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Coastal Medical, Inc. v. Reliance Standard Life Insurance Co.

United States District Court, D. Rhode Island

July 24, 2017

COASTAL MEDICAL, INC., et al., Plaintiffs,
v.
RELIANCE STANDARD LIFE INSURANCE COMPANY Defendant.

          MEMORANDUM AND ORDER

          JOHN J. MCCONNELL, JR. UNITED STATES DISTRICT JUDGE.

         Plaintiffs Coastal Medical, Inc., ("Coastal") and Joanne Carnevale have brought this action against Reliance Standard Life Insurance Company ("Reliance"), alleging that Reliance improperly denied benefits under a life insurance plan governed by the Employment Retirement Income Security Act of 1974 (ERISA).[1] The parties have filed Cross Motions for Summary Judgment pursuant to Fed.R.Civ.P. 56. ECF Nos. 36 & 43. Reliance argues that Dr. Robert Carnevale's policy lapsed and, therefore, benefits were properly denied. The Plaintiffs do not dispute the lapse but instead claim that Reliance forfeited its right to deny coverage for a myriad of reasons, including statutory violations, waiver, estoppel, and breach of fiduciary duties. Because the Court finds that Reliance has shown that there is no genuine issue as to any material fact such that a jury could find in the Plaintiffs' favor, Reliance's Motion for Summary Judgment is GRANTED, and the Plaintiffs' Motion for Summary Judgment is DENIED.

         BACKGROUND

         Dr. Carnevale was a physician, founding shareholder, and employee of Coastal until his death on June 27, 2015. As part of his employment with Coastal, he participated in a group life insurance plan, which operated as a funding mechanism for the employer to buy back shares upon the death of a shareholder. This life insurance policy ("Policy") was insured by Reliance and governed pursuant to the agreed upon plan ("Plan"). Up until Dr. Carnevale's death in 2015, the premiums under the Policy were paid, but coverage had actually lapsed on November 1, 2014.

         Prior to the Policy with Reliance, Coastal had a life insurance policy with the Standard Life Insurance Company ("Standard"). In 2010, Coastal began negotiations with Reliance as Coastal contemplated replacing Standard as its insurer. In September of that year, Reliance represented in a telephone conference with the Chief Operating Officer of Coastal and the Vice President of Organizational Support and Compliance for Coastal that it would match or enhance all benefits for Coastal shareholders and employees. Later that month, Reliance confirmed these representations in writing.

         Reliance sent a contract comparison examining the benefits included in Standard's plan and Reliance's proposed plan to ensure that there would be no degradation of life insurance or disability insurance upon the carrier change. This chart detailed the benefits offered by Reliance but not all of the terms of the Plan.

         There was a relevant difference-coverage. The Standard plan continued coverage of all participants unless the participant's employment was terminated or the participant failed to pay the premium. Under the Reliance plan, participants were required to be active employees and working at least twenty hours a week at the time of their death. This difference in coverage was not indicated in the contract comparison.

         In the fall of 2010, Coastal entered into contracts with Reliance for group life insurance and long-term disability insurance. Under the Policy at issue, Coastal obtained $600, 000 of life insurance coverage for Dr. Carnevale. Coastal also obtained a second life insurance policy, a voluntary group life insurance policy, in the amount of $30, 000 for Dr. Carnevale. And in addition to the two life insurance policies, Dr. Carnevale was also insured under a long-term disability policy.

         Pursuant to the Plan, when a participant becomes ineligible, insurance coverage lapses on the first day of the following month. An ineligible participant is, however, granted two ways to extend coverage. One, under the "Continuation of Individual Insurance" provision, an employee's coverage could continue for up to twelve additional months if illness or disability caused the ineligibility. Under this scenario, the plan administrator must simply pay the premiums for the twelve months in order for the employee to remain insured. This option was frequently used when employees intended to return to work within a year. Two, under the "Conversion Privilege, " the employee could convert his or her group coverage into an individual insurance plan. In order to utilize this privilege, "a written application for the policy must be made by the insured within thirty-one (31) days after he or she terminates."

         In the Plan, Coastal delegated discretion to Reliance to interpret the terms of the Policy and make claim determinations.

         Dr. Carnevale remained an active, full-time employee of Coastal and remained insured under the Policy for three years. However, on October 11, 2013, Dr. Carnevale became totally disabled and stopped working. Thus, because Dr. Carnevale was no longer an active, full-time employee, his eligibility for coverage terminated on the first day of the following month-November 1, 2013. Instead of offering Dr. Carnevale the right to convert his coverage pursuant to the Conversion Privilege, Coastal simply continued to pay the premiums for Dr. Carnevale.

         In March 2014, Reliance sent Dr. Carnevale a letter advising him of his possible eligibility for a total waiver of premium under the Plan, and a few months later, Coastal sent an email to Reliance inquiring about Dr. Carnevale's eligibility for this waiver. The Plan included a waiver of premium in the event of a disability, which allows coverage to remain in effect without the need to pay premiums if the insured is totally disabled. But in order to be eligible for the waiver, the participant's disability must have occurred before the participant reached the age of 60. So in response to the inquiry, Reliance sent an email indicating that Dr. Carnevale was not eligible, explaining that, in order to obtain the waiver, the "disability" had to occur before the age of 60. Because Dr. Carnevale's cancer diagnosis occurred after the age of 60, he was not eligible. Thus, Reliance advised Coastal that it needed to continue paying premiums in order for Dr. Carnevale to remain insured and told Coastal to let it know if it needed any additional clarification.

         On November 1, 2014, Dr. Carnevale's coverage lapsed because the continuation of coverage provision that allowed him to remain insured was only available for twelve months. Nevertheless, Coastal, as the plan administrator, continued to pay premiums, and Reliance accepted the premiums until Dr. Carnevale's death on June 27, 2015. After Dr. Carnevale's death, Coastal filed a claim for benefits. In a letter dated July 20, 2015, Reliance determined that Dr. Carnevale was not insured at the time of his death and, therefore, denied Coastal's claim. The Plaintiffs' then appealed, and on October 6, 2015, Reliance upheld its denial. As a result of this denial, the Plaintiffs brought the instant action.

         STANDARD OF REVIEW

         A motion for summary judgment should be granted if the pleadings, discovery, disclosure materials on file, and any affidavits "show that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A "'genuine' issue is one that could be resolved in favor of either party, and a 'material fact' is one that has the potential of affecting the outcome of the case." CalewCerezo v. U.S. Dep't of Justice, 355 F.3d 6, 19 (1st Cir. 2004) (quoting Anderson v. Liberty Lobby, Inc., 471 U.S. 242, 248-50 (1986)).

         The moving party bears the burden of establishing that no genuine issues of material fact exist. Flovac, Inc. v. Airvac, Inc., 817 F.3d 849, 853 (1st Cir. 2016). Once the moving party has made the requisite showing, the non-moving party may not merely rely on allegations or denials in its own pleading; rather, its response must-by affidavits or as otherwise provided in the rule-set out specific facts showing a genuine issue for trial. Braga v. Hodgson, 605 F.3d 58, 60 (1st Cir. 2010). In applying this standard, the Court views the record in the light most favorable to the non-moving party, accepting all reasonable inferences favoring that party. Cont'l Cas. Co. v, Canadian Universal Ins. Co., 924 F.2d 370, 373 (1st Cir. 1991). "This standard applies even where . . . the district court is faced with summary judgment motions from all parties." Id.

         As agreed by all the parties, the Court reviews the issues herein de novo because ...


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