Woods v. Am. United Life Ins. Co.

LARESEA WOODS, Plaintiff, v. AMERICAN UNITED LIFE INSURANCE COMPANY, Defendant.

Case No. 1:15-cv-00859-JEO

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA EASTERN DIVISION

November 13, 2015

MEMORANDUM OPINION

This action arises out of a claim for benefits under a life insurance policy issued by defendant American United Life Insurance Company ("AUL") on the life of Corine Woods (deceased), the mother of plaintiff Laresea Woods ("Plaintiff"). Plaintiff, the beneficiary of her mother's life insurance policy, alleges that AUL wrongfully denied her claim for benefits following her mother's death and then, after acknowledging that benefits should have been paid, misrepresented the amount of the policy in an effort to get her to sign a release. She has asserted state-law claims against AUL for breach of contract, fraud, suppression/concealment, bad faith, deceit, and negligent screening, hiring, training, and supervision. (Doc.¹ 1). She seeks to recover compensatory and punitive damages from AUL and has requested a trial by jury on her claims.

The case is before the court on AUL's motion to dismiss Plaintiff's state-law claims and her demands for punitive and extra-contractual damages, and to strike her demand for a jury trial. (Doc. 6). AUL contends that all of Plaintiff's claims are preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. ("ERISA"), and that Plaintiff is not entitled to recover punitive or extra-contractual damages under ERISA or to a trial by jury. For the reasons stated below, the court concludes that the motion to dismiss/strike is due to be granted and that Plaintiff should be afforded an opportunity to amend her complaint and replead her claims under ERISA.

I. FACTS²

Corine Woods was employed as a teacher in the Talladega County School System. (Doc. 1 at ¶ 7). In September 2003, through the county, she enrolled in a group term life insurance policy issued by AUL to Educator Benefits Corporation,a wholly-owned subsidiary of the Alabama Education Association ("AEA").³ (Id. at ¶ 5; Doc. 6-1 at 2, 9). The initial amount of her coverage was $50,000.00, but in 2004 she increased the coverage to $60,000.00 (with a corresponding increase in monthly premium). (Doc. 1 at ¶¶ 5-6).

Corine Woods voluntarily retired from her position as a teacher effective June 1, 2012. (Id. at ¶ 8). Shortly after retiring, she submitted an "Application to Continue/Port or Convert Group Insurance" to AUL, electing to continue her existing coverage and identifying Plaintiff as her primary beneficiary.⁴ (Id. at ¶ 9; Doc. 10-1 at 6-7). To continue her coverage, Corine Woods was required to remit her insurance premium directly to AUL. (Doc. 10-1 at 7). Talladega County completed the employer's section of the application, and verified that the amount of Corine Woods's coverage was $60,000.00. (Doc. 1 at ¶ 10; Doc. 10-1at 8-9). AUL received the application on July 12, 2012. (Doc. 10-1at 5-9).

Corine Woods died on July 18, 2012. (Doc. 1 at ¶ 12). Plaintiff submitted a claim for life insurance benefits to AUL, but AUL denied the claim, assertingthat Corine Woods had not applied for continuation of coverage following her retirement. (Id. at ¶¶ 15-16).

In January 2015, after receiving multiple requests for reconsideration from Plaintiff's former and current counsel, AUL admitted that Plaintiff's claim for benefits should have been paid. (Id. at ¶¶ 17-26). AUL asserted that the amount of Corine Woods's insurance coverage was only $50,000.00, but told Plaintiff that it was willing to pay her $60,000.00 in exchange for a release. (Id. at ¶ 33). Plaintiff refused to sign a release, and instead filed this lawsuit.

II. ANALYSIS

As noted above, Plaintiff's complaint asserts state-law claims for breach of contract, fraud, suppression/concealment, bad faith, deceit, and negligent screening, hiring, training, and supervision. In its motion to dismiss/strike, AUL argues that ERISA preempts all of Plaintiff's claims. Plaintiff responds that her mother's insurance policy falls within the ERISA "safe harbor" exemption and therefore is not an ERISA plan. She also argues that even if the policy is governed by ERISA, she may still pursue her claims for fraud, suppression/concealment, and deceit, which, she argues, are not preempted.

A. Is the Policy Governed by ERISA?

"In order to have an ERISA plan there must be (1) a plan fund or program (2) established or maintained (3) by an employer or by an employee organization(4) for the purpose of providing, among other things, medical or death benefits (5) to participants and their beneficiaries." Glass v. United of Omaha Life Ins. Co., 33 F.3d 1341, 1345 (11th Cir. 1994) (citing Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982); see 29 U.S.C. § 1002(1) (defining an "employee welfare benefit plan"). AUL argues that the policy of insurance at issue here is such an ERISA plan, asserting that the AEA is an "employee organization" and that "the policy of insurance referenced by Plaintiff in her complaint was issued to the AEA to insure the life insurance component of an AEA employee benefit plan." (Doc. 6 at 4-5). In support, AUL cites three opinions by federal district courts in Alabama all holding that insurance policies sponsored by the AEA are governed by ERISA. See Karns v. Disability Reinsurance Mgmt. Servs., Inc., 879 F. Supp. 2d 1298, 1305 (N.D. Ala. 2012) (holding that a disability insurance policy sponsored by the AEA was a "relevant ERISA plan"); Hicks v. American United Life Ins. Co., Case No. 5:10-cv-01401-CLS (N.D. Ala. Jan. 19, 2011)⁵ ("In short, the disability benefits plan at issue does not fall within the [ERISA] regulatory safe harbor and the AEA is an 'employee organization' for the purposes of ERISA. Accordingly, the plan is governed by ERISA."); Abston v. The Murfee Group et al., Case No.1:06-cv-482, KD-B (S.D. Ala. Dec. 11, 2006)⁶ ("The question becomes, is the [AEA] an 'employee organization' such that the Plaintiff's plan is properly governed by ERISA? ... [T]he answer to that question is a resounding yes.").

The court agrees that the group term life insurance policy sponsored by the AEA here is an ERISA plan, and Plaintiff effectively admits as much. She acknowledges that the AEA is an "employee organization" and that "the group policy at issue was initially issued through the AEA." (Doc. 10 at 8 n.1). Nowhere in her opposition to AUL's motion to dismiss/strike does she dispute that the AEA group policy is an ERISA plan. She argues, however, that "it is axiomatic that some insurance policies that were originally issued as part of an ERISA plan may no longer be covered by ERISA." (Id.) That is what she claims occurred here. Plaintiff argues that once Corine Woods retired, made the voluntary decision to continue her life insurance coverage, and paid her insurance premium directly to AUL, her "individual" or "personal" continuation policy was no longer subject to ERISA. (Id. at 5-9). Plaintiff asserts that her claims against AUL "do not arise out of [the] AEA policy, but rather arise out of a policy that was individually and voluntarily continued and maintained by Corine Woods with ... AUL, as the policy at issue was ported by Corine Woods following her retirement." (Id. at 5). She contends that this "individual voluntary" term life policy falls within the ERISAregulatory "safe harbor," 29 C.F.R. § 2510.3-1(j), which excludes certain "group or group-type insurance programs" from ERISA coverage. (Id.)

The court need not address the merits of Plaintiff's safe harbor argument, because it is based on a faulty premise—namely, that Corine Woods's election to continue her life insurance coverage following her retirement created an individual policy separate and apart from the AEA group policy. As Corine Woods's Application to Continue/Port or Convert Group Insurance reflects, upon retirement she had the option to either "convert [her] existing life insurance coverage to an Individual Life Insurance contract" or "continue [her] existing coverage." (Doc. 10-1 at 5-6). She elected to continue her existing coverage, not convert her coverage to an individual contract. (Id.) In this regard, the court notes that there is no allegation in Plaintiff's complaint—and certainly no evidence—that Corine Woods was issued a new "individual" insurance contract or certificate when she elected to continue her coverage. Moreover, the "Continuation of Insurance" provision of the AEA group policy expressly provides that coverage "in force under the policy" continues "without interruption" when a person elects to continue coverage. (Doc. 6-1 at 15). Therefore, because Corine Woods's coverage continued under the AEA group policy, Plaintiff's claim for benefits necessarily arose out of that policy, an ERISA plan.

Plaintiff has cited no authority that supports her contention that when Corine Woods retired, voluntarily elected to continue her life insurance coverage, and paid the premium directly to AUL, her coverage ceased to be part of the AEA group policy and was no longer within the purview of ERISA. Indeed, courts have consistently rejected similar arguments. For instance, in Lewis v. Blue Cross Blue Shield of Ga., 2015 WL 1475610, *3 (M.D. Ala. Mar. 31, 2015), the plaintiff and her husband were covered under a group term life insurance policy issued as part of a group plan sponsored by her employer, ESG. When the plaintiff decided to leave her employment with ESG, she was advised that she could take the policy with her and retain coverage by paying the insurance premiums herself, which she did. When her husband died many years later, the plaintiff submitted a claim for benefits under the policy, but the insurer denied the claim. The plaintiff then filed suit against the insurer, raising only state-law claims. In response to the insurer's argument that her claims were all preempted by ERISA, the plaintiff asserted that "when she left her employment with...