Ana Painter v. Golden Rule Insurance Company

Citations: 121 F.3d 436; 1997 WL 461499Docket: 96-3114, 96-3454

Court: Court of Appeals for the Eighth Circuit; November 17, 1997; Federal Appellate Court

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Ana Painter, the plaintiff-appellant, pursued health insurance benefits from Golden Rule Insurance Company under a conversion policy after her employer's group policy was canceled. Golden Rule denied coverage for Painter's high dose chemotherapy and peripheral stem cell infusion treatments, claiming they were experimental and not medically necessary. This denial led to two appeals. In the first appeal (No. 96-3114), Painter challenged the dismissal of her state law claims for malicious prosecution and breach of fiduciary duty, which the district court ruled were preempted by the Employee Retirement Income Security Act (ERISA). In the second appeal (No. 96-3454), Painter contested the attorney's fee award after Golden Rule's declaratory judgment action was dismissed, as the parties had not exhausted the contractual remedies. The court affirmed both decisions.

Background details include that Golden Rule initially covered Painter’s ovarian cancer treatments under a group policy, but after her employment ended and the group policy was canceled, she purchased an individual conversion policy. Painter's subsequent claim for treatment under this policy was denied, prompting Golden Rule to seek a declaratory judgment. The district court dismissed this action without prejudice, ordering Golden Rule to reimburse some of Painter's attorney's fees. Later, Painter initiated a state court action for damages related to the denial of coverage, which was also dismissed on ERISA preemption grounds. The court's ruling on ERISA preemption was reviewed de novo.

Painter contends that her state law claims should not be preempted by ERISA because the Conversion Policy is an individual contract, separate from the group health plan administered by M.D. Care, and that after M.D. Care terminated the group policy, Golden Rule no longer had any connection to it. Painter argues her claims do not "relate to" the ERISA plan under 29 U.S.C. § 1144(a), citing a precedent case (Nill v. Essex Group, Inc.) as support.

The Supreme Court has addressed sixteen ERISA preemption cases since 1974, focusing mainly on the interpretation of "relate to" within § 1144(a). The Court has encountered challenges in clearly defining this phrase. Some cases have dealt with conflict preemption, where state laws conflict with specific ERISA provisions, leading to preemption regardless of the "relate to" analysis.

To evaluate the potential conflict between ERISA and Painter's state law claims, it is essential to determine whether a wrongful denial of benefits claim after exhausting the Conversion Policy's remedies falls under ERISA's provisions. The Supreme Court in Pilot Life Ins. Co. v. Dedeaux established that ERISA’s remedies preempt state law claims related to benefit claim processing, emphasizing the exclusivity of ERISA's civil enforcement remedies, a conclusion supported by legislative history.

Ultimately, if Painter's claim for Conversion Policy benefits is governed by ERISA, her state law claims concerning the mishandling of her benefit claim would be conflict-preempted. The conclusion is that Painter qualifies as a participant under ERISA since she is a former employee eligible to receive benefits, which allows her to sue for benefits under 29 U.S.C. § 1132(a)(1)(B).

Painter's Conversion Policy benefits are considered "due" under ERISA's Section 1132(a)(1)(B), which governs claims for benefits under employee welfare benefit plans. M.D. Care's group health plan qualifies as an ERISA plan, covering medical benefits for employees and their dependents. The Conversion Policy, which Painter seeks benefits from, is derived from her right to obtain it under the expired group policy, thus making it part of M.D. Care's ERISA plan. Consequently, any lawsuit for benefits under the Conversion Policy falls under the jurisdiction of ERISA. Painter's state law claims related to the alleged mishandling of her claim by Golden Rule are preempted by ERISA, a conclusion supported by numerous court decisions. The district court's finding of preemption was deemed correct. Additionally, when Golden Rule initiated a declaratory judgment action, Painter contested its validity on several grounds, including the assertion that ERISA does not apply to the Conversion Policy, that Golden Rule lacks standing for the declaratory judgment, and that Painter had not exhausted the policy's procedures. Golden Rule acknowledged the lack of exhaustion and sought to stay or withdraw its action, while Painter requested dismissal due to lack of subject matter jurisdiction.

After a year of pre-trial proceedings, the district court referred motions for stay and dismissal to a magistrate judge, who recommended voluntary dismissal of the action under Federal Rule of Civil Procedure 41(a)(2) due to Painter's failure to exhaust contract remedies. The district court accepted this recommendation, dismissed the case without prejudice, and ordered Golden Rule to pay Painter's reasonable attorney fees for filing a premature declaratory judgment action. However, the court later clarified that it lacked subject matter jurisdiction because applicable contract remedies had not been exhausted.

Painter's counsel sought $102,619.75 in attorney fees, but Golden Rule contested the court's authority to award fees after a dismissal for lack of jurisdiction. The court acknowledged its earlier mistake, ruling that failure to exhaust contract remedies did not deprive it of the power to condition dismissal on the payment of fees. After reviewing the billing details, the court deemed much of Painter's fee request excessive, ultimately awarding $37,493.35.

On appeal, Painter's argument was deemed incoherent and flawed. She contended that the initial dismissal order made her a prevailing party under ERISA, which was not supported by the record, and she failed to establish that she was a prevailing party under ERISA. Additionally, Painter's assertion that Golden Rule's declaratory judgment action was inevitably dismissible was rejected, as the district court had not considered Golden Rule's alternative motion to stay proceedings.

The court found no legal error in the district court's handling of the attorney fee issue under Rule 41(a)(2) and concluded that the district court did not abuse its discretion in reducing Painter's fee request. Finally, Painter’s suggestion regarding amending her complaint to include ERISA claims was dismissed, as she had not made such a request in the district court, nor specified any new claims on appeal. The court reinforced its typical practice of not considering issues raised for the first time on appeal.

The district court's judgments are affirmed by Judge George F. Gunn, Jr. Under the Consolidated Omnibus Budget Reconciliation Act of 1985, ERISA mandates that most group health plan sponsors, including M.D. Care, provide continuation coverage and conversion plan options upon employment termination (29 U.S.C. §§ 1161-63; § 1162(5)). While the parties agree on M.D. Care's obligations to provide these benefits, this assumption does not influence the appeals' outcome. The text references a thorough discussion in Connecticut Gen. Life Ins. Co. v. Cole, although the issue is not addressed in the current case. Painter's attempts to challenge Golden Rule's declaratory judgment have complicated the resolution of the core issue regarding Conversion Policy coverage, which the court finds regrettable but attributes to Painter's litigation strategy. The court decides not to intervene in the resulting deadlock.