Davies v. Centennial Life Ins. Co.

Page 934

128 F.3d 934

21 Employee Benefits Cas. 1969

Janet B. DAVIES; Donald Davies, Plaintiffs-Appellees, v. CENTENNIAL LIFE INSURANCE COMPANY, and Dun & Bradstreet Plan Services, Inc., Defendants-Appellants Jerome J. Siegel, D.D.S., Third-Party Defendant.

No. 95-4121.

United States Court of Appeals Sixth Circuit.

Argued Nov. 15, 1996.

Decided Oct. 16, 1997.

Renisa A. Dorner (argued and briefed), Ryan, Wise, Miller & Dorner, Toledo, OH, for Appellant.

William H. Blessing (argued and briefed), Cincinnati, OH, for Appellee.

Before: KENNEDY and BATCHELDER, Circuit Judges; EDGAR, District Judge. ^*

OPINION

BATCHELDER, Circuit Judge.

Defendants Centennial Life Insurance Co. and Dun & Bradstreet Plan Services, Inc. appeal the dismissal of their state law counterclaim for rescission of plaintiff Janet Davies's employer-provided health insurance policy. Defendants also appeal the judgment in favor of plaintiffs Janet and Donald Davies on plaintiffs' ERISA claim for withheld health-care benefits. For the following reasons, we AFFIRM in part, REVERSE in part, and REMAND this action to the district court for further proceedings.

I. FACTS

In late 1991, Dr. Jerome Siegel, D.D.S., hired plaintiff Donald Davies. As part of his employee benefits package, Donald was entitled to participate in Siegel's group health policy, which provided comprehensive medical benefits to a covered employee, his spouse, and other dependents. Defendant Centennial Life Insurance Company issued the medical insurance under Siegel's policy.

Donald and his wife, Janet, prepared and submitted an application for health insurance with Centennial. The application contains a variety of health history questions because Centennial does not require applicants to undergo a physical examination. The policy clearly states that Centennial may rescind coverage if an applicant misrepresents or omits any information.

This appeal concerns the manner in which Janet Davies answered two health history questions. Centennial's application asks:

A. TO THE BEST OF YOUR KNOWLEDGE, HAVE YOU OR YOUR DEPENDENTS

LISTED ABOVE EVER BEEN OR ARE YOU/THEY CURRENTLY BEING TREATED FOR OR ADVISED THAT YOU/THEY HAD ANY DISORDER OF THE FOLLOWING? IF YES, CIRCLE APPROPRIATE CONDITION(S):

* * *

4. The circulatory system including heart or blood vessels, abnormal blood pressure, stroke, anemia?

Janet Davies answered "no" to this question. The application further inquires:

B. 2. During the past 5 years, have you or your dependents had medical consultation, been hospitalized or are you/they currently taking medication?

Because Janet answered this question in the affirmative, she was required to complete the following chart:

GIVE FULL DETAILS BELOW FOR EACH QUESTION

IN SECTION A OR B ABOVE WHICH IS

ANSWERED YES

(ATTACH A SEPARATE SHEET OF PAPER IF MORE SPACE IS NEEDED)

NOTE--Some parts of this form are wider than one screen. To view

material that exceeds the width of this screen, use the right arrow

key. To return to the original screen, use the left arrow key.

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In the "injury or illness" column Janet listed only her two prior childbirths. Centennial accepted plaintiffs' application, effective December 1, 1991.

In 1992, Janet Davies was hospitalized for a molar pregnancy. Donald Davies promptly advised Centennial of Janet's medical condition and submitted a claim for coverage. Defendant Dun & Bradstreet, Centennial's claim processor, ¹ acknowledged receiving the claim, but indicated that there would be a delay in processing because of a need to investigate Janet's health history.

The investigation revealed that Janet had a history of heart abnormalities. Janet's 1985 medical records indicate the existence of an abnormal cardiac murmur and a rare palpitation. She underwent an echocardiogram and was diagnosed with mitral valve prolapse. In 1986, Janet experienced "fleeting sharp chest pain" and underwent an electrocardiogram. The test indicated that Janet had a normal heart. Problems resumed in 1987, as Janet experienced episodes of hard palpitations, chest pain, and lightheadedness. She received at least two holter monitor tests and an electrocardiogram later that year. Subsequently, Dr. Alan M. Armstrong informed Janet that she suffered from mitral valve prolapse. Dr. Armstrong, however, told Janet that no follow-up care was necessary because she did not have a serious cardiac disorder. None of this information appeared in Janet's application for health insurance.

As a result of the investigation, Centennial rejected plaintiffs' claim and rescinded Janet's health insurance policy. Centennial explained that this decision was not based on Janet's molar pregnancy, but rather her health history and diagnoses of mitral valve prolapse. Plaintiffs appealed this decision, but to no avail. Centennial refused to reinstate Janet's coverage and pay her claim for benefits.

II. PROCEDURAL HISTORY

On April 3, 1994, plaintiffs filed a two-count complaint in the United States District Court for the Southern District of Ohio against Centennial and Dun & Bradstreet. Plaintiffs alleged that defendants violated § 502(a) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a), by rescinding Janet's group health policy and denying her claim for benefits. Plaintiffs further alleged that defendants breached their fiduciary duties under ERISA by acting in bad faith during the administrative appeal process. See 29 U.S.C. § 1109. They requested compensatory damages in the amount of medical expenses incurred as a result of the rescission and ERISA's statutory penalty as provided under 29 U.S.C. § 1132(c).

On August 30, 1994, defendants filed a counterclaim against Janet Davies and Dr. Jerome Siegel seeking rescission of Janet Davies's insurance policy pursuant to § 3923.14 of the Ohio Code, OHIO REV.CODE ANN. § 3923.14 (Anderson 1989).

Both parties moved for summary judgment. The district court denied these motions and the case proceeded to a bench trial in July 1995. On September 13, 1995, the district court dismissed defendants' counterclaim as preempted by ERISA. The court also dismissed plaintiffs' breach of fiduciary duty claim. The court, however, found in favor of plaintiffs on their § 502(a) claim and awarded $37,153.45 in damages. Defendants filed a timely notice of appeal.

III. DISCUSSION

We review for clear error the findings of fact made by the district court after a bench trial; the court's legal conclusions we review de novo. Boyer v. Douglas Components Corp., 986 F.2d 999, 1003 (6th Cir.1993).

A.

1.

Defendants seek to rescind Janet Davies's health insurance policy pursuant to § 3923.14 of the Ohio Code. That section states in relevant part:

The falsity of any statement in the application for any policy of sickness and accident insurance shall not bar the right to recovery thereunder, or be used in evidence at any trial to recover upon such policy, unless it is clearly proved that such false statement is willfully false, that it was fraudulently made, that it materially affects either the acceptance of the risk or the hazard assumed by the insurer, that it induced the insurer to issue the policy, and that but for such false statement the policy would not have been issued.

OHIO REV.CODE ANN. § 3923.14 (Anderson 1989). Defendants argue that Centennial would not have issued Janet Davies's health insurance policy if it had known her complete health history. Defendants assert that Centennial, pursuant to its underwriting guidelines, may not accept for coverage any applicant diagnosed with mitral valve prolapse, unless that applicant is asymptomatic and not taking medication. The district court never reached the merits of this argument, however, because the court held that ERISA preempts § 3923.14 and defendants' claim for rescission under that statute. Defendants appeal this ruling.

Whether ERISA preempts a particular state law is a question of law, which we review de novo. Crabbs v. Copperweld Tubing Prods. Co., 114 F.3d 85, 89 (6th Cir.1997).

Section 514(a) of ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. ² 29 U.S.C. § 1144(a). ERISA's preemption clause casts a wide net, California Div. of Labor Standards Enforcement v. Dillingham Constr N.A., Inc., --- U.S. ----, ----, 117 S.Ct. 832, 837, 136 L.Ed.2d 791 (1997); Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir.1991), and its terms are given their broad, common-sense meaning. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 1552-53, 95 L.Ed.2d 39 (1987). ERISA does not, however, preempt state laws that have " 'only a tenuous, remote, or peripheral connection with covered plans, as is the case with many...