Shields v. United of Omaha Life Ins. Co.

50 F.4th 236

Lorna SHIELDS, Plaintiff, Appellant,

v.UNITED OF OMAHA LIFE INSURANCE COMPANY, Defendant, Appellee.

No. 21-1290

United States Court of Appeals, First Circuit.

October 4, 2022

Trevor D. Savage, with whom Christopher C. Taintor and Norman, Hanson & DeTroy, LLC were on brief, for appellant.

Christine D. Han, Trial Attorney, with whom Seema Nanda, Solicitor of Labor, Jeffrey M. Hahn, Council for Litigation, and G. William Scott, Associate Solicitor for Plan Benefits Security, were on brief for Secretary of Labor, amicus curiae.

Brooks R. Magratten, with whom Cameron R. Goodwin and Pierce Atwood, LLP were on brief, for appellee.

Byrne J. Decker, with whom Mark E. Schmidtke was on brief, for American Council of Life Insurers, amicus curiae.

Before Barron, Chief Judge, Selya and Gelpí, Circuit Judges.

BARRON, Chief Judge.

In 2019, Lorna Shields, the beneficiary of the life insurance policy that her late husband, Myron Shields, acquired through his employer, Duramax Marine, LLC ("Duramax"), filed suit in the U.S. District Court for the District of Maine against United of Omaha Life Insurance Company ("United").¹ Her complaint sets forth one claim for recovery of plan benefits under 29 U.S.C. § 1132(a)(1)(B) of the Employee Retirement and Investment Security Act ("ERISA") and one claim for breach of fiduciary duty under 29 U.S.C. § 1132(a)(3) of that same statute. The District Court granted summary judgment for United on both claims and denied Lorna's motion for summary judgment on those same claims. She now appeals.

We affirm the District Court's summary judgment rulings with respect to the recovery-of-plan-benefits claim. But, as to the breach-of-fiduciary-duty claim, we vacate the District Court's denial of Lorna's motion for summary judgment as well as its grant of United's motion for summary judgment and remand for further proceedings.

I.

Myron began working for Duramax in 2008. Duramax's active, salaried employees were eligible to enroll in the "basic" life insurance policy that Duramax offered and United underwrote.

The basic policy provided coverage equal to twice the employee's annual earnings, not to exceed $300,000. Employees did not need to establish that they were in good health to be eligible for this type of coverage.

Active, salaried employees of Duramax who wanted life insurance coverage beyond the basic policy also could enroll in the Group Voluntary Term Life Insurance Policy ("voluntary life insurance policy"), which was underwritten by United as well. An employee who enrolled in the voluntary life insurance policy could elect coverage equal to one, two, or three times the employee's basic annual salary, not to exceed $200,000.

The voluntary life insurance policy is an "employee welfare benefit plan" under ERISA. 29 U.S.C. § 1002(1). Under ERISA, an employee welfare benefit plan is governed by a "written instrument" that describes "the allocation of responsibilities [between the employer and the insurer] for the operation and administration of the plan." Id. § 1102(a),(b). The terms of the voluntary life insurance policy, including the allocation of responsibilities between Duramax and United, were laid out in the Certificate of Insurance that was provided to Duramax employees.² We will refer to the Certificate of Insurance as "the Plan."

Under the Plan, a Duramax employee enrolled in the voluntary life insurance policy is automatically guaranteed coverage up to $100,000 ("guaranteed issue"). To receive coverage in excess of the guaranteed issue ("excess coverage"), the employee must provide a "statement of physical condition or other evidence of good health" that is "acceptable" to United ("good health requirement").³ United provided Duramax with "Evidence of Good Health" forms "with the expectation that Duramax would have the form completed by any employee who elected" to enroll in excess coverage and that Duramax would transmit the completed form to United.

When Myron began his active, salaried employment at Duramax, Duramax provided him with a "Salaried Election Form" through which he could make his benefits selections. Myron completed the Salaried Election Form on October 29, 2008. He opted to enroll in both the basic and the voluntary life insurance policies, with coverage under the latter policy equal to three times his annual salary.⁴ Myron designated his wife, Lorna, as the beneficiary of his life insurance policies.

On November 3, 2008, Myron submitted the completed Salaried Election Form to Duramax. Although he had enrolled in excess coverage under the voluntary life insurance policy, Myron was not given an Evidence of Good Health form or any other form to complete to satisfy the good health requirement by United or Duramax at the time that he submitted the Salaried Election Form to Duramax or at any time between then and his death.

In October 2017, Myron asked Thomas Spann, Duramax's Human Resources manager, to verify that his life insurance policy was active. He was assured by Spann that he had coverage up to three times his annual salary. From Myron's return of the Salaried Election Form in November 2008 to his death in 2018, Duramax deducted the premiums for excess coverage under the voluntary life insurance policy (as well as premiums for the basic life insurance policy) from Myron's paycheck and transferred those funds to United.

Duramax sent United a "census" every two years that described the number of employees enrolled in the voluntary life insurance policy and the rate at which they were insured ("biannual census"⁵ ). The biannual census contained the number of employees Duramax believed to be enrolled, the level of their coverage according to Duramax's records, basic biographic information (such as their birth dates), and, sometimes, the names of the individual employees. On at least one such census, Myron's name was included in the list of employees whom Duramax identified as being enrolled for excess coverage under the voluntary life insurance policy.

Myron died on June 5, 2018. Lorna submitted a claim for life insurance benefits that same month to United.

United paid Lorna $236,000 in life insurance benefits on July 16, 2018 -- $136,000 for Myron's coverage under the basic life insurance policy and $100,000 for the guaranteed issue of the voluntary life insurance policy. United denied Lorna's claim for an additional $100,000 of excess coverage under the voluntary life insurance policy. The $100,000 amount was the difference between the guaranteed issue and the full amount of excess coverage which Myron selected when he submitted the Salaried Election Form to Duramax in 2008.

Lorna appealed United's partial denial of her claim in September 2018. United denied the appeal on October 4, 2018.

United explained in its denial of Lorna's appeal for the excess coverage that:

[An employee] will become insured on the first day of the Policy month which coincides with or follows the day [w]e approve the statement of physical condition or other evidence of good health .... Evidence of Good Health was required when your husband initially elected voluntary life insurance in excess of the Guarantee Issue Limit. Since we did not receive and approve Evidence of Good Health, we are unable to allow the additional $100,000 of voluntary life insurance coverage.

Lorna again requested that United review the partial denial of her claim in May 2019. United responded by stating that "[a]ll administrative rights to appeal have been exhausted" and that no further review would be conducted.

Lorna filed this suit against United in the District of Maine on October 3, 2019. The operative complaint first seeks to recover the benefits that she contends that she is owed pursuant to 29 U.S.C. § 1132(a)(1)(B). The complaint claims in the alternative that she is entitled to equitable relief under 29 U.S.C § 1132(a)(3) because United breached its fiduciary duties by "accept[ing] ... premiums [from Myron] for nearly a decade" for excess coverage when Myron was not actually insured for that excess coverage.

United answered the complaint on December 6, 2019. The matter was referred to a magistrate judge, who entered a scheduling order for limited discovery.

Lorna objected to that schedule and moved for further discovery, seeking permission to designate a testifying expert as well as for limited discovery on four broad topics. United opposed the motion on the ground that much of the information that Lorna sought was already in the administrative record. Lorna then narrowed her discovery request to only "how and by whom the bi-annual audits of Duramax were received, to whom they were circulated, and what attention they were given." Shields v. United of Omaha Life Ins. Co., No. 2:19-cv-00448, 2020 WL 1956811, at *3 (D. Me. Apr. 23, 2020).

On April 23, 2020 the Magistrate Judge granted Lorna's motion for discovery "with respect to information bearing on what United did with biannual audit information sent to it by Duramax [ ]," but denied her request to designate an expert. Id. at *6. The Magistrate Judge then ordered the parties to confer as to the manner and timing of the permitted discovery. Id. The parties filed a joint status report on May 20, 2020.

The joint status report explained that Lorna had proposed nine interrogatories and twelve document requests and that she also had sought to take the corporate deposition of United under Federal Rule of Civil Procedure ("Rule") 30(b)(6). United objected and declined to respond to all but two of the interrogatories and four of the document requests, arguing that much of what Lorna requested was broader than the limited discovery that the Magistrate Judge had authorized. United also objected to the corporate deposition.

The Magistrate Judge sustained United's objections on June 3, 2020, relying on Grady v. Hartford Life & Accident Insurance Co., No. 08-339-P-H, 2009 WL 700875 (D. Me. Mar. 12, 2009), to explain that "[d]iscovery is the exception, rather than the rule, in an appeal of...