misconduct in the sale and implementation of the [insurer's]
plan, their claims do not relate to the plan.
Consequently, we hold that ERISA preempts the Farlows'
misrepresentation and negligence claims.
Farlow, 874 F.2d at 794.2 The facts in the case before us are
quite similar to those in Farlow. As in Farlow, Morstein claims
the insurance agent made a fraudulent misrepresentation regarding
the coverage provided by the new policy. Like Farlow, Morstein
claims that her state law causes of action are not preempted by
ERISA because they are not related to the plan. We are bound by
the precedent set by this court in Farlow and other cases in this
circuit and hold that Morstein's state law claims are preempted by
ERISA.3
2
Our recent holding in Variety Children's Hosp. v. Century
Medical Health Plan, Inc., 57 F.3d 1040, 1042 (11th Cir.1995),
reiterated that state law fraud claims can be intertwined with
benefit plans:
We agree with the Fifth Circuit's analysis in
Hermann Hosp. v. MEBA Medical and Benefits Plan, 959
F.2d 569, 578 (5th Cir.1992), that where state law
claims of fraud and misrepresentation are based upon
the failure of a covered plan to pay benefits, the
state law claims have a nexus with the ERISA plan and
its benefits system. Therefore, Counts II and III were
correctly dismissed as preempted.
3
The writer continues to be concerned about the law of this
circuit by which this panel is bound. This case presents yet
another example of an employee left without a remedy because of
ERISA's broad preemption. See Sanson v. General Motors, 966 F.2d
618, 623 (11th Cir.1992) (Birch, J., dissenting), cert. denied, -
-- U.S. ----, 113 S. Ct. 1578, 123 L. Ed. 2d 146 (1993). I continue
to express my regret that the reach of ERISA preemption too often
Morstein attempts to distinguish Farlow by arguing that,
unlike the insurance agent in that case, Hankins was acting as
Morstein's agent, not the agent of the Shaw Agency. Thus, she
argues that, "[i]t defies credibility to suggest that an agent of
a plan beneficiary, whose duties effectively terminate upon the
establishment of a "plan,' is insulated by ERISA from liability
undermines the stated purpose of the Act: to protect employees
and beneficiaries of employee benefit plans. 29 U.S.C. § 1001
(1985). This is an issue that I hope will be revisited by our
circuit soon.
I note that some district courts in our circuit have
attempted to distinguish Farlow and provide a remedy for the
plaintiffs before them. See Wiesenberg v. Paul Revere Life
Ins. Co., 887 F. Supp. 1529, 1532-33 (S.D.Fla.1995); Barnet
v. Wainman, 830 F. Supp. 610, 613 (S.D.Fla.1993); Martin v.
Pate, 749 F. Supp. 242, 246-47 (S.D.Ala.1990), aff'd sub. nom
Martin v. Continental Investors, 934 F.2d 1265 (11th
Cir.1991). Other circuits have found ways to stay the
preemption tide in cases similar to the one before us. See
Perkins v. Time Ins. Co., 898 F.2d 470, 473 (5th Cir.1990)
(concluding that "a claim that an insurance agent
fraudulently induced an insured to surrender coverage under
an existing policy, to participate in an ERISA plan which
did not provide the promised coverage, "relates to' that
plan only indirectly" and "does not affect the relations
among the ERISA entities" and thus is not preempted by
ERISA); Perry v. P*I*E Nationwide, Inc., 872 F.2d 157, 162
(6th Cir.1989) (reasoning that preemption applies "to a
state law claim only if Congress has provided a remedy for
the wrong or wrongs asserted"), cert. denied, 493 U.S. 1093,
110 S. Ct. 1166, 107 L. Ed. 2d 1068 (1990).
We acknowledge that our circuit has placed some limits
on the preemption doctrine when there is no nexus between
the state law claim and an ERISA covered plan. Clark v.
Coats & Clark, Inc., 865 F.2d 1237, 1244 (11th Cir.1989).
We also recently held that ERISA preemption does not bar a
state law claim of negligent misrepresentation brought by a
health care provider against an insurer. Lordmann
Enterprises, Inc. v. Equicor, Inc., 32 F.3d 1529, 1534 (11th
Cir.1994) (reasoning that there is no preemption because
"ERISA does not provide a cause of action for aggrieved
health care providers that treat ERISA participants"), cert.
denied, --- U.S. ----, 116 S. Ct. 335, 133 L. Ed. 2d 234
(1995).
resulting from his malfeasance in performing duties for the benefit
of the beneficiary." Appellant's Brief at 9. We do not find that
the relationship between Hankins and Morstein differs from the
relationship between the insurance agent and the plaintiff in
Farlow.4
Bound together with Morstein's agency argument is her
contention that Hankins and the Shaw Agency are not each a "party
in interest" and therefore are not governed by ERISA. 29 U.S.C. §
1002(14) (Supp.1995). While intriguing, this argument does not
hold any weight under the facts before us. In Farlow we looked not
to the relationship between the parties but to the relationship
between the alleged conduct and the refusal to pay benefits. If
the actions of a party, regardless of his "interest" in the plan,
are intertwined with the refusal to pay benefits, then the action
is related to the plan, and thus, it is preempted.
Morstein also argues that Forbus, supports her argument that
her state law claims are not preempted. Forbus, however, is
distinguishable from this case. In Forbus, we found no preemption
because the plaintiffs' claims centered on alleged fraud by Sears
concerning the elimination of plaintiffs' jobs, not fraud relating
to the amount or availability of pension benefits to the
plaintiffs. Forbus, 30 F.3d at 1406. Here, Morstein's fraud
4
We note that this circuit has held that ERISA preemption
extends to claims against an insurance agency or broker, such as
the Shaw Agency, as well as an insurance company that issues the
policy. Belasco v. W.K.P. Wilson & Sons, Inc., 833 F.2d 277, 281
(11th Cir.1987) (claims by parents who where beneficiaries of an
insurance program provided by their employers, for medical and
surgical benefits and for bad faith and fraud by the insurer were
"related to" the employee benefit plan and therefore preempted by
ERISA).
allegations related to the availability of benefits for a
preexisting medical condition.
III. CONCLUSION
Morstein challenges the district court's conclusion that her
state law claims against Hankins and the Shaw Agency are preempted
by ERISA. We conclude that we are bound by the precedent
established by this circuit in Farlow and its progeny.
Accordingly, the district court's grant of summary judgement is
AFFIRMED.
GOODWIN, Circuit Judge, Specially Concurring:
The application of ERISA preemption in removed cases arising
out of insurance twisting, common law fraud in the inducement, or
other illegal selling practices is not consistent in this circuit,
or between circuits. I concur only becauseFarlow v. Union Central
Life Ins. Co., 874 F.2d 791 (11th Cir.1989) appears to bind this
court to a rule that need not be cast in concrete, if it is wrong.
In Farlow, the plaintiffs alleged that the defendant insurance
agent wrongfully induced them to switch to a new insurance policy
by false representations that the new policy he was selling would
provide the same coverage as the old policy being replaced. The
new policy did not, however, provide pregnancy and maternity
coverage, which Mrs. Farlow learned to her dismay after she became
pregnant. The Eleventh Circuit held that ERISA preempted the
Farlows' claims:
[A] state law cause of action "relates to" an employee
benefit plan if the employer's conduct giving rise to such
claim was not "wholly remote in content" from the benefit
plan....
The Farlows' complaint alleges that [the insurance agent]
negligently failed to disclose that the Union Central plan did
not provide maternity and pregnancy coverage and fraudulently
misrepresented that the Union Central plan's coverage was
coextensive with [the] former plan's coverage. [The] conduct
alleged in these claims is not only contemporaneous with Union
Central's failure to pay benefits, but the alleged conduct is
intertwined with the refusal to pay benefits. Finding the
Farlows' state law claims not wholly remote in content from
the Union Central plan, we reject the Farlows' contention that
simply because their claims involve misconduct in the sale and
implementation of the Union Central plan, their claims do not
relate to the plan.
874 F.2d at 794.
The Fifth Circuit, a year later, announced a different rule.
Perkins v. Time Ins. Co., 898 F.2d 470 (5th Cir.1990). In Perkins,
as in Farlow, the plaintiff alleged that he was fraudulently
induced by the defendant insurance agent into surrendering coverage
under an existing policy in order to participate in an ERISA plan
that did not provide as broad coverage as the old. The insurance
agent told the plaintiff that his daughter's eye conditions, which
required surgery, would be covered under the new policy rather than
excluded as a preexisting condition. That representation was
false, and when the plaintiff's claim for benefits for his
daughter's eye surgery was denied, he sued the agent for fraud.
The Fifth Circuit held that ERISA did not preempt the claim:
Giving the ERISA "relates to" preemption standard its
common-sense meaning, we conclude that a claim that an
insurance agent fraudulently induced an insured to surrender
coverage under an existing policy, to participate in an ERISA
plan which did not provide the promised coverage, "relates to"
that plan only indirectly. A state law claim of that genre,
which does not affect the relations among the principal ERISA
entities (the employer, the plan fiduciaries, the plan, and
the beneficiaries) as such, is not preempted by ERISA.
Farlow, 898 F.2d at 473 (citations omitted).
The obvious tension between the Eleventh Circuit's holding in
Farlow and the Fifth Circuit's holding in Perkins has affected the
district courts. See, Martin v. Pate, 749 F. Supp. 242
(S.D.Ala.1990), aff'd without op. sub nom. Martin v. Continental
Investors, 934 F.2d 1265 (11th Cir.1991). There, a district judge,
after reading Perkins, gave Farlow a narrow interpretation and
found no ERISA preemption in a fraud in the inducement case "quite
similar" to Farlow. Martin, 749 F. Supp. at 246. As noted, we
affirmed, but without opinion, creating a covert intra-circuit
conflict in our own doctrine.
In Martin, the plaintiff sued an insurance agent for fraud in
the inducement, alleging that the agent knew or should have known
of the plaintiff's preexisting heart condition, and that despite
such knowledge the agent represented that the new insurance policy
would cover the condition. The insurance company refused to pay
benefits because of plaintiff's failure to disclose the condition.
Noting with approval the Fifth Circuit's decision in Perkins,
the district court reasoned that application of state fraud law
would not result in regulation of an ERISA plan: "What will be
regulated is conduct on the part of defendants, engaged in prior to
the time plaintiff became a beneficiary under the plan, i.e.,
representations made to induce plaintiff to enroll under the plan."
Id. The district court admitted that it was "cognizant" of
Farlow,
then proceeded to criticize Farlow for relying on a case that was
not, in the district court's opinion, authority for finding
preemption in fraud in the inducement cases. Id. at 247.
As a visiting judge from still a third circuit, one is
diffident about characterizing the conflict between Farlow and
Martin as a hazard to navigation for the district courts of this
circuit. But compare Beal v. Jefferson-Pilot Life Insurance
Company, 798 F. Supp. 673 (S.D.Ala.1992) with Barnet v. Wainman, 830
F. Supp. 610 (S.D.Fla.1993).
In Beal, the plaintiff exercised a retirement option to
convert his ERISA group employee benefit plan to an individual
policy. The ERISA group plan contained language to the effect that
coverage would be similar after conversion to the individual
policy. The plaintiff suffered a heart attack, and learned to his
financial chagrin that many medical expenses were not covered by
his new policy. In his lawsuit, the plaintiff claimed that he had
been fraudulently induced to purchase the new policy, and that, but
for the fraud, he would have recovered benefits under the old
policy. Holding the plaintiff's claim preempted by ERISA, the
district court followed Farlow and distinguished Martin.
In Barnet, the plaintiff alleged that an insurance agent
fraudulently and negligently advised him that his failure to reveal
certain preexisting medical conditions on an application for a
health insurance policy would not affect his coverage under the
policy. When he applied for benefits, his application was
disallowed and his insurance rescinded on account of his failure to
disclose his preexisting condition. Holding that the plaintiff's
claim was not preempted by ERISA, the district court distinguished
Farlow and followed Martin.
Given the demonstrated difficulty faced by the district
courts, and the real possibility that Perkins is more consistent
than Farlow with federalism, state anti-twisting statutes, and the
intent to benefit workers which underlies the ERISA scheme, it may
be timely and appropriate to suggest an en banc review of the
preemption matter. There is no apparent sign that ERISA filings
are declining in the district courts, and it is not impertinent to
suggest that clear direction from the Circuit is in order.