United States District Court, S.D. Ohio, Western DivisionSep 14, 2010
Case No. C-1-08-852 (S.D. Ohio Sep. 14, 2010)

Case No. C-1-08-852.

September 14, 2010


HERMAN WEBER, District Judge

This matter is before the Court upon plaintiff Elfriede Wray's Motion for Order to Reverse Administrative Decision (doc. 27) and defendant American United Life Insurance Company's Motion to Uphold Administrative Decision (doc 30). A hearing on the motions was held on August 25, 2010. For the reasons set forth herein, the Court grants the motion of plaintiff Elfriede Wray and denies the motion of defendant American United Life Insurance Company (AUL).

I. Facts

The facts giving rise to this lawsuit are as follows: The Cooperative Group Benefits Plan Trust is an ERISA Plan and the insured under a group life insurance policy sold by defendant AUL, Policy No. G00007576-0001 ("the Policy"). Under the Policy, AUL agreed to insure eligible individuals of member cooperatives. The employer of decedent James Michael Fleck ("Fleck"), Southwest Landmark, Inc., was an "Insured Unit" under the Policy. AUL issued basic and supplemental life insurance benefits to Fleck pursuant to the Policy.

The Policy provides that when a person applies for coverage, he may

(a) name one or more beneficiaries;
(b) classify beneficiaries by order of preference (first or second); and
(c) indicate distribution of the proceeds among members of a class.

An individual can change a beneficiary by submitting a request which must be

(a) signed and dated;
(b) filed through the Group Policyholder; and,
(c) sent immediately to AUL's Home Office by the Group Policyholder.

AUL 00088. The Policy further provides that "AUL will make the change effective the date the form was signed even if the person is not alive when AUL receives it." AUL 00088.

Pages in the Administrative Record are designated "AUL ___"

Fleck died in an auto accident on June 16, 2007. See AUL 00046. He was intestate. Wray was Fleck's girlfriend who lived with him. Employee Benefit Management Corporation ("EBMC"), a corporation that specializes in the management and servicing of self-funded benefit programs, sent a letter to Wray dated June 19, 2007, informing her that she was a beneficiary under the Policy and seeking information from her. See doc. 20-2, p. 26. Subsequently, on September 13, 2007, Gayle Wubbolding of EBMC submitted a letter to Ms. Cecil McCormack of the Group Life Claims Department at AUL stating that the necessary information to file a death claim on Fleck in the amount of $50,000 for basic life coverage and $304,000 for supplemental life coverage was enclosed; asking that the benefits be sent directly to the beneficiaries on the enclosed form; and stating that the beneficiary form, the enrollment form, and other pertinent information was enclosed. See AUL 00043. The letter and each of the enclosed documents is stamped "received" on September 18, 2007, by Group Life Claims.

The beneficiaries listed on the form submitted by EBMC were Wray and Fleck's sons, James Robert Fleck and Scott Fleck. See AUL 00044. EBMC also submitted two forms which Fleck had executed. The first is a document signed by Fleck and dated December 29, 2000, which AUL suggests may have been the initial document executed by Fleck for the application of life insurance coverage. See AUL 00047. It does not designate any beneficiaries. The second is a form captioned "Cooperative Group Benefits Plan Life Beneficiary Information." A box on the form labeled "Change-Reason" is checked. The reason listed on the line next to the box is "Beneficiaries." Halfway down the form is the heading "BASIC AND SUPPLEMENTAL LIFE INSURANCE" and the language "PRIMARY: I name the following person(s) as my primary beneficiary:" The form then provides one line for "Name(s)" of a primary beneficiary with lines immediately below it for one beneficiary's address and relationship. See doc. 19-2, p. 48. On the line provided for listing a primary beneficiary, the word "Attached" is written. The form also provides a line to name one "person(s)" as the secondary beneficiary and lines to list that beneficiary's address and relationship. There are no extra lines on the form to list additional primary or secondary beneficiaries and to provide the addresses and relationships for those beneficiaries. Fleck signed the form and dated it December 30, 2003. See AUL 00048. The next page is a typewritten sheet with the heading "Primary Beneficiaries" and directly below that "Basic and Supplemental Life." It lists Wray, Scott Fleck and James Fleck and their addresses and specifies a percentage of 33.3% for each of them. It repeats the nearly identical information under the heading "Primary Beneficiaries" and "Accidental Death and Dismemberment," although the percentages vary slightly. See AUL 00049.

On September 27, 2007, Wray received a letter from AUL informing her that pursuant to the Policy, the proceeds were to be issued to the named beneficiary, and according to the information submitted to it by the employer/policyholder, there was no signed and dated beneficiary designation. Therefore, the proceeds were payable to the decedent's estate. The letter requested information regarding the estate and informed Wray that if she had any questions, she could contact AUL by phone, fax or email at the numbers and address provided. See AUL 00041.

AUL made the decision to pay the proceeds to the estate on November 16, 2007. AUL 00003. A supervisor at AUL approved the decision on November 19, 2007. AUL 00003. AUL issued a check for the full amount of the proceeds to the estate on November 20, 2007. AUL 00004. The proceeds were distributed to Scott Fleck and James Fleck as Fleck's heirs.

II. Procedural History

Plaintiff instituted an action in state court against AUL, EBMC, Scott Fleck and James Fleck. Defendants subsequently removed the action to federal court. Plaintiff filed an amended complaint in this action on June 23, 2009, against EBMC, AUL, James Fleck and Scott Fleck (doc. 33). EBMC has been dismissed from the lawsuit. The only remaining claim against AUL is one for denial of benefits under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). Plaintiff seeks judgment against AUL in the amount of $118,000, plus interest from June 16, 2007, as well as attorney fees and costs.

The claims against Fleck's sons are not before the Court in connection with the motions at issue.

Plaintiff argues that no one ever informed Fleck that attaching a list of beneficiaries was not acceptable under the Policy; the Court should analyze the beneficiary designation under the "substantial compliance doctrine" and find that it complies with the Policy requirements; and AUL's decision to deny benefits to her for lack of a "signed and dated beneficiary designation" was not reasonable and must be reversed because there was in fact a signed and dated designation. Plaintiff argues that the Policy permits the designation of multiple beneficiaries and Fleck intended to divide the proceeds equally among her and his sons, James and Scott. She alleges that Fleck changed his beneficiary designations on or about December 30, 2003, by completing a form, which he signed and dated and on which he indicated that the purpose of the form was to identify beneficiaries, by writing "attached" on the form, and by attaching a list of beneficiaries, addresses, and percentage distributions. She argues that due to space limitations on the form, the only way to designate multiple beneficiaries was by attachment. She also argues that in order for the word "Attached" as written on the form to have any meaning, it must refer to a piece of paper which identifies beneficiaries, and EBMC submitted just such a piece of paper to AUL. She claims that common sense and a plain reading dictates that the form and the attachment must be considered as one document.

AUL moves the Court to uphold the administrative decision. As a threshold matter, AUL argues that plaintiff's lawsuit challenging its decision denying benefits to her should be dismissed for failure to exhaust her administrative remedies. AUL contends that it never had the opportunity to deny a claim for benefits by plaintiff under the Policy because (1) plaintiff never asserted a claim for benefits with AUL, (2) she did not communicate with AUL after it informed her that it did not believe the benefits were payable to her, (3) she did not submit a claim to the probate court, and (4) she allowed AUL to pay the full amount of the proceeds to the probate court, which in turn distributed the proceeds to Fleck's sons. AUL argues that plaintiff brought her claims "long after AUL could avail itself of legal protections and defenses that arise when competing claims under a life insurance policy are asserted." See doc. 35, p. 2.

AUL further asserts that plaintiff is equitably estopped from pursuing a claim for benefits because AUL detrimentally relied upon plaintiff's failure to assert a claim under the Policy and it was "severely prejudiced" as a result. AUL argues that all of the elements of an equitable estoppel claim are satisfied in this case because AUL notified Wray that she was not identified as a beneficiary under the Policy; she never asserted a claim for benefits under the Policy and never gave AUL notice that she expected to receive benefits from the estate; and it was appropriate for AUL to rely on Wray's failure to submit a claim or to communicate with AUL when it determined that the estate was the proper beneficiary. AUL argues that had plaintiff submitted a claim for benefits, it could have conducted a full investigation of the competing claims and have sought relief in the form of an interpleader action. AUL argues that Wray's inaction should not be rewarded.

AUL further argues that the Sixth Circuit does not apply the substantial compliance doctrine to the determination of life insurance benefits. Rather, AUL contends the Sixth Circuit follows ERISA's mandate that the terms of the Plan must be applied to determine the proper beneficiary. AUL asserts that it engaged in that process and properly determined that Fleck did not designate plaintiff as a beneficiary under the Policy.

AUL argues that even if the substantial compliance doctrine were to apply to this case, the record demonstrates that Fleck did not do all he could reasonably do to name a beneficiary because he did not provide a signed and dated beneficiary designation naming plaintiff as required by the Policy. In making this argument, AUL construes the signed document dated December 30, 2003, on which Fleck wrote the word "Attached," as a completely separate document from the document captioned "Primary Beneficiaries" and "Basic and Supplemental Life" which lists plaintiff and Fleck's two sons and percentages next to their names. AUL argues there is nothing in the record to indicate that Fleck attempted to execute a document naming plaintiff as a beneficiary. AUL contends that it was instead required to rely upon blank and unauthenticated documents.

AUL asserts that the Court may review only the record that was before the administrator at the time of the decision and based upon that evidence, its decision that plaintiff was not a designated beneficiary was reasonable and correct. AUL's position is that neither plaintiff nor anyone else was named as a beneficiary under the Policy in accordance with its express terms. AUL argues that the only signed and dated form it received, AUL 00048, does not list any beneficiaries whereas the only form that does list beneficiaries, AUL 00049, is not signed and dated AUL contends that this latter document contains no indication that Fleck desired the document to reflect his designation of the proceeds under the Policy. Thus, AUL determined that Fleck had not prepared an appropriate change of beneficiary document and had not designated plaintiff as a beneficiary. Rather, "[t]he only document that potentially designated beneficiaries was neither signed nor dated," leaving AUL with the original beneficiary designation, which was "blank." See AUL 00047.

AUL relies on a document which is part of the administrative record but which EBMC apparently did not submit to AUL in connection with the request to pay benefits to bolster its argument. See doc. 20-2, p. 31. The form is not stamped "received" by Group Life Claims. AUL asserts that the document appears to be another life insurance beneficiary designation form which Fleck signed on January 10, 2005, and which leaves the beneficiary designation blank. The box labeled "Change-Reason" is checked and the reason listed on the line next to it is "Beneficiaries." The form waives coverage for dependent life and does not list any beneficiaries under "Basic and Supplemental Life Insurance." See Doc. 20-2, p. 31. AUL argues that the document contains nothing to show that plaintiff was designated as the beneficiary, and Fleck therefore did not do all that he reasonably could have done to change the beneficiary in this case.

In response to AUL's argument that she failed to file a claim, plaintiff asserts that EBMC filed a claim on her behalf, the claim and supporting documents were marked "received" by "Group Life Claims," and AUL created a claim number, 709208382600. Plaintiff notes that AUL never responded that EBMC was unauthorized to submit a claim on her behalf.

Plaintiff contends in response to AUL's failure to exhaust argument that her alleged failure to exhaust administrative remedies is not a defense because AUL failed to establish reasonable claims procedures as required by 29 U.S.C. § 1133(1) and (2) and 29 C.F.R. 2560.503-1 and did not provide any information to her explaining what steps she could take to appeal its decision to not pay benefits to her. Plaintiff asserts that the Policy does not contain any reference to ERISA or its regulations or any procedure for a claimant to request administrative review of a denied claim.

III. Resolution A. Exhaustion/Equitable Estoppel

Initially, the Court finds that EBMC made a claim for benefits on plaintiff's behalf, and AUL treated the letter from Gayle Wubbolding of EBMC as a claim for benefits by plaintiff. Thus, plaintiff made a timely claim for basic and supplemental life insurance benefits.

Every employee benefit plan covered by ERISA must "afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim." 29 U.S.C. § 1133. The Sixth Circuit has held that "[a]lthough ERISA is silent as to whether exhaustion of administrative remedies is a prerequisite to bringing a civil action . . . `[t]he administrative scheme of ERISA requires a participant to exhaust his or her administrative remedies prior to commencing suit in federal court.'" Coomer v. Bethesda Hosp., Inc., 370 F.3d 499, 504 (6th Cir. 2004) (citing Miller v. Metropolitan Life Ins. Co., 925 F.2d 979, 986 (6th Cir. 1991)). This allows "plan fiduciaries to efficiently manage their funds; correct their errors; interpret plan provisions; and assemble a factual record which will assist a court in reviewing the fiduciaries' actions." Id. (citation omitted). The regulations governing ERISA further provide that every employee benefits plan shall establish and maintain reasonable procedures governing the appeal of adverse benefit determinations and sets forth the requirements with which those procedures must comply. See 29 C.F.R. § 2560.503-1.

Although the parties disagree as to whether AUL was required to comply with § 2560.503-1, that issue is not material to the resolution of Wray's claim. AUL did not advise plaintiff as to any administrative procedures which she was required to pursue, or which she had the option to pursue, if she wished to appeal the denial of benefits. Nor has AUL shown that there were administrative procedures set forth in the Plan that plaintiff could have followed in order to appeal the denial of benefits to her. Because AUL has failed to demonstrate that plaintiff received a full and fair opportunity for review of the denial of her claim, plaintiff is not barred from proceeding with her claim against AUL based on a failure to exhaust her administrative remedies.

Nor is plaintiff equitably estopped from pursuing her claim against AUL. AUL contends that plaintiff's claims against it are barred under the doctrine of equitable estoppel because her alleged failure to assert a claim for benefits, or even communicate with AUL, severely prejudiced AUL. AUL relies on Armistead v. Vernitron, 944 F.2d 1287, 1298 (6th Cir. 1991), which sets forth the following elements of an equitable estoppel: "1) conduct or language amounting to a representation of material fact; 2) awareness of the true facts by the party to be estopped; 3) an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe that the former's conduct is so intended; 4) unawareness of the true facts by the party asserting the estoppel; and 5) detrimental and justifiable reliance by the party asserting estoppel on the representation." Id.

AUL has failed to establish the elements of equitable estoppel. EBMC provided to AUL all of the information necessary to pay plaintiff's claim. AUL has not shown that plaintiff acted in any way to prejudice AUL's ability to pay her claim. AUL has not identified a material fact that Wray represented. AUL apparently relies on Wray's alleged inaction to satisfy the "representation" requirement, but AUL does not cite any case law to show that an omission can satisfy this element. Wray's failure to communicate with AUL cannot be deemed a representation of any sort since AUL never advised Wray of the need to contact it if she disagreed with its decision. It follows that the remaining elements are not satisfied. AUL does not identify the true facts of which Wray was aware and of which AUL was unaware. In addition, AUL has not shown an intention by Wray that AUL act on a representation by her. Finally, AUL has not shown that it acted to its detriment on a representation by Wray.

B. Plaintiff's Claim for Benefits

Turning to the merits of plaintiff's claim, the Court rejects plaintiff's position that her claim should be analyzed under the substantial compliance doctrine. The doctrine holds that so long as an insured has substantially complied with the procedures for changing a beneficiary, the change will be honored. Plaintiff contends that the Sixth Circuit has not spoken definitively on whether this approach is proper or whether the plan documents, including the beneficiary designation form, are controlling, but she urges the court to analyze the change of beneficiary designation under the doctrine. The Sixth Circuit has declined to embrace the substantial compliance doctrine, however, and has held firm to the rule that the documents control in ERISA cases and the court may not look beyond the plan documents to determine the beneficiary's intent. See Unicare Life Health Ins. Co. v. Craig, 157 Fed.Appx. 787, 791 (6th Cir. 2005). The Sixth Circuit has consistently held that ERISA, § 1104(a)(1)(D), establishes "a clear mandate that plan administrators follow plan documents to determine the designated beneficiary." Id. (quoting Metro. Life Ins. Co. v. Pressley, 82 F.3d 126, 130 (6th Cir. 1996)). Accordingly, the court will examine the documents to determine whether plaintiff is a designated beneficiary under the express terms of the Policy.

The parties agree that the standard of review is de novo because the Policy does not vest discretionary authority in the Plan Administrator. See Calvert v. Firstar Finance, Inc., 409 F.3d 286, 291-292 (6th Cir. 2005) (the court reviews a plan administrator's denial of benefits de novo if the administrator has no discretion to determine benefits eligibility). Upon a de novo review of the record, the Court finds that plaintiff is a designated beneficiary who is entitled to the proceeds she seeks to recover. Fleck completed a designation of beneficiary form which he signed and dated December 30, 2003. He clearly marked on the form that the reason for completing the form was to change beneficiaries. He also wrote in the space that was provided on the form for listing beneficiaries, which was a limited space that allowed for the listing of only one beneficiary and that beneficiary's address and relationship, the word "Attached." Thus, it is clear from the face of the signed and dated form that Fleck was using a separate sheet to list the names, addresses and relationships of the beneficiaries he was designating. EBMC provided to AUL a sheet with the heading "Primary Beneficiaries" and "Basic and Supplemental Life" which listed the names, addresses and relationships of three beneficiaries, one of whom was Fleck's girlfriend with whom he resided and two of whom were his sons, with percentages that added up to 100%. It makes no sense to consider each of these forms in a vacuum. It is apparent that Fleck was referring to another document when he wrote "Attached" on the designation of beneficiary form, and it is apparent that the sheet listing "Primary Beneficiaries" is not a document that exists independent of the preprinted form. Because the form with the attached sheet is signed and dated, it complies with the Policy requirement that an individual can change a beneficiary "by submitting a request which must be (a) signed and dated." The form with the attachment designates plaintiff as a beneficiary entitled to one-third of the basic and supplemental life insurance proceeds. Plaintiff is entitled to recover that amount from AUL. She is also entitled to recover interest at the rate of 4.84 % from the date of Fleck's death based on counsel's unrefuted representation at the hearing that this is the contractual interest rate as reflected in the administrative record. See AUL 00014, 00015.

C. Request for Attorney Fees

A district court has the discretion under ERISA to "allow a reasonable attorney's fee and costs of action to either party" in an action by a plan beneficiary. 29 U.S.C. § 1132(g)(1). The court must consider the following factors before exercising its discretion in awarding attorney fees: "(1) the degree of the opposing party's culpability or bad faith; (2) the opposing party's ability to satisfy an award of attorney's fees; (3) the deterrent effect of an award on other persons under similar circumstances; (4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and (5) the relative merits of the parties' positions." Shelby County Health Care Corp. v. Majestic Star Casino, 581 F.3d 355, 376-377 (6th Cir. 2009) (citing Moon v. Unum Provident Corp., 461 F.3d 639, 642 (6th Cir. 2006); Sec'y of Dep't of Labor v. King, 775 F.2d 666, 669 (6th Cir. 1985)). No single factor is determinative. Moon, 461 F.3d at 642-43. There is no presumption that attorney's fees should ordinarily be awarded to the prevailing plaintiff. Id. at 376-77 (citing First Trust Corp. v. Bryant, 410 F.3d 842, 851 (6th Cir. 2005)).

Plaintiff has not presented any arguments or evidence in support of her request for attorney fees. Based on the record before it, the Court finds that the factors to be considered do not weigh in favor of an award of attorney fees. While AUL presumably would be able to pay an award of fees and the Court believes plaintiff is clearly entitled to the benefits she seeks, plaintiff requests benefits only for herself under the peculiar circumstances of this case. Moreover, there is no indication that AUL has acted in bad faith. Accordingly, the Court will deny the request for attorney fees but will award plaintiff her costs.

IV. Conclusion

Plaintiff's Motion for Order to Reverse Administrative Decision (doc. 27) is GRANTED and defendant AUL's Motion to Uphold Administrative Decision (doc 30) is DENIED. Judgment is entered in plaintiff's favor and against AUL in the amount of $118,000 plus interest at the rate of 4.84% accruing from June 16, 2007, plus plaintiff's costs.

The claims against James Robert Fleck and Scott Fleck brought in Counts III and IV of the amended complaint remain pending.