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Estate of Foster v. American Marine SVS Group Benefit Plan

United States District Court, D. Montana, Missoula Division

November 6, 2018

ESTATE OF KIRK ANTHONY FOSTER, through KELLY M. FOSTER, Personal Representative for the Estate of Kirk Anthony Foster, and KELLY M. FOSTER, as an individual, Plaintiffs,


          Dana L. Christensen, Chief Judge, United States District Court.

         Before the Court is American Marine SVS Group Benefit Plan and American Marine Corporation's ("American Marine") Motion to Dismiss (Doc. 8), and Defendant United of Omaha Life Insurance Company's ("United") Motion to Dismiss (Doc. 11). The Estate of Kirk Anthony Foster and Kelly M. Foster ("Mr. Foster" and "Ms. Foster," together "Plaintiffs") bring this action pursuant to 29 U.S.C. § 1132(a), the Employee Retirement Income Security Program's ("ERISA") civil enforcement provision and 28 U.S.C. § 1331. Plaintiffs allege that Defendants wrongfully denied Ms. Foster life insurance benefits owed to her as Mr. Foster's named beneficiary. For the reasons explained below, the Court denies American Marine's Motion (Doc. 8) and grants in part and denies in part United's Motion (Doc. 11).


         Ms. Foster and the estate of Mr. Foster claim that United wrongfully denied payment under Mr. Foster's life insurance policy after his death in June of 2016. Mr. Foster was an employee of American Marine and was enrolled in a group benefits plan with United. (Doc. 4 at 3-4.) The Plan provided Mr. Foster with both long term disability and life insurance. (Id. at 4.) On February 1, 2016, Mr. Foster became permanently disabled from esophageal cancer. (Id. at 5.) United paid the long term disability policy in full on February 15, 2016. Mr. Foster died at the end of June and United subsequently denied to pay Ms. Foster's claim. (Id. at 2, 13-14.)

         United contends that it denied Ms. Foster's claim because American Marine terminated Mr. Foster's coverage and ceased paying premiums as of May 1st. (Doc. 12 at 8.) In early July, American Marine produced a document it claims to have sent Mr. Foster on April 19, 2016, explaining Mr. Foster's option to convert his group coverage into an individual life insurance policy and an application for doing so. Plaintiffs maintain that Mr. Foster never received any word that his employment had been terminated or that his life insurance policy would soon expire. (Doc. 4 at 7.) Nor did Mr. Foster receive a copy of American Marine's April 26th notification sent to United, terminating Mr. Foster's coverage. (Doc. 4 at 8.)

         Nevertheless, United charged and received a premium payment for Mr. Foster's life insurance on May 1st. (Doc. 4 at 8.) Plaintiffs claim that through the month of June, United recognized Mr. Foster as a participant in the Plan, but sometime in June credited back payment to American Marine and recorded a "retroactive change to 05/01/2016." (Doc. 4 at 9.) United claims it is "standard procedure" whenever it receives notice of cancellation late in the billing cycle to charge the policyholder as planned and then "credit back" any surplus payment. (Doc. 12 at 10.) Plaintiffs claim that American Marine unilaterally terminated his life insurance coverage without explanation or notification, failed to inform Mr. Foster of his right to convert his group policy into an individual policy, and that United recognized his status as a plan participant throughout the month of June. For these reasons, Plaintiffs argue that United wrongfully denied payment of Ms. Foster's claim.

         Legal Standard

         Rule 12(b)(6) motions test the legal sufficiency of a pleading. Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8 "does not require detailed factual allegations, but it demands more than an unadorned, the-defendant-unlawrully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations and quotations omitted). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when the court can draw a "reasonable inference" from the facts alleged that the defendant is liable for the misconduct alleged. Id. On a Rule 12(b)(6) motion to dismiss, the court must accept all factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party. Kneivel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).

         Legal conclusions, on the other hand, are not entitled to the same presumption of truth. Dismissal is proper where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990); Graehling v. Village of Lombard, III, 58 F.3d 295, 297 (7th Cir. 1995).

         When ruling on a motion to dismiss, a court generally cannot consider material outside the complaint. Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). Nevertheless, a court may consider exhibits submitted along with the complaint where the exhibits are: (1) specifically referred to in the complaint; (2) central to the plaintiffs claim; and (3) no party questions the authenticity of the attached documents. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). This rule is designed to prevent plaintiffs from "deliberately omitting reference to documents upon which their claims are based." Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998).


         Plaintiffs' Amended Complaint raises five claims. The first three allege that Defendants failed to provide a benefit under the plan. (Doc. 4 at 11-17.) Count V[1] arises under a Hawaii statute that regulates notice of a conversion right, and Count VI alleges a breach of fiduciary duty. American Marine moves to dismiss claims five and six, arguing that these claims arise under Hawaii law and are therefore preempted by ERISA. (Doc. 9 at 8.) United moves to dismiss all claims, arguing that claims one through three are contrary to the clear terms of the policy and the latter two are preempted by ERISA. As explained more fully below, the Court will dismiss claims one and two, and will dismiss claim six as it applies to United. The Court will discuss each count separately.

         I. Count I: Failure to Provide a Plan Benefit-Waiver

         Plaintiffs argue that Mr. Foster's life insurance policy should not have been terminated, because he was entitled to a continuation of his life insurance benefits due to his total disability, and that any nonpayment from American Marine is irrelevant because he was entitled to the premium waiver. (Doc. 4 at 12-13.) United argues that this claim should be dismissed because Mr. Foster did not qualify for the premium waiver because he did not complete the nine-month disability elimination period, and because American Marine's nonpayment terminated his coverage. (Doc. 20 at 3.) The Court agrees.

         The premium waiver is a benefit conditioned upon four predicate requirements, one of which is the completion of a nine-month disability elimination period.[2] (Doc. 1-1 at 13.) A plan participant gains the benefit of ongoing coverage during the disability elimination period, "[s]ubject to continued payment of premium." (Id. at 14.) Elsewhere, the policy explains that coverage terminates "the day any premium contribution for Your insurance is due and unpaid." (Id. at 13.)

         Even though the parties dispute whether Mr. Foster was covered for the month of May, the parties agree that American Marine did not pay a premium on Mr. Foster's behalf for the month of June. Construing the facts in the light most favorable to Mr. Foster, this indicates that his policy lapsed on June 1st at the latest. According to the terms of the policy, at the time of Mr. Foster's death he was not entitled to a premium waiver, was no longer within his "disability elimination period," and no longer held a valid insurance policy, regardless of whether United recognized him as a plan participant elsewhere in its record keeping. Therefore, Plaintiffs' claim that United denied Mr. Foster a benefit is inapposite.

         Plaintiffs make two additional arguments-neither of which is persuasive. Plaintiffs argue first that United's allegations that Mr. Foster did not have coverage because American Marine stopped paying Mr. Foster's premium does not preclude Mr. Foster from coverage, rather, it gives rise to a crossclaim between Defendants. This argument is foreclosed by the terms of the Plan. (See Doc. 1-1 at 13.) Plaintiffs argue next that United had a fiduciary duty to interpret the waiver clause in Mr. Foster's best interests. United responds that its fiduciary duties impose only an obligation to act "in accordance with the documents and instruments governing the plan." (Doc. 20 at 3 (quoting 29 U.S.C. § 1104).) The Court agrees. The terms of the plan are clear: when American Marine failed to make a June payment, Mr. Foster's coverage lapsed. Accordingly, the Court will dismiss this claim.

         II. Count II: Failure to Provide a Plan Benefit-Grace Period

         Plaintiffs argue that United wrongfully denied Ms. Foster's claim in June because the policy provides a 31-day grace period in the event of nonpayment. (Doc. 4 at 14-15.) United argues that the grace period is inapplicable to individual plan participants because plan participants are under no obligation to pay premiums. (Doc. 12 at 16.) The Court agrees.

         The summary plan description ("SPD") contains no "grace period" provisions. (See Doc. 1-1.) The SPD otherwise explains the rights and obligations of the insurer, the policyholder, and the plan participant. (See, e.g., Doc. 1-1 at 13.) The SPD also contains no information about how and when payments shall be made. (See Doc. 1-1.) However, the Group Policy that exists between United and American Marine does contain terms concerning payment of premiums and contains a clause that offers a grace period in event of nonpayment for the policy as a whole. (See Doc. 12-1 at 2-3.) The Policy also provides that payments are made on behalf of individual plan participants by American Marine as a single monthly payment. (Id.) Therefore, United's reading of the policy is correct. Because Mr. Foster had no individual obligation to make a payment on his policy to keep it active-only American Marine had this ...

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