Van Loo v. Cajun Operating Co.

DONALD and HARRIET VAN LOO, Plaintiffs-Appellees, v. CAJUN OPERATING COMPANY d/b/a CHURCH'S CHICKEN, Defendant-Appellant.

No. 16-1980

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

July 18, 2017

NOT RECOMMENDED FOR PUBLICATION

File Name: 17a0417n.06

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN

BEFORE: BOGGS, BATCHELDER, and WHITE, Circuit Judges.

HELENE N. WHITE, Circuit Judge. This Employee Retirement Income Security Act of 1974 (ERISA) action arises from the denial of a claim under Cajun Operating Company d/b/a Church's Chicken's (Church's) employer-sponsored life-insurance plan in which Donna Van Loo (Van Loo), an in-house attorney for Church's, participated. Van Loo elected and paid for life-insurance coverage offered through her employment, from 2007 until her death in 2013. Church's, however, failed to obtain a required medical-underwriting form from Van Loo, resulting in its insurance provider's denying benefits to plaintiffs, Van Loo's parents, that exceeded a minimum guaranteed-coverage amount. Plaintiffs sued, claiming that Church's violated its duties as an ERISA fiduciary in making material misrepresentations regarding Van Loo's coverage level, which she relied on to her detriment. On the parties' cross-motions for summary judgment, the district court granted summary judgment to plaintiffs, awarding $314,000 for benefits that exceeded the insurer's guaranteed coverage. On appeal, Church's does not dispute its status as an ERISA fiduciary or that it made material misrepresentations; it disputes only that plaintiffs proved detrimental reliance. Because plaintiffs met their burden as to detrimental reliance, and because Church's failed to rebut plaintiffs' showing, we AFFIRM.

I

Van Loo joined Church's as an in-house real-estate attorney in 2007. She was diagnosed with esophageal cancer in late December 2012, went on disability leave, and passed away on March 4, 2013.¹ Van Loo's starting annual salary was $100,000 and, after a promotion and annual merit raises, her annual salary at the time of her death was $122,200.

As an employee benefit, Church's provided basic life insurance at 1x annual salary, and offered employee-paid elective supplemental life insurance. Both coverages were provided by Reliance Standard Life Insurance Company (Reliance) under a group life-insurance policy. The schedule of benefits in Church's policy² offered the following coverage levels:

Basic Life . . .

One (1) times Earnings, rounded to the next higher $1,000, subject to a maximum Amount of Insurance of $200,000. . . .

Supplemental Life . . .

Choice of: One (1), Two (2), Three (3), Four (4) or Five (5) times Earnings, rounded to the next higher $1,000, subject to a maximum Amount of Insurance of $750,000 . . . .

Amounts of insurance over $300,000 are subject to [Reliance's] approval of a person's proof of good health . . . . During an [open-enrollment] period, applications for employees . . . who were previously eligible and are now applying for initial or additional coverage will not require proof of good health for a one level increase in coverage, provided: (1) the application is complete, signed, and received by [Church's] during the [open-enrollment period], and (2) the applicant was not previously declined for insurance coverage by us, postponed, had their application withdrawn, or voluntarily terminated their insurance with us . . . . Employees who exceed the combined Basic andSupplemental Life Insurance guarantee issue amount of $300,000 [and] employees . . . who exceed a one level increase in insurance are subject to our approval of proof of good health and such amounts of insurance will not be effective until approved by us.

R. 78-3, PID 2022-23.

Church's self-administered its group life-insurance plan, meaning that it was "responsible for ensuring that coverage elections (including any required proof of good health) are processed in accordance with the terms and conditions of the applicable policy and that premium remittances are accurate and timely." R. 78-4, PID 2045. Church's calculated premiums and deducted them from payroll, and, absent a need for medical underwriting on coverage over $300,000 or on coverage increased by more than one level, did not provide Reliance with the names or ages of insured employees.

When she was hired in 2007, Van Loo elected 2x supplemental insurance. This meant that she was covered for a total of $300,000 (1x her $100,000 annual salary in basic life, plus 2x that salary in supplemental life). The enrollment form Van Loo completed did not include a requirement to prove insurability or state whether such proof would be required in the future.

Later in 2007, during open enrollment, Van Loo increased her supplemental-coverage election to 3x her annual salary, effective for the 2008 benefits year. The supplemental-insurance section of the enrollment form stated: "If you wish to increase your supplemental life coverage, you may be required to submit an evidence of insurability form. If so, one will be mailed to you." R. 78-7, PID 2057. Van Loo's coverage election put her over the $300,000 "guarantee issue" threshold after which proof of good health is required for coverage. The record does not show that Church's provided an evidence-of-insurability form (EIF) to Van Loo at that time, nor does Church's claim that it did.

During 2010 open enrollment, Van Loo again increased her election, this time to 4x her annual salary. In 2011, she received a 2012 employee-benefits guide. In the section related to life insurance, the guide stated:

When is Evidence of Insurability Required?

Supplemental Life Insurance - If you want to increase your coverage during open enrollment, you may increase by one level (such as from 1x salary to 2x salary). Increases of more than this, or more than $150,000, may require an [EIF].

R. 78-14, PID 2084.

In 2012, Van Loo received a guide for 2013 with identical language. The record does not contain a benefits guide or similar document that was provided to Van Loo prior to 2011.³

Several months before her cancer diagnosis, Van Loo completed her 2013 benefits election. She again elected supplemental insurance at 4x her annual salary, at a $97.31 monthly premium. Church's manages its open-enrollment process over its corporate intranet; after Van Loo completed the process, a confirmation screen displayed the message "CONGRATULATIONS on completing your benefits enrollment for 2013." R. 78-9, PID 2061. This screen also cautioned that "[the information you submitted] is open to investigation and verification, and is subject to the eligibility provisions of the plans." Id. By this point, Van Loo's total coverage was $615,000 (5x her $122,200 annual salary, rounded to the next-higher $1,000 per the group-life policy).⁴

After Van Loo took disability leave in early 2013, she no longer received a paycheck and thus her insurance premiums were not deducted from payroll. On February 21, 2013, Church's sent her a letter requesting that she pay the company directly for her benefits, listing her supplemental life insurance as one of those benefits. On March 1, three days before Van Loo's death, Church's sent Van Loo another letter confirming it had received her benefits payment.

Van Loo consistently paid premiums for her supplemental life insurance from her hiring until she died, either through payroll deduction or directly to Church's. Despite this, neither Church's nor Reliance ever obtained an EIF from her, which the insurance policy required for coverage over $300,000. After her death, Church's conducted an audit of Van Loo's personnel file, which yielded no evidence that it had provided her with an EIF or otherwise sought one from her. It argues, though, that Reliance itself sought the EIF. On November 30, 2010, Church's benefits manager Chandra Matthews had emailed a contact at Reliance regarding EIFs:

I am really buried with open enrollment data and payroll year-end work, but I am trying to review elections for [EIF]. Can you please confirm the following:

[EIF] is needed for

• New hires who elect an amt of supp life that is over $300k

• Open enrollment changes who elect more than a 1-level increase in either supp or spouse life OR

• Open enrollment changes who elect more than $300k in supp life coverage

Also, can you provide me with your most recent [EIF]? If we provided you with a list of the employees who need [EIF] and their addresses, could you send?

R. 78-16, PID 2113.

A Reliance representative replied confirming the underwriting threshold listed in the email, adding that "[w]e do not typically send out [EIFs], but how many forms do you think will be needed? We might be able to do this as an exception this time." Id. Church's produced two documents to support its allegation that Van Loo was one of the employees to whom Reliance sent an EIF: (1) an unsigned form letter that was not addressed to Van Loo and (2) a 2010 email containing a spreadsheet with Van Loo's name, address, and an "X" marked next to her name.According to Reliance, the "X" indicated that its account manager Taree Murphy sent a form to Van Loo.⁵

After Van Loo's passing, her parents, as beneficiaries, submitted a proof-of-loss form to Reliance. Stating that it sent an EIF to Van Loo and did not receive a completed form back, Reliance paid $300,000, the guaranteed amount, rather than the $614,000 that plaintiffs requested.

II

Plaintiffs filed a five-count complaint against Reliance and Church's, seeking the remaining $314,000 in benefits that Reliance denied. After the district court resolved defendants' dispositive motions, including Reliance's motion for judgment on the administrative record regarding plaintiffs' recovery-of-benefits claim against it, only one count remained: that Church's breached its ERISA fiduciary duty to administer the group life-insurance policy in the sole interest of the insured employees and their beneficiaries. See 29 U.S.C. § 1132(a)(3).

Plaintiffs...