Dietz-Clark v. HDR, Inc. et al

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UNITED STATES DISTRICT COURT
DISTRICT OF ALASKA
VIVIAN DIETZ-CLARK, )
)
Plaintiff, ) 3:15-CV-00035 JWS
)
vs. ) ORDER AND OPINION
)
) [Re: Motion at docket 11]
HDR, INC.; HDR LTD INC. PLAN; and )
UNITED OF OMAHA LIFE )
INSURANCE CO., )
)
Defendants. )
)
I. MOTION PRESENTED
At docket 11, Defendants HDR, Inc. (“HDR”), HDR LTD Inc. Plan (“LTD Plan”),
and United of Omaha Life Insurance Co. (“United of Omaha”; collectively, “Defendants”)
filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. Plaintiff Vivian Dietz-Clark (“Dietz-Clark” or “Plaintiff”) responds at
docket 12. Defendants reply at docket 17. Oral argument was not requested and
would not assist the court.
II. BACKGROUND
Dietz-Clark worked as a right-of-way specialist for HDR. She alleges that
beginning on July 30, 2012, she suffered from various medical conditions that affected
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her ability to work. She underwent surgery for a pacemaker on August 12, 2012.
Afterwards, she had difficulty keeping up with her work. She received short-term
disability benfits for a few months, and then in late October of 2012, she applied for
long-term disability benefits with United of Omaha under HDR’s long-term disability
plan, the LTD Plan. The LTD Plan is an employee benefits plan governed by the
Employee Retirement Income Security Act of 1974 (“ERISA”).1 By letter dated
February 28, 2013, United of Omaha denied her claim for long-term disability benefits
and informed her that she had 180 days to appeal the decision. She did not f ile an
appeal because, according to the complaint, she had hoped to rehabilitate herself .
On January 16, 2015, Dietz-Clark, through her attorney, requested that United of
Omaha reopen her claim. She conceded that she had not appealed the denial w ithin
180 days, but argued that the missed deadline was not fatal to her request because of
Alaska’s “notice-prejudice rule,” which is not preempted by ERISA based on UNUM Life
Insurance Co. v. Ward.2 United of Omaha declined to reopen the claim. This lawsuit
followed.
III. STANDARD OF REVIEW
Rule 12(b)(6) tests the legal sufficiency of a plaintiff’s claims. In reviewing such
a motion, “[a]ll allegations of material fact in the complaint are taken as true and
construed in the light most favorable to the nonmoving party.”3 To be assumed true,
the allegations “may not simply recite the elements of a cause of action, but must
contain sufficient allegations of underlying facts to give fair notice and to enable the
opposing party to defend itself effectively.”4 Dismissal for failure to state a claim can be
based on either “the lack of a cognizable legal theory or the absence of sufficient facts
129 U.S.C. §§ 1001 et seq.
2526 U.S. 358 (1999).
3Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1997).
4Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
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alleged under a cognizable legal theory.”5 “Conclusory allegations of law . . . are
insufficient to defeat a motion to dismiss.”6
To avoid dismissal, a plaintiff must plead facts sufficient to “‘state a claim to relief
that is plausible on its face.’”7 “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.”8 “The plausibility standard is not akin to
a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant
has acted unlawfully.”9 “Where a complaint pleads facts that are ‘merely consistent
with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility
of entitlement to relief.’”10 “In sum, for a complaint to survive a motion to dismiss, the
non-conclusory ‘factual content,’ and reasonable inferences from that content, must be
plausibly suggestive of a claim entitling the plaintiff to relief.”11
IV. DISCUSSION
Defendants argue that Plaintiff’s lawsuit should be dismissed because of her
failure to exhaust the LTD Plan’s administrative remedies. Indeed, as a general rule an
ERISA “claimant must avail himself or herself of a plan’s own internal review
5Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).
6Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001).
7Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007)).
8Id.
9Id. (citing Twombly, 550 U.S. at 556).
10Id. (quoting Twombly, 550 U.S. at 557).
11Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009); see also Starr, 652 F.3d
at 1216.
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procedures before bringing suit in federal court.”12 An ERISA claimant’s failure to file a
timely administrative appeal from a denial of benefits constitutes a failure to exhaust
administrative remedies.13 Here, in accordance with ERISA regulations, Plaintiff had
180 days from the denial of her claim in which to file an appeal.14 It is undisputed that
she failed to do so, and thus, her 2015 request to appeal her claim was untimely.
However, Plaintiff argues that her appeal should not be considered late or at least
should be excused because Alaska’s “notice-prejudice rule” applies to override the
contractual time limit set forth in the LTD Plan unless United of Omaha can
demonstrate prejudice as a result of her delay. Thus, she argues that her attempted
appeal in 2015, which United of Omaha unduly refused to consider, sufficiently
exhausted her administrative remedies.
ERISA supercedes any state laws relating to employee benefit plans,15 but it
does not preempt state laws that regulate the insurance industry.16 In UNUM, the
Supreme Court held that California’s notice-prejudice rule—under which an insurer
cannot deny a claim based on an untimely notice or proof of claim unless the insurer
shows it suffered actual prejudice from the delay—was in fact a law that regulated
insurance and thus escaped preemption under ERISA. The Court noted that the
California notice-prejudice rule, established through case law, “effectively creates a
mandatory contract term that requires the insurer to prove prejudice before enforcing a
12Diaz v. United Agric. Emp. Welfare Benefit Plan and Trust, 50 F.3d 1478, 1483 (9th
Cir. 1995).
13See Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355, 362 (7th Cir. 2011).
1429 C.F.R. § 2560.503-1(h)(3)(I); Complaint, Doc. 1 at p. 4, ¶ 17.
1529 U.S.C. § 1144(a).
1629 U.S.C. § 1144(b)(2)(A).
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timeliness-of-claim provision.”17 It then stressed that “state laws mandating insurance
contract terms are saved from preemption [under ERISA].”18
Alaska has a notice-prejudice rule that has developed through case law.
Alaska’s notice-prejudice rule, like California’s rule, has been applied to extend
contractual notice of claim deadlines absent a showing of prejudice by an insurer.19
Alaska has also applied the notice-prejudice rule to insurance policy provisions other
than claim notice deadlines. In Estes v. Alaska Insurance Guaranty Association,20 the
Alaska Supreme Court held that the notice-prejudice rule applied to provisions placing
time limits on the commencement of lawsuits that are shorter than the statute of
limitations. That is, the court held that a contractual modification of the statute of
limitations is only enforced upon a showing of prejudice. Based on Estes then, in order
for an insurance company to base its defense on the insured’s failure to bring suit in a
timely manner under the contract, but within the statute of limitations, it must show that
the delay caused prejudice that the time limit sought to avoid.21 The notice-prejudice
rule also applies to an insurer’s attempt to use the breach of a cooperation clause in an
insurance contract as a defense to a lawsuit. The insurer must show that the breach of
the cooperation clause caused it prejudice.22
Plaintiff argues that because Alaska’s notice-prejudice rule has been applied
beyond just notice of claim time limitations and particularly to commencement of lawsuit
17UNUM, 526 U.S. at 374 (internal quotation marks omitted).
18Id. at 375.
19See Weaver Bros., Inc. v. Chappel, 684 P.2d 123 (Alaska 1984).
20774 P.2d 1315 (Alaska 1989).
21Id. at 1317-18.
22Id. at 1318; see also Allstate Ins. Co. v. Herron, 634 F.3d 1101 (9th Cir. 2011)
(stressing that under Alaska law an insured needs to be prejudiced before relying on a breach
of a cooperation clause to avoid liability).
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time limitations, it also applies to any time limitations in insurance policies. Thus, she
argues, Alaska’s law would apply to this ERISA case pursuant to UNUM. The court
disagrees that Alaska’s notice-prejudice rule is as broad as Plaintif f asserts. While
Alaska has an extended notice-prejudice rule that has been applied to com mencement
of suit time limitations, the rule has only been applied when the insurance policy
shortens the applicable statute of limitations. It has not been extended so far as to
cover contractual administrative appeal deadlines, particularly in ERISA cases where
the appeal deadline is required under federal regulation to be no less than 180 days, as
it was here. That is, the Alaska cases “simply do not support application of the notice-
prejudice rule to a deadline of a post-denial appeals process that is mandated by
federal regulation.”23
Plaintiff argues that even if the cases are distinguishable, this court must predict
how the Alaska Supreme Court would apply the notice-prejudice rule to the situation
presented here. She then argues that the Alaska Supreme Court would likely extend
the notice-prejudice rule to an appeal deadline, because it is a deadline that w as not
actually bargained for but rather imposed by the insurer. As noted by Defendants, the
Alaska cases developing the notice-prejudice rule involved individual insurance
contracts, not ERISA group plans. The Alaska cases stressed the fact that such
individual contracts are not typically bargained for but rather are unilaterally imposed by
the insurer, and the cases stressed the importance of the notice-prejudice rule in
protecting reasonable consumer expectations in relation to an individual insurance
policy. ERISA plans, however, are different. The Supreme Court indicated in
Heimeshoff v. Hartford Life & Accident Insurance Co.,24 that ERISA plans should be
enforced as written because “employers have large leeway to design disability and
23Doc. 17 at p. 3.
24134 S.Ct. 604 (2013).
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other welfare plans as they see fit.”25 That is, the employer actually bargains for the
plan’s terms. Thus, the rationale behind the Alaska Suprem e Court’s notice-prejudice
rule is inapplicable.26 Also, there has been no contractual shortening of any typical
deadline here. As noted above, pursuant to federal regulations, the appeal deadline
cannot be shorter than 180 days, and therefore, the appeal deadline provided in the
LTD Plan met any reasonable expectation of the employee.
That said, the court need not predict whether the state notice-prejudice rule
would apply here. As noted by Defendants, in ERISA cases “[t]he federal court is not
tasked with predicting how a state court might create insurance common law.”27 The
ERISA savings clause only exempts existing state laws that regulate insurance from
preemption, not hypothetical ones. In ERISA cases, the court is required to rely on
federal common law.28 As noted by the Ninth Circuit, “[t]here is no . . . federal case that
has applied a notice-prejudice rule outside the initial review context. To extend the
notice-prejudice rule to ERISA appeals would extend the rule substantially beyond its
previous uses.”29 The court is “not inclined to make such a significant and
unprecedented extension of the rule.”30
25Id. at 611-12.
26Moreover, based on the Supreme Court’s decision in Heimeshoff, which held
that “[a]bsent a controlling statute to the contrary, a participant and a plan may agree by
contract to a particular limitations period, even one that starts to run before the cause of
action accrues, as long as the period is reasonable,” it is likely that a notice-prejudice
rule that applies to a contractually shortened limitations period would be preempted in
the ERISA context. 134 S. Ct. at 610.
27Doc. 17 at p. 4 n.3.
28LeGras v. AETNA Life Ins. Co., 786 F.3d 1233, 1236 (9th Cir. 2015) (noting that courts
are to supplement explicit provisions and general provisions set out in ERISA with a body of
federal common law).
29Chang v. Liberty Life Assurance Co. of Boston, 247 Fed. App’x 875, 878 (9th Cir.
2007).
30Id.
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V. CONCLUSION
Based on the preceding discussion, Defendants’ motion at docket 11 is
GRANTED.
DATED this 14th day of October 2015.
/s/ JOHN W. SEDWICK
SENIOR UNITED STATES DISTRICT JUDGE
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