Miller v. Monumental Life Ins. Co.

502 F.3d 1245

Rodney MILLER, Plaintiff-Appellant, v. MONUMENTAL LIFE INSURANCE COMPANY and NASRA TPA, Inc. and its successor, HCC Administrators Inc. and/or Gallagher Bassett Services, Inc., Defendants-Appellees.

No. 05-2247.

United States Court of Appeals, Tenth Circuit.

September 25, 2007.

James Rawley, Albuquerque, NM, for Plaintiff-Appellant.

Bernie E. Hauder, Adkerson, Hauder & Bezney, Dallas, TX (Bruce S. McDonald and Lucinda Siembieda, Law Offices of Bruce S. McDonald, Albuquerque, NM, with him on the briefs), for Defendants-Appellees.

Before HENRY, McWILLIAMS, and TYMKOVICH, Circuit Judges.

HENRY, Circuit Judge.

Rodney Miller filed suit in the United States District Court for the District of New Mexico challenging Monumental Life Insurance's (Monumental's) denial of a request for long-term disability benefits. The district court granted summary judgment for Monumental. Because the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461, governs the terms of Monumental's master-group insurance policy, the district court's jurisdiction arose under 28 U.S.C. § 1331. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reverse and remand.

I. BACKGROUND

In September of 1997, Rodney Miller was injured in an automobile accident while working for Aycock Transportation, a Texas corporation. After receiving 24 months of Temporary Disability benefits from Monumental, Aycock's provider of a master-group policy (the Plan), Mr. Miller applied for the Plan's Continuous Total Disability Benefit (Continuous Benefit), a long-term disability payment. In order to qualify for the Continuous Benefit, an applicant must be "Totally Disabled," which the Plan defines as "unable to perform every duty pertaining to any occupation for which he is or may become qualified by education." Aplt's App. at 37 (Monumental's Master Policy, effectuated June 10, 1996). The Plan also requires applicants to present proof of a Social Security Disability Award, which the Plan defines as "Social Security disability benefits for which the Insured Person has submitted a claim and [has] been approved for payment by the Social Security Administration." Id.

Mr. Miller applied for disability benefits under Title II and Title XVI of the Social Security Act, 42 U.S.C. § 401 et. seq. Although the Social Security Administration (SSA) administers both programs, the Supreme Court has outlined their distinctions: "Title II is an insurance program. Enacted in 1935, it provides old-age, survivor and disability benefits to insured individuals irrespective of financial need. Title XVI is a welfare program. Enacted in 1972, it provides [Social Security Insurance] benefits to financially needy individuals who are blind, or disabled regardless of their insured status." Bowen v. Galbreath, 485 U.S. 74, 75, 108 S.Ct. 892, 99 L.Ed.2d 68 (1988) (citation omitted).

The SSA denied Mr. Miller's claim for Title II disability insurance benefits because he had failed to accrue "sufficient quarters of coverage¹ to confer disability insured status." Aplt's App. at 93 (Social Security Administration Office of Hearings and Appeals Decision, filed August 28, 2003) (Title II Decision). Nevertheless, the SSA granted Mr. Miller's claim for Title XVI supplemental social security income benefits because the administrative law judge (ALJ) determined that he met the regulatory standard for physical disability and had basically no income. Mr. Miller sent Monumental notice of the SSA's Title XVI Decision, but Monumental denied payment on the grounds that it was not a Social Security Disability Award. Mr. Miller brought suit challenging Monumental's conclusion.

Because Monumental had not retained authority to interpret the Plan, the district court reviewed Monumental's denial of coverage de novo. Reasoning that "there is little difference between New Mexico law and Texas law," Miller v. Monumental Life Ins. Co., 376 F.Supp.2d 1238, 1248 (D.N.M.2005), the district court applied New Mexico law to interpret the term Social Security Disability Award. The court granted Monumental's motion for summary judgment on the theory that the Plan unambiguously provided that a Title XVI award was not a Social Security Disability Award. More specifically, the district court found that the "phrase [Social Security Disability Award] has a technical meaning that does not include [Social Security Income] payments" and refused to "go beyond the technical meaning of Social Security Disability Award." Id. at 1250. The court emphasized "that the language in each of these places means what Monumental meant it to say when it wrote [the] definition." Id. This appeal followed.

II. DISCUSSION

We begin by holding that the district court erred in interpreting the Plan according to New Mexico law because ERISA pre-empts state rules of insurance contract interpretation. See Blair v. Metro. Life Ins. Co., 974 F.2d 1219, 1221-22 (10th Cir.1992) (applying federal common law to interpret an ERISA plan). Then, applying federal common law, we determine that the proper inquiry is not what Monumental intended a term to signify; rather, we consider the "common and ordinary meaning as a reasonable person in the position of the [plan] participant . . . would have understood the words to mean." Admin. Comm. of Wal-Mart Assocs. Health & Welfare Plan v. Willard, 393 F.3d 1119, 1123 (10th Cir.2004) (internal quotation marks omitted). Employing this standard, we hold that the Plan is ambiguous because a reasonable plan participant could easily conclude that a Title XVI award coupled with a finding of physical disability would constitute a Social Security Disability Award for the purposes of the Continuous Benefit. We then apply the doctrine of contra proferentem, which strictly construes ambiguities in insurance contracts against the drafter.

A. ERISA PRE-EMPTION

We review de novo the question of what law governs our interpretation of the Plan. Mowry v. United Parcel Serv., 415 F.3d 1149, 1152 (10th Cir.2005). Although the district court applied New Mexico law to interpret the Plan, the parties do not dispute that federal law governs our determination of whether the Plan is ambiguous. We agree.

Congress enacted ERISA to ensure national uniformity in fiduciary standards for the administration of employee benefit plans. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 104, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). To that end, it included a broad provision that "pre-empts all state laws insofar as they may now or hereafter relate to any employee benefit plan." Ky. Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 333, 123 S.Ct. 1471, 155 L.Ed.2d 468 (2003) (internal quotation marks omitted). Nevertheless, even under this expansive preemption scheme, "state `law[s] . . . which regulat[e] insurance' . . . are saved from pre-emption." Id. (quoting 29 U.S.C. § 1144(b)(2)(A)). In Miller, the Supreme Court held that "for a state law to be deemed a `law . . . which regulates insurance' under § 1144(b)(2)(A), it must satisfy two requirements. First, it must be specifically directed toward entities engaged in insurance. Second . . . the state law must substantially affect the risk pooling arrangement between the insurer and the insured." Id. at 341-42, 123 S.Ct. 1471.

Like the Seventh Circuit, "[w]e cannot imagine any rational basis for the proposition that state rules of contract interpretation `regulate insurance' within the meaning of § 1144(b)(2)." Hammond v. Fid. & Guar. Life Ins. Co., 965 F.2d 428, 430 (7th Cir.1992). In the context of the saving clause, the Miller Court described an insurance regulation as a law that placed "conditions on the right to engage in the business of insurance." 538 U.S. at 338, 123 S.Ct. 1471. Rules of contract interpretation "force the insurer to bear the legal risks associated with unclear policy language." Hammond, 965 F.2d at 430. Shifting legal risk is, however, "a far cry from . . . transferring or spreading a policyholder's risk." Id. (internal quotation marks omitted). Thus, the rules of contract interpretation at issue do not satisfy the first prong of the Miller inquiry.

Our decision to apply federal common law is consistent with our precedent, and that of the vast majority of other circuits. See Blair, 974 F.2d at 1222 ("MetLife urges us to apply federal common law, governed by principles of trust law. We do so.") (internal citation omitted); see also Thibodeaux v. Cont'l Cas. Ins. Co., 138 F.3d 593, 596 (5th Cir.1998); Hammond, 965 F.2d at 430; Brewer v. Lincoln Nat'l Life Ins. Co., 921 F.2d 150, 153 (8th Cir.1990); Evans v. Safeco Life Ins. Co., 916 F.2d 1437, 1440-41 (9th Cir.1990); McMahan v. New England Mut. Life Ins. Co., 888 F.2d 426, 429-30 (6th Cir.1989); Sampson v. Mut. Benefit Life Ins. Co., 863 F.2d 108, 110 (1 st Cir.1988).

B. AMBIGUITY

Having determined that state law is pre-empted, we now assess whether the plan is ambiguous.

1. Standard of Review

In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the Supreme Court observed that ERISA imposes upon providers a fiduciary duty similar to the one trustees owe trust beneficiaries. Id. at 110, 109 S.Ct. 948 ("ERISA's legislative history confirms that the Act's fiduciary responsibility provisions . . . codify and make applicable to ERISA fiduciaries certain principles developed in the evolution of the law of trusts.") (internal quotation marks omitted). Just as a trustee must conduct his dealings with a beneficiary with the utmost degree of honesty and transparency, an ERISA provider is required to clearly delineate the scope of its obligations.

This fiduciary duty also enables ERISA providers to retain the authority to interpret ambiguous provisions in a plan. When an ERISA provider retains this authority in explicit terms, we employ a deferential standard of review. Id. at 111, 109 S.Ct. 948 (noting that "[t]rust principles make a deferential standard of...