Pearson v. Prudential Insurance Company of America, Inc.

BRIEF in Support of Motion

E.D. Okla.April 10, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF OKLAHOMA MARK J. PEARSON, Plaintiff, Case No. 16-cv-00556-SPS v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, INC., and THE UNITED STATES OF AMERICA, ex. rel., THE U.S. ARMY, Defendants. DEFENDANT’S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS PLAINTIFF’S AMENDED COMPLAINT Defendant, The Prudential Insurance Company of America (“Prudential”), by and through its attorneys, submits this memorandum of law in support of its Motion to Dismiss Plaintiff’s Amended Complaint as to Prudential. INTRODUCTION Under the Servicemembers’ Group Life Insurance Act (“SGLIA”), 38 U.S.C. § 1965, et seq., the government provides life insurance and certain other insurance benefits to active duty members of the military and certain veterans. Congress established a framework for these benefits, which is fleshed out by regulations adopted by the Veterans Administration (“VA”). Benefits are funded by an insurance policy the VA purchased from Prudential. Prudential also performs certain functions in connection with payment of certain types of claims under the policy through its Office of Servicemembers’ Group Life Insurance (“OSGLI”). Plaintiff Mark J. Pearson (“Plaintiff”) is a veteran of the Army, who claims that he suffered an injury for which he should have received a $100,000 traumatic injury benefit under the SGLIA program. Plaintiff now sues Prudential and co-Defendant The United States of 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 1 of 11 2 America ex. rel. the U.S. Army (“Army”) seeking that traumatic injury benefit. Prudential, however, is not the party responsible for determining when a servicemember is eligible for traumatic injury benefits. Further, the SGLIA requires an insured person who believes he was wrongly denied traumatic injury benefits to sue the United States, not Prudential. Therefore, Plaintiff has failed to state a claim against Prudential upon which relief can be granted. BACKGROUND I. Plaintiff’s Claim under The Servicemembers’ Group Life Insurance Act (“SGLIA”). On March 31, 2017, Plaintiff filed his Amended Complaint for “the full payment of $100,000.00 in Traumatic injury insurance benefits pursuant to” the SGLIA, naming Prudential and the Army as Defendants. (ECF No. 29 ¶ 5.) Plaintiff alleges that he is a veteran of the United States Army and is medically retired due to injuries sustained “from a M198 Howitzer round that landed near him.” (ECF No. 29 ¶ 6.) Plaintiff alleges he properly submitted a claim for traumatic life insurance benefits to Prudential and the Army, but that Prudential has refused to pay him $75,000 of the $100,000 of benefits available to him. (ECF No. 29 ¶¶ 8, 9.) Plaintiff does not allege that the Army has improperly refused to pay him, alleging only that Prudential “takes the position that the U.S. Army is the proper party.” (ECF No. 29 ¶ 9.) II. The Servicemembers’ Group Life Insurance Act (“SGLIA”). Congress passed the SGLIA in 1965 to ensure the availability of affordable life insurance coverage to members of the uniformed services on active duty, in response to restrictions on coverage imposed by some commercial insurers due to the Vietnam War. See H.R.Rep. No. 1003, 89th Cong., 1st Sess., 7 (1965); 111 Cong. Rec. 24339 (1965) (remarks of Rep. Teague, Chairman of the House Committee on Veterans’ Affairs); see also S.Rep. No. 619, 89th Cong., 1st Sess., 3 (1965). The SGLIA is a comprehensive statute, supplemented with detailed 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 2 of 11 3 regulations issued by the Secretary of Veterans Affairs (“Secretary”). 38 U.S.C. § 101(1). The SGLIA authorizes the Secretary to purchase a group insurance policy that meets certain minimum requirements. 38 U.S.C. § 1966. It sets forth, amongst other things, the maximum amount of insurance coverage that active servicemembers may obtain, that the servicemember may elect in writing to be insured for a lesser amount, and contains detailed directives for determining the beneficiary and the form in which the benefit is to be paid. 38 U.S.C. §§ 1967, 1970. In 2005, Congress added the Traumatic Injury Protection Program (also known as Traumatic Servicemembers’ Group Life Insurance (“TSGLI”)) to the SGLIA, under 38 U.S.C. § 1980A. See Public Law 109-13 § 1032 (May 11, 2005). TSGLI is automatically included as part of a servicemember's SGLI coverage. 38 U.S.C. § 1980A(a)(1); 38 C.F.R. § 920(a). TSGLI provides between $25,000 and $100,000 to severely injured servicemembers who meet the Secretary’s criteria. 38 U.S.C. § 1980A(d)(1). The Secretary determines what conditions are excluded under the coverage. 38 U.S.C. § 1980A(b)(3). Pursuant to his general rulemaking authority, the Secretary has promulgated detailed regulations relating to TSGLI. 38 U.S.C. § 1980A(c)(2)(B); 38 C.F.R. § 9 et seq. To qualify for TSGLI benefits, a member must have (1) experienced a traumatic event and (2) suffered traumatic injuries that were directly caused by the traumatic event. 38 C.F.R. § 9.20(d). The types of injuries covered are enumerated in 38 C.F.R. § 9.20, and the Schedule of Losses is contained in 38 C.F.R. § 9.20(f). Notably, each uniformed service determines its servicemembers’ eligibility for TSGLI benefits. 38 C.F.R. § 9.20(g) (“The uniformed service will certify whether you were at the time of the traumatic injury insured under Servicemembers' Group Life Insurance and whether you 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 3 of 11 4 have sustained a qualifying loss.”) A servicemember who is not satisfied may appeal an adverse eligibility determination to the member’s uniformed service. 38 C.F.R. § 9.20(i)(1). The statute and regulations allow a servicemember to pursue legal remedies. See 38 U.S.C. § 1975 and 38 CFR § 9.13. See 38 C.F.R. § 9.20(i)(3). Section 1975 of Title 38 of the United States Code, titled “Jurisdiction of District Courts,” states, “The district courts of the United States shall have original jurisdiction of any civil action or claim against the United States founded upon this subchapter.” 38 U.S.C. § 1975. Section 9.13 of the regulations, titled “Actions on the policy,” further provides, in part, that “[a]ctions at law or in equity to recover on the policy, in which there is not alleged any breach of any obligation undertaken by the United States, should be brought against the insurer.” 38 C.F.R. § 9.13 (emphasis added). ARGUMENT I. Legal Standard To avoid a dismissal under Rule 12(b)(6), a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Although the Complaint need not contain all of the facts involved in the claim, the Supreme Court has made clear that the claim must be supported by sufficient facts that, if taken as true, make Plaintiff’s entitlement to relief “plausible.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007) (“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Moreover, a court may consider the complaint, documents incorporated into the complaint by reference, matters of which a court may take judicial notice, and exhibits attached to the complaint in deciding a 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 4 of 11 5 motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). II. Prudential is Not the Proper Defendant on a Claim Concerning Eligibility for or Amount of TSGLI Benefits. Plaintiff sues for TSGLI benefits. (ECF No. 29 ¶ 5.) Although Prudential ultimately pays the TSGLI benefit, the regulations make clear that Prudential has no role in deciding whether a service member is eligible for the benefit or the amount of benefit that is due. As stated above, the regulations provide that “[e]ach uniformed service will certify its own members for traumatic injury protection benefits…The uniformed service will certify whether you were at the time of the traumatic injury insured under Servicemembers' Group Life Insurance and whether you have sustained a qualifying loss.” 38 C.F.R. 9.20(g). The regulations also provide that an appeal “of an eligibility determination, such as whether the loss occurred within 365 days of the traumatic injury, whether the injury was self-inflicted or whether a loss of hearing was total and permanent” must be in writing and timely submitted “to the office of the uniformed service identified in the decision regarding the member's eligibility for the benefit.” 38 C.F.R. 9.20(i). Courts have recognized the insurer’s limited role in deciding whether a servicemember qualifies for the TSGLI benefit: The TSGLI office of the member’s branch of service is responsible for determining whether the member is covered by the TSGLI program and whether he or she sustained a qualifying loss. After its determination, the service branch notifies OSGLI which then either pays the claim or notifies the claimant of the denial. 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 5 of 11 6 Stringer v. United States, No. 1-cv-02584, 2013 WL 6579039, * 2 (D. Colo. 2013). While Prudential (through the OSGLI) determines whether the servicemember has coverage under the SGLIA (see 38 U.S.C. § 9.20(i)(2)), the SGLIA and its regulations do not give Prudential (or OSGLI)) any authority to make any certifications or determinations as to a covered servicemember’s eligibility for TSGLI benefits. A. Prudential is Not A Proper Party under 38 U.S.C § 1975 or 38 C.F.R. § 9.13 In suing, Plaintiff invokes 38 U.S.C. § 1975. (ECF No. 29 ¶ 4). That section, however, allows servicemembers who have been denied benefits, including TSGLI, to pursue legal remedies “against the United States.” 38 U.S.C. § 1975. Prudential is a private insurer; therefore, it cannot be sued under § 1975. The only portion of the SGLIA that allows a lawsuit against the private insurer is 38 C.F.R. § 9.13, which suggests that suits over matters that do not involve “any breach of any obligation undertaken by the United States” may be brought against the insurer. 38 C.F.R. § 9.13. The provisions of the SGLIA allowing a suit against Prudential allow for one only where the matter concerns something not decided by the United States. There is no question, however, that the Army, is the party that decided Plaintiff’s claim, and Prudential simply follows its determination in either paying the benefit or notifying the servicemember of the denial. 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 6 of 11 7 Plaintiff seeks TSGLI benefits. The Army decided Plaintiff’s claim; therefore, Plaintiff is alleging a breach of an obligation undertaken by the United States. Thus, 38 C.F.R § 9.13 cannot apply here as it allows a claim against an insurer only in an action “in which there is not alleged any breach of any obligation undertaken by the United States.” 38 C.F.R. § 9.13. As Plaintiff has named the United States on behalf of the Army as a defendant in this matter, and therefore is alleging a breach of an obligation by the United States, Plaintiff cannot also name bring suit against the insurer, pursuant to 38 C.F.R § 9.13. Plaintiff therefore has no basis to bring this Complaint against Prudential. B. There is No Implied Private Right of Action Against Insurers for TSGLI Benefits Neither the statute nor the regulations expressly provide for a cause of action against Prudential. 38 U.S.C. § 1975 and 38 C.F.R. § 9.13 do not imply a private right of action for TSGLI benefits against the private insurer. Whether a federal statute contains an implied cause of action is ultimately a question of determining what Congress intended. Karahalios v. Nat'l Fed'n of Fed. Employees, 489 U.S. 527, 532, 109 S.Ct. 1282 (1989). Congressional intent can be implied by the text or structure of the statute. Alexander v. Sandoval, 532 U.S. 275, 286, 121 S.Ct. 1511, 1519-20 (2001). The judicial task is to interpret the statute Congress has passed to determine whether it displays an intent to create not just a private right but also a private remedy.[] Statutory intent on this latter point is determinative. [] Without it, a cause of action does not exist and courts may not create one, no matter how desirable that might be as a policy matter, or how compatible with the statute. [] Raising up causes of action where a statute has not created them may be a proper function for common-law courts, but not for federal tribunals. Alexander, 532 U.S. at 286-87, 121 S.Ct. at 1519-20 (citations omitted). The text of the TSGLI evinces no intent to grant a private right of action against the private insurer in these circumstances. In addition, the regulations adopted under authority from 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 7 of 11 8 Congress provide a private right of action against the insurer only if there is no allegation of a breach of an obligation by the United States. 38 C.F.R. § 9.13. Further, in enacting the TSGLI program, Congress gave all the authority to determine the eligibility and amount of benefits to the government. The TSLGI specifically grants the Secretary the ability to determine which conditions are excluded from coverage (38 U.S.C. § 1980A(b)(3), the time frame for the injury that will be covered (38 U.S.C. § 1980A(c)(2)(B)), and the amount of payment for different types of injury (38 U.S.C. § 1980A(d)(1)). The TSGLI regulation lays out what exactly will be considered a traumatic event (38 C.F.R. § 9.20(b)), a traumatic injury (38 C.F.R. § 9.20(c)), and the amounts of benefits payable (38 C.F.R. § 9.20(e)(5)). The TSGLI regulation specifically provides that the servicemembers’ uniformed service will certify its members for benefits (38 C.F.R. § 9.20(g)) and provides specific avenues to pursue a claim denial through an appeal filed with that uniform service (38 C.F.R. § 9.20(i)(1)), Finally, the TSGLI regulation only allows for lawsuits under 38 U.S.C. § 1975 or 38 C.F.R. § 9.13. 38 C.F.R. § 9.20(i)(3). Nothing in the SGLIA’s provisions on TSGLI (38 U.S.C. § 1980A) or the TSGLI regulation (38 C.F.R. § 9.20) reflects an intent to authorize suits against the insurer for TSGLI, other than pursuant to 38 C.F.R. § 9.13. Indeed, the SGLIA contains a mechanism for administrative enforcement of TSGLI, and the terms and conditions of the administration of TSGLI are spelled out within the statute and regulation, not through federal common law. Plaintiff has an administrative remedy for the denial of his benefit determination through the filing of an appeal with the Army (see 38 C.F.R. § 9.20(i)(1)), and Plaintiff is, in fact, alleging the breach of an obligation by the Army, which decided his TSGLI claim. Because the United States performs benefit determinations for TSGLI, not Prudential, and because the SGLIA does 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 8 of 11 9 not exhibit any congressional intent for a private right of action against the insurer as to TSGLI benefits, this Court should dismiss Plaintiff’s Amended Complaint as to Prudential, as Prudential is not the proper Defendant. C. Case Law Supports the Conclusion that Plaintiff’s Claims are Against the United States and not Prudential Given its recent adoption, there is little case law involving TSGLI. However, the one applicable published decision supports the conclusion that Plaintiff must sue only the United States for these benefits, not Prudential. In Austin v. Prudential Insurance Company of America, the plaintiff brought state law claims based on the denial of TSGLI benefits. Austin v. Prudential Insurance Company of America, No. SA-12-CA_473, 2013 WL 12094176, *1 (W.D. Tex. 2013). The Western District of Texas granted Prudential’s motion to dismiss because the SGLIA preempted the plaintiff’s state law claims. Id. However, the court also suggested that the United States was the only proper defendant, finding: Although the Government is the policy holder and not the insurer, it is nevertheless charged with determining whether an injured individual qualifies for coverage. In fact, every aspect of eligibility determination under the TSGLI is provided in federal statute or regulations. Id. Congress has established the minimum and maximum amount of coverage allowed. 38 U.S.C. § 1980(A)(d). The Secretary of Veterans' Affairs prescribes the type and amount of qualifying losses and conditions under which the coverage is excluded. Id. at §§ 1980(A)(b)(1) & 1980(A)(b)(3). The Secretary also establishes the premium amounts. Id. at § 1980(A)(e)(3). Each service branch must certify whether its injured member qualifies for benefits and if so, how much he or she should be awarded. 38 C.F.R. § 9.20 (i). If a service member is denied coverage, he or she may appeal the decision by filing a written complaint with the relevant service. Id. Should the appeal fail, the next step is a civil action against the United States. See 38 U.S.C. § 1975 (The district courts of the United States shall have original jurisdiction of any civil action or claim against the United States founded upon this subchapter.); see also 38 C.F.R. § 9.20(i)(3) (Actions at law or in equity to recover on the policy, in which there is not alleged any breach of any obligation undertaken by the United States, should be brought against the insurer.). Id. at 1-2 (emphasis added). 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 9 of 11 10 Austin reinforces the points made above, namely that the determination at issue here was made by the Government and that Plaintiff’s remedy, if any, lies against only the Government. CONCLUSION The Court should grant Prudential’s motion to dismiss and dismiss Plaintiff’s Amended Complaint in its entirety with prejudice as to Prudential. DATED: April 10, 2017 Respectfully submitted, By: /s/ Shelley R. Hebert Ian H. Morrison Shelley R. Hebert Seyfarth Shaw LLP 233 South Wacker Drive Suite 8000 Chicago, IL 60606 Telephone: (312) 460-5000 Facsimile: (312) 460-7000 imorrison@seyfarth.com shebert@seyfarth.com W. Kirk Turner Newton, O’Connor, Turner & Ketchum 2700 Bank of America Center 15 West Sixth Street Tulsa, Oklahoma 74119-5423 Telephone: (918)587-0101 Facsimile: (918)587-0102 kturner@newtonoconnor.com Attorneys for Defendant, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 10 of 11 11 CERTIFICATE OF SERVICE I do hereby certify that on April 10, 2017, I have caused a true and correct copy of the foregoing MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT PRUDENTIAL’S MOTION TO DISMISS PLAINTIFF’S AMENDED COMPLAINT to be served upon the following via the Court’s CM/ECF system: James G. Wilcoxen Amy K. Hart Wilcoxen & Wilcoxen Hart Law Office, PC PO Box 357 PO Box 4040 Muskogee, OK 74402-0357 Bartlesville, OK 74006 jim@wilcoxenlaw.net ahart@hartlawpc.net Counsel for Plaintiffs /s/ Shelley R. Hebert________________ Counsel of Record 6:16-cv-00556-SPS Document 32 Filed in ED/OK on 04/10/17 Page 11 of 11 38412219v.1 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF OKLAHOMA MARK J. PEARSON, Plaintiff, Case No. 16-cv-00556-SPS v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, INC., and THE UNITED STATES OF AMERICA, ex. rel., THE U.S. ARMY, Defendant. PROPOSED ORDER This matter having come before the Court on Defendant The Prudential Insurance Company of America’s Motion to Dismiss Plaintiff’s Amended Complaint, and the Court being otherwise fully advised in the premises, IT IS ORDERED that The Prudential Insurance Company of America’s Motion is granted and Plaintiff’s Amended Complaint is dismissed with prejudice as to Prudential. Date: _______________ _ ______ HONORABLE JUDGE PRESIDING 6:16-cv-00556-SPS Document 32-1 Filed in ED/OK on 04/10/17 Page 1 of 1