Opinion
Civil Action No. 00-877.
March 5, 2001
ORDER AND REASONS
Before the Court are Defendant National Foundation Life Insurance Company's Motion for Summary Judgment and Plaintiff William B. Heidelberg's Motion for Partial Summary Judgment. For the following reasons, the Defendant's Motion is DENIED and ruling on Plaintiffs Motion is DEFERRED pending further briefing.
A. BACKGROUND
Plaintiff William Heidelberg filed suit against National Foundation Life Insurance Company in Louisiana state court regarding a disputed health insurance claim. National Foundation removed the action to this Court, which, on November 8, 2000, ruled that Mr. Heidelberg's policy was governed by ERISA. See Order and Reasons, 2000 WL 1693635, 25 Employee Benefits Cas. 1536.
Both Mr. Heidelberg and National Foundation now move for summary judgment. At the center of both motions is whether Mr. Heidelberg materially misrepresented his health situation when he applied for the National Foundation policy, and, if so, what should be the consequences.
In March 1991, Mr. Heidelberg underwent tests for high blood pressure, and blood tests might have indicated the possibility of diabetes and high cholesterol. He did not, however, follow up on these findings and denies ever being diagnosed with any of those conditions. In fact, Mr. Heidelberg states that the only reason he sought the physical in 1991 was to determine whether he should elect COBRA insurance after losing his job and that he used high blood pressure as a pretense to get his insurer to pay for the physical. Pl.'s Aff. ¶ ¶ 3, 4 6. Between the time of the 1991 tests and his application for the National Foundation policy seven years later, Mr. Heidelberg received no other medical treatment and consulted with no other medical personnel. When he filled out the application in March of 1998, he denied any prior medical problems. National Foundation argues that, had it been aware of the 1991 tests, it never would have issued the policy to Mr. Heidelberg.
In May 1999, Mr. Heidelberg consulted a physician regarding a non-healing foot wound and learned that he had adult onset diabetes. National Foundation has refused to pay the vast majority of the medical expenses incurred by Mr. Heidelberg for the treatment of his foot and diabetes but has continued to accept payments for Mr. Heidelberg's health insurance premium, has not rescinded the policy, and has not refunded any past premiums. Mr. Heidelberg argues that these facts constitute a waiver of National Foundation's material misrepresentation defense.
B. LAW AND ANALYSIS 1. National Foundation's Motion for Summary Judgment.
National Foundation moves for summary judgment on its defense of material misrepresentation. It argues that the decisions in Tingle v. Pacific Mutual Insurance Company, 996 F.2d 105 (5th Cir. 1993), and, on remand, 837 F. Supp. 191 (W.D. La. 1993), provide the relevant law with respect to this defense.
In Tingle, the Fifth Circuit held that ERISA preempts Louisiana law on misrepresentation in the insurance application context and remanded with instructions that the district court apply federal common law. On remand, the district court considered federal policy and the majority rule of misrepresentation and concluded that federal common law requires that, "in order to avoid a policy, the insurer must prove that the insured made a fraudulent or material misrepresentation in his application for enrollment that justifiably induced the issuance of the policy. Good faith of the applicant is irrelevant." 837 F. Supp. at 193. Accord Security Life Ins. Co. of America v. Meyling, 146 F.3d 1184, 1191-92 (9th Cir. 1998) (per curiam) (holding that, under federal common law, ERISA provides that an insurance contract can be rescinded when it is entered into on the basis of a fraudulent or material misrepresentation and defining "material" in terms of effect on insurer).
Importantly, the Fifth Circuit in Tingle and the Ninth Circuit inMeyling reached the same conclusion with respect to the applicability of a federal common law of rescission in the ERISA context, despite a different interpretation of the second part of the ERISA savings clause test. In Tingle, the Fifth Circuit stated that "all three [McCarran-Ferguson] factors must be met to avoid ERISA preemption," see 996 F.2d at 110, whereas the Ninth Circuit in Meyling stated that those factors "are simply relevant considerations or guideposts, not essential elements of a three-part test that must each be satisfied for a law to escape preemption." 146 F.3d at 1188. In UNUM Life Insurance Company of America v. Ward, 526 U.S. 358, 373, 119 S.Ct. 1380, 1389, 143 L.Ed.2d 462 (1999), the Supreme Court sided with the Ninth Circuit on this issue. Nonetheless, Meyling demonstrates that the outcome in Tingle would have been the same even had the Fifth Circuit had the benefit of the UNUM decision. In addition, Meyling suggests that the Louisiana law found preempted in Tingle also would fail the first part of the savings clause test, mentioned but not fully considered in Tingle, because it does not fit within a common sense understanding of insurance regulation. See Meyling, 146 F.3d at 1189.
Mr. Heidelberg concedes that the district court in Tingle correctly set forth the general rule for misrepresentation in ERISA cases. See Trial Mem. p. 7. However, he argues that this general rule should be modified in his case for two reasons.
First, Part IX F on page 26 of the insurance contract provides that "[t]he Policy will be interpreted by laws of the state in which it is delivered. Any part of the Policy which is in conflict with the laws of the state in which it is delivered is changed to conform to the minimum requirements of the state's laws." In light of this provision, Mr. Heidelberg argues that the Louisiana statute found preempted in Tingle should apply here because the parties agreed to modify their insurance relationship to incorporate all provisions of Louisiana state law. The Court disagrees on this point. Neither party to this case argues that the National Foundation policy eliminates the good faith element of the Louisiana law of misrepresentation; rather, federal common law conflicts with state law. Thus, the above-cited provision does not apply. Moreover, Mr. Heidelberg's argument would allow a boiler-plate provision such as Part IX F to replace federal law with state law in every respect and thus would undermine the purpose of ERISA's preemption provision to "eliminate the threat of conflicting and inconsistent state and local regulation of employee benefit plans." Tingle, 837 F. Supp. at 193 (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39, 47 (1987)).
Second, and much more narrowly, Mr. Heidelberg argues that the following provision expressly incorporated a "good faith" provision into the application process:
I hereby apply to National Foundation Life Insurance Company for insurance coverage to be issued in reliance upon the written answers to be made to the best of my knowledge and belief to the foregoing questions and agree that the answers are full, true and complete in their entirety . . .
Application for Health Ins. p. 3 (emphasis added). This argument is supported by Espinosa v. Guardian Life Insurance, 856 F. Supp. 711 (D. Mass. 1994), in which the district court found that a similar provision in an insurance application modified the federal common law doctrine of rescission. In reaching this determination, the court in Espinosa reasoned that "[i]nclusion of the `knowledge and belief' qualification shifts the focus `from an inquiry into whether the facts asserted were true to whether, on the basis of what he knew, the applicant believed them to be true. Thus [the applicant's] answer must be assessed in the light of his actual knowledge and belief.'" Id. at 717 (brackets in original) (quoting Skinner v. Aetna Life Cas., 804 F.2d 148, 150 (D.C. Cir. 1986)). Accord Meyling, 146 F.3d at 1191-93 (majority opinion) (finding that the parties had modified common law rule of rescission by incorporating alternative remedy in insurance contract). In the Skinner case, on which the Espinosa court relied, the court was required to interpret a knowledge-and-belief clause in an insurance application in light of a District of Columbia law substantially similar to the federal common law rule enunciated by the district court in Tingle. Therefore, the Court agrees with Mr. Heidelberg on this point and finds his knowledge and belief relevant to National Foundation's misrepresentation defense.
The law involved in Skinner provided that "[t]he falsity of a statement in the application for any policy of insurance shall not bar the right to recovery thereunder unless such false statement was made with intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the company." 804 F.2d at 149. Thus, like the federal rule set forth in Tingle, the law in Skinner provided that a policy may be rescinded due to a "fraudulent or material misrepresentation" made in the application process, and the inclusion of the knowledge-and-belief clause could be seen as shifting the emphasis to the fraud alternative of the rule. 837 F. Supp. at 193. In contrast, the Louisiana law in Tingle was interpreted to require actual intent to deceive in all cases of rescission. See 996 F.2d at 107.
That said, the Court finds that genuine issues of material fact exist as to what chain of events led to the 1991 tests, what Mr. Heidelberg was told about the results of those tests, and, therefore, what he knew and believed at the time he applied for the National Foundation policy. The Court finds it extremely significant that Mr. Heidelberg saw no physician between 1991 and 1998, which suggests that he objectively might not have been "treated" for high blood pressure, diabetes, or cholesterol and that he subjectively believed that he had not been "treated" for these conditions. Moreover, contrary to National Foundation's summary judgment position, it does not appear to be "undisputed" that the facts surrounding the 1991 visits were material. See Revised Pre-Trial Order p. 6 (listing materiality as a contested issue of fact). Given seven subsequent years of uneventful medical history, the 1991 tests might not have affected National Foundation's decision to insure Mr. Heidelberg. Accordingly, the Court DENIES National Foundation's Motion for Summary Judgment.
2. Mr. Heidelberg's Partial Motion for Summary Judgment.
Mr. Heidelberg argues that National Foundation has waived its misrepresentation defense because it has continued to collect his insurance premiums. He relies on the Louisiana insurance law of waiver as summarized by the Fifth Circuit in Home Insurance Company v. Matthews, 998 F.2d 305 (1993):
It is clear that under Louisiana law, the "acceptance of premium payments by an insurer after receiving knowledge of facts creating a power of avoidance or privilege of forfeiture constitutes a waiver of such power or privilege". This was the Louisiana law when it was written in 1961; it was the law when Justice Tate wrote [in Bonadona v. Guccione, 362 So.2d 740, 742 (La. 1978),] that acceptance of premiums with knowledge will estop the insurer from denying coverage; and the Louisiana courts have recently reaffirmed this principle in Swain v. Life Insurance Co. of Louisiana[, 537 So.2d 1297, 1300 (La.App. 2 Cir. 1989),] repeating language quoted above.Id. at 309-10 (footnotes omitted). Matthews, however, was not an ERISA case, and National Foundation argues that the Louisiana waiver law is preempted under the Metropolitan Life test. In the alternative, National Foundation suggests that there is a genuine issue as to when it became aware of Mr. Heidelberg's alleged misrepresentations, and, therefore, whether it could be said to have knowingly waived its defense.
At the present time, the Court cannot decide whether the Louisiana law of waiver is preempted by ERISA. The language in Matthews suggests that the waiver rule at issue may have arisen specifically in the insurance context; however, waiver is not unknown to other areas of the law, and, therefore, the rule in Matthews simply may represent a particular manifestation of a rule that runs generally throughout the law. And even if the waiver law does regulate insurance, it nonetheless might not be saved when the McCarran-Ferguson factors are considered.
Moreover, even assuming that the Louisiana law of waiver is preempted, it does not follow that there is no federal common law of waiver. The waiver rule seems to be a natural analogue to the misrepresentation defense, and the Matthews decision suggests that it is part of the federal common law. See 998 F.2d at 310 ("A century earlier, Mr. Justice Gray writing for the United States Supreme Court stated that the question before the Court in Phoenix Mutual Life Insurance Co. v. Raddin[, 120 U.S. 183, 7 S.Ct. 500, 30 L.Ed. 644 (1887),] was "whether, if insurers accept payment of a premium after they know that there has been a breach of a condition of the policy, their acceptance of the premium is a waiver of the right to avoid the policy for that breach." [ Raddin at 196, 7 S.Ct. at 506.] His answer was, "Upon principle and authority, there can be no doubt that it is."). See generally Tingle, 837 F. Supp. 191 (looking to the Restatements and federal policy to determine federal common law).
The parties are ORDERED to brief these issues: (1) whether the Louisiana waiver law is preempted; and (2) whether a federal common law rule of waiver exists, and, if so, what are its contours. The parties are specifically referred to the analysis and sources used by the district court in Tingle to brief the second issue. The Court DEFERS ruling on Mr. Heidelberg's Motion pending further briefing.
C. CONCLUSION
For the reasons set forth above,
IT IS ORDERED that National Foundation Life Insurance Company's Motion for Summary Judgment is DENIED and ruling on Plaintiff William B. Heidelberg's Motion for Partial Summary Judgment is DEFERRED pending further briefing. The parties are ORDERED to submit their briefs on Monday, March 12, 2001 by 1:00 p.m.