Susan Salyers v. Metropolitan Life Ins. Co.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SUSAN SALYERS, an individual, No. 15-56371
Plaintiff-Appellant,
D.C. No.
v. 2:14-cv-07490-
PA-JC
METROPOLITAN LIFE INSURANCE
COMPANY, Guardian Ad Litem,
MetLife, Inc., OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Percy Anderson, District Judge, Presiding
Argued and Submitted March 6, 2017
Pasadena, California
Filed September 20, 2017
Before: Harry Pregerson, Richard A. Paez,
and Marsha S. Berzon, Circuit Judges.
Opinion by Judge Pregerson
2 SALYERS V. METROPOLITAN LIFE INS. CO.
SUMMARY *
Employee Retirement Income Security Act
The panel reversed the district court’s judgment in favor
of the defendant following a bench trial in an ERISA action
concerning life insurance.
The plaintiff bought a $250,000 life insurance policy on
her husband, but the defendant insurer paid out only $30,000
because the plaintiff had not submitted evidence of
insurability with her coverage election, as required under the
ERISA-governed benefits plan. The panel held that the
defendant waived the evidence of insurability requirement
because it did not ask the plaintiff for a statement of health,
even as it accepted her premiums for $250,000 in coverage.
The panel held that, under the federal common law of
agency, the knowledge and conduct of the policyholder-
employer could be attributed to the defendant. The panel
remanded the case to the district court with instructions to
enter judgment in favor of the plaintiff for the amount of the
$250,000 policy that remained unpaid.
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
SALYERS V. METROPOLITAN LIFE INS. CO. 3
COUNSEL
Christian J. Garris (argued), Law Offices of Christian J.
Garris, Los Angeles, California, for Plaintiff-Appellant.
Ian Seth Linker (argued), Metropolitan Life Insurance Co.,
New York, New York; Misty A. Murray, Hinshaw &
Culbertson LLP, Los Angeles, California; for Defendant-
Appellee.
OPINION
PREGERSON, Circuit Judge:
Plaintiff-Appellant Susan Salyers (“Salyers”), a nurse at
Providence Health & Services (“Providence”), bought a
$250,000 life insurance policy on her husband through an
ERISA-governed benefits plan. Salyers paid premiums
commensurate with that amount of coverage. When
Salyers’s husband died shortly thereafter, Defendant-
Appellee Metropolitan Life Insurance Company
(“MetLife”) paid out only $30,000. MetLife refused to pay
the full $250,000 because Salyers had not submitted
evidence of insurability with her coverage election, as
required under the plan. After unsuccessfully appealing the
denial of benefits through MetLife’s administrative process,
Salyers filed suit against MetLife. The district court
conducted a bench trial and entered judgment for MetLife.
Salyers appealed. We reverse.
FACTUAL AND PROCEDURAL BACKGROUND
Salyers is a nurse at Providence. She was a participant
in an ERISA-governed employee welfare benefits plan (“the
Plan”) that provided, among other benefits, dependent life
4 SALYERS V. METROPOLITAN LIFE INS. CO.
insurance. MetLife issued the group policy that funded life
insurance benefits under the Plan.
At the time Salyers first applied for dependent life
insurance in 2013, the Summary Plan Description listed
eligibility requirements for Dependent Life Insurance
coverage and described “How the Plan Works”:
Each fall you elect your Dependent Life
benefit options to be effective for the next
calendar year. During your first enrollment
as newly benefits eligible employee [sic], you
may select any amount of spouse/Adult
Benefit Recipient domestic partner coverage
up to $50,000 without evidence of
insurability (statement of health). After the
first year, spouse/Adult Benefits Recipient
domestic partner coverage amounts may be
increased by one level per year for coverage
levels up to and including $50,000. No
evidence of insurability is required for this
increase. Evidence of insurability is required
for any coverage amount above $50,000 or
for any increase of more than one benefit
level.
On August 15, 2013, Salyers submitted her benefits
elections to Providence. On the Benefits Enrollment Form,
which warns that “MetLife may require evidence of
insurability depending on your election,” Salyers elected life
insurance coverage in the amount of $20,000 for herself and
$20,000 for her spouse, Gary Wolk (“Gary”). Because
Salyers elected only $20,000 in coverage for Gary, no
evidence of insurability was required.
SALYERS V. METROPOLITAN LIFE INS. CO. 5
Although Salyers elected only $20,000 in coverage for
Gary, Providence mistakenly entered $500,000 in its system.
Due to this administrative error, Providence deducted
premiums from Salyers’s paycheck based on $500,000 in
coverage during the last four months of 2013. During that
time, neither Providence nor MetLife asked Salyers to
submit a statement of health or any other evidence of
insurability for Gary’s 2013 coverage. 1
During the next open enrollment period, Salyers elected
$250,000 in life insurance coverage for Gary, effective
January 1, 2014. The 2014 Plan documents reiterated that
evidence of insurability was required for elections of
coverage of over $50,000. The Plan’s 2014 open enrollment
guide stated that “any coverage you elect requiring a
statement of health will not take effect until approved by
MetLife.” Salyers did not submit a statement of health or
other evidence of insurability with her 2014 election.
Nonetheless, Salyers’s premium payments were adjusted to
reflect her new election of $250,000 in coverage, and, again,
neither Providence nor MetLife asked for a statement of
health or other evidence of insurability. 2
1
None of the Plan documents in the record define “evidence of
insurability” or “statement of health,” and no statement of health form
appears in the record.
2
According to a MetLife employee’s notes, “Typically[,] if an
employee wants to elect an amount that requires SOH [(a statement of
health),] Providence would put the amount of life insurance at the max
without SOH ($50k for spouse life), mark it as pending, wait for the SOH
to be approved by MetLife and send a letter. This was not done.”
Apparently, because Salyers’s 2014 election of $250,000 was lower than
the mistakenly-entered $500,000 from the prior year’s enrollment,
Providence’s system did not flag the new coverage election.
6 SALYERS V. METROPOLITAN LIFE INS. CO.
Gary died on January 10, 2014. On January 15, 2014,
Providence sent a letter to Salyers offering its condolences
and stating that Salyers had $250,000 in coverage for Gary.
On January 20, 2014, Salyers submitted a claim for benefits
to MetLife. Accompanying the claim was an Employer’s
Statement from Providence, which said that Salyers had
been enrolled in the Plan effective September 1, 2013, and
that she had $250,000 in dependent life insurance coverage
for Gary.
Upon receiving the claim, MetLife confirmed with
Providence that there was no statement of health on file for
Gary, which led Providence to discover its keystroke error
from the 2013 enrollment. Providence then submitted a
revised Employer’s Statement to MetLife, which stated that
Gary had life insurance coverage in the amount of $30,000.
This amount reflected the coverage for which Gary was
eligible under the Plan without providing evidence of
insurability: the initial election of $20,000 in 2013, plus a
“one level” increase of $10,000 for the following year.
MetLife ultimately paid Salyers $30,000, and
Providence refunded the premiums that were deducted from
Salyers’s paychecks based on the unapproved higher
coverage amount. Salyers called MetLife to ask why it had
not paid the full $250,000. Around that time, a MetLife
employee wrote a note in the file explaining that the full
amount should be paid:
Providence has asked if we can pay this, since
the employee had been enrolled in this
amount and was paying premiums. On their
enrollment confirmations it was showing this
amount, so the employee thought that was
their coverage. I do agree with their
assessment that this should be paid since the
SALYERS V. METROPOLITAN LIFE INS. CO. 7
$250,000 is what the employee thought they
had.
Despite that recommendation, counsel for Providence
explained to Salyers’s counsel that Salyers was not entitled
to the additional $220,000 because she had failed to submit
evidence of insurability as required by the Plan. Salyers
appealed to MetLife in a letter dated July 15, 2014.
After reviewing Salyers’s appeal and the administrative
claim file, MetLife responded that additional benefits were
not payable because MetLife had not received and approved
evidence of insurability for Gary as required by the Plan.
MetLife claimed that its receipt of premiums did not create
coverage.
In a letter dated August 12, 2014, Salyers’s counsel
appealed MetLife’s formal denial. After another review of
the claim file and Salyers’s appeal letter, MetLife upheld its
initial denial of benefits on the same grounds as before, and
so notified Salyers by letter dated August 22, 2014. In that
letter, MetLife explained that it re-examined the entire claim
file and that no new information had been presented to
change the denial decision.
Salyers then filed suit against MetLife in the U.S.
District Court for the Central District of California. She
claimed that MetLife should be estopped from contesting
coverage or, in the alternative, that MetLife waived its right
to enforce the evidence of insurability requirement. The
district court conducted a bench trial on July 28, 2015, and
concluded that Salyers had not sustained her burden of
establishing an entitlement to the unpaid benefits. The
district court entered judgment on August 14, 2015. This
timely appeal followed.
8 SALYERS V. METROPOLITAN LIFE INS. CO.
JURISDICTION AND STANDARD OF REVIEW
This court has jurisdiction under 28 U.S.C. § 1291. We
review the district court’s findings of fact for clear error and
its legal findings de novo. See Pannebecker v. Liberty Life
Assur. Co. of Boston, 542 F.3d 1213, 1217 (9th Cir. 2008).
DISCUSSION
Salyers raises three arguments on appeal: (1) MetLife
waived the evidence of insurability requirement because it
did not ask Salyers for a statement of health, even as it
accepted her premiums for $250,000 in coverage;
(2) MetLife should be estopped from contesting coverage
based on the evidence of insurability requirement; and
(3) MetLife did not conduct a full and fair review of
Salyers’s claim. Because we conclude that MetLife waived
the evidence of insurability requirement, we need not reach
Salyers’s other claims.
A. Salyers’s Waiver Claim
A waiver occurs when “a party intentionally relinquishes
a right” or “when that party’s acts are so inconsistent with an
intent to enforce the right as to induce a reasonable belief
that such right has been relinquished.” See Intel Corp. v.
Hartford Accident & Indem. Co., 952 F.2d 1551, 1559 (9th
Cir. 1991). Courts have applied the waiver doctrine in
ERISA cases when an insurer accepted premium payments
with knowledge that the insured did not meet certain
requirements of the insurance policy. See, e.g., Gaines v.
Sargent Fletcher, Inc. Grp. Life Ins. Plan, 329 F. Supp. 2d
1198, 1222 (C.D. Cal. 2004) (holding that an insurer waived
its right to rely on evidence of insurability requirement as
grounds for denial of benefits by receiving payments without
“giving any indication” that the insured had failed to submit
SALYERS V. METROPOLITAN LIFE INS. CO. 9
evidence of insurability); Pitts v. Am. Sec. Life Ins. Co.,
931 F.2d 351, 357 (5th Cir. 1991) (finding waiver in ERISA
action where insurer continued accepting payments after
learning of plan participant’s breach of policy requirements).
This is not, however, a straightforward waiver case, in
which the insurer had actual notice of the facts and failed to
act. As the district court found, MetLife and Providence
created a system in which Providence was responsible for
interacting with plan participants and MetLife remained
largely ignorant of individual plan participants’ coverage
elections. Because of this compartmentalized system, until
Salyers made her claim for benefits, MetLife did not know
that (1) premiums had been deducted from Salyers’s
paycheck or (2) Salyers had elected coverage in an amount
that required evidence of insurability under the Plan.
MetLife argues that, under the circumstances, its
inaction—failing to ask Salyers for a statement of health—
was not “so inconsistent with an intent to enforce” the Plan’s
evidence of insurability requirement as to constitute a
waiver. See Intel Corp., 952 F.2d at 1559; see also Yale v.
Sun Life Assur. Co. of Canada, No. 1:12-cv-01429-AWI-
SAB, 2013 WL 5923073, at *11 (E.D. Cal. Oct. 31, 2013)
(holding that plaintiff failed to establish waiver of evidence
of insurability requirement because insurer was unaware that
plaintiff was required to—yet did not—submit evidence of
insurability). Salyers contends that MetLife’s purported
ignorance of the facts does not negate its obligation to pay
the entire $250,000 because, under agency law, Providence’s
knowledge and conduct may be attributed to MetLife. We
agree.
10 SALYERS V. METROPOLITAN LIFE INS. CO.
B. Federal Common Law of Agency
a. Congress Authorized the Development of
Federal Common Law under ERISA
In UNUM Life Ins. Co. of Am. v. Ward, the Supreme
Court held that ERISA preempts state laws that deem a
policyholder-employer an agent of the insurer in
administering group policies. 526 U.S. 358, 379 (1999).
The Court noted that automatically applying state agency
rules in the ERISA context would force an employer to
“assume a role . . . that it has not undertaken voluntarily” and
affect “not merely the plan’s bookkeeping obligations,” but
also “the basic services that a plan may or must provide to
its participants and beneficiaries.” Id. The Court’s holding
left open the opportunity for federal courts to apply agency
law in the ERISA context as a matter of federal common law.
As the Supreme Court has recognized, Congress
empowered courts to “develop a federal common law of
rights and obligations under ERISA-regulated plans.”
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110
(1989) (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56
(1987) (internal quotation marks omitted)). “Congress
realized that the bare terms, however detailed, of [ERISA]
would not be sufficient to establish a comprehensive
regulatory scheme.” Menhorn v. Firestone Tire & Rubber
Co., 738 F.2d 1496, 1499 (9th Cir. 1984). For example,
given the complexity of employee benefit plans, the ERISA
statutory scheme could not address every aspect of the
relationships that develop between employees, employers,
and insurers. In this context, a federal common law of
agency can “supplement[] the statutory scheme
interstitially.” Id.SALYERS V. METROPOLITAN LIFE INS. CO. 11
b. Federal Common Law of Agency Furthers the
Policy Goals of ERISA
In developing a body of federal common law governing
employee benefit plans, we have the “obligation” to adopt a
federal rule that “best comports with the interests served by
ERISA’s regulatory scheme.” PM Grp. Life Ins. Co. v.
Western Growers Assur. Trust, 953 F.2d 543, 546 (9th Cir.
1992). Congress specifically stated that it is “the policy of
[ERISA] to protect . . . the interests of participants in
employee benefit plans and their beneficiaries” and to
“increase the likelihood that participants and beneficiaries
. . . receive their full benefits.” 29 U.S.C. §§ 1001(b),
1001b(c)(3). Common law principles of agency effectuate
those policy goals.
The Restatement of Agency 3 defines agency as “the
fiduciary relationship that arises when one person (a
‘principal’) manifests assent to another person (an ‘agent’)
that the agent shall act on the principal’s behalf and subject
to the principal’s control, and the agent manifests assent or
otherwise consents so to act.” Restatement (Third) of
Agency § 1.01 (2006). The legal consequences of an agent’s
actions may be attributed to a principal when the agent is
acting within its authority. Restatement (Third) of Agency
§ 2 intro. note (2006). Additionally, a principal is generally
charged with notice of facts that an agent knows or has
reason to know and that are material to her duties as an agent.
Restatement (Third) of Agency § 5.03 (2006).
3
The federal common law of agency has frequently been derived
from the Restatement of Agency. See, e.g., Cmty. for Creative Non-
Violence v. Reid, 490 U.S. 730, 740 (1989) (citing the Restatement
(Second) of Agency to give meaning to the term “scope of employment”
in the Copyright Act).
12 SALYERS V. METROPOLITAN LIFE INS. CO.
These agency principles, which we adopt into the federal
common law, further Congress’s goals under ERISA by
preventing insurers from evading their obligation to pay
benefits. “Preempting state agency laws without replacing
them . . . [gives insurers] little incentive to monitor ongoing
administration, or to make sure that new information . . .
reaches the beneficiaries.” Joshua A.T. Fairfield, ERISA
Preemption and the Case for a Federal Common Law of
Agency Governing Employer-Administrators, 68 U. Chi. L.
Rev. 223, 241–42 (2001). Adopting an agency rule as a
matter of federal common law in this case would not “affect
the actuarial soundness of the plan” or “fashion a new
ERISA remedy.” Thrall v. Prudential Ins. Co. of Am., No.
3:05-CV-00067-RAM, 2008 WL 5156344, at *4 (D. Nev.
Dec. 5, 2008). Rather, applying the federal common law of
agency with regard to direct interactions with the insured
creates incentives for diligent oversight and prevents an
insurer from relying “on a compartmentalized system to
escape responsibility.” See Lesser v. Metro. Life Ins. Co.,
No. CV 09-5699 RSWL (CWx), 2010 WL 4916607, at *5
(C.D. Cal. Nov. 24, 2010); see also Kobold v. Aetna U.S.
Healthcare, Inc., 258 F. Supp. 2d 1317, 1323–24 (M.D. Fla.
2003) (concluding that imputing the knowledge of an agent
to its principal under federal common law of agency is
consistent with ERISA policy); Steinberg v. Mikkelsen,
901 F. Supp. 1433, 1438–39 (E.D. Wis. 1995) (same).
C. Providence Acted as MetLife’s Agent
The legal consequences of an agent’s actions may be
attributed to a principal when the agent has actual authority
(express or implied) or apparent authority. Restatement
(Third) of Agency § 2 intro. note (2006). “Express actual
authority derives from an act specifically mentioned to be
done in a written or oral communication.” NLRB v. District
SALYERS V. METROPOLITAN LIFE INS. CO. 13
Council of Iron Workers of the State of California and
Vicinity, 124 F.3d 1094, 1098 (9th Cir. 1997). “Implied
actual authority comes from a general statement of what the
agent is supposed to do; an agent is said to have the implied
authority to do acts consistent with that direction.” Id.“Apparent authority results when the principal does
something or permits the agent to do something which
reasonably leads another to believe that the agent had the
authority he purported to have.” Hawaiian Paradise Park
Corp. v. Friendly Broad. Co., 414 F.2d 750, 756 (9th Cir.
1969).
We cannot say whether Providence was acting with
express actual authority as an agent of MetLife, because the
contract and other relevant communications between
Providence and MetLife are not in the record. However, we
have no trouble concluding that Providence had apparent
authority, and perhaps even implied actual authority, to
enforce the evidence of insurability requirement on
MetLife’s behalf.
Even when an insurer retains control over whether a
submitted claim was eligible for benefits, a principal-agent
relationship may still exist where the employer handles
“nearly all the administrative responsibilities.” See Thrall,
2008 WL 5156344, at *4–5. The district court found that
“[t]he task of flagging policies for missing evidence of
insurability was delegated to Providence,” and “Providence
was responsible for insuring that a statement of health or
evidence of insurability accompanied Salyers’ selection of
coverage.” We see no error in those findings. The Plan’s
enrollment guide informed plan participants that MetLife
used the statement of health form to determine whether to
approve coverage. MetLife retained final say on the form
and contents of the statement of health document. Yet,
14 SALYERS V. METROPOLITAN LIFE INS. CO.
MetLife played no part in collecting it from plan
participants.
A plan participant would have reasonably believed that
Providence did not collect evidence of insurability of its own
accord but on MetLife’s behalf. Providence’s direct
interaction with plan participants, coupled with MetLife’s
failure to engage with Salyers about evidence of insurability,
suggested that Providence had apparent authority on the
collection of evidence of insurability. See Restatement
(Third) Of Agency § 3.03 (2006) (“A principal’s inaction
creates apparent authority when it provides a basis for a third
party reasonably to believe the principal intentionally
acquiesces in the agent’s representations or actions.”).
Therefore, we conclude that Providence was MetLife’s agent
for purposes of enforcing the evidence of insurability
requirement.
Our holding in this case does not mean that a policy-
holder employer is always an agent of the insurer in every
aspect of plan administration in which it participates. The
nature of the relationship between the employer and insurer
and the nature of the interactions with the insured must be
considered on a case-by-case basis. Accordingly, MetLife’s
concerns about an automatic agency rule are inapt.
D. MetLife Waived the Evidence of Insurability
Requirement
Because Providence was acting as MetLife’s agent for
purposes of collecting, tracking, and identifying
inconsistencies with the evidence of insurability
requirement, Providence’s knowledge and conduct with
regard to those matters are attributed to MetLife. See
Restatement (Third) of Agency § 2 intro. note, § 5.03
(2006).
SALYERS V. METROPOLITAN LIFE INS. CO. 15
Providence knew or should have known that Salyers’s
2014 coverage election required evidence of insurability,
because Providence’s system showed $250,000 in coverage.
Despite having not received evidence of insurability from
Salyers in 2014 or earlier, Providence began deducting
premiums from Salyers’s paycheck every two weeks
between September 2013 and February 2014, in amounts
corresponding to $500,000 in coverage for 2013 and
$250,000 for 2014. Plus, just five days after Gary’s death,
having still not received evidence of insurability, Providence
sent a letter to Salyers confirming coverage of $250,000.
The deductions of premiums, 4 MetLife and Providence’s
failure to ask for a statement of health over a period of
months, and Providence’s representation to Salyers that she
had $250,000 in coverage were collectively “so inconsistent
with an intent to enforce” the evidence of insurability
requirement as to “induce a reasonable belief that [it] ha[d]
been relinquished.” See Intel Corp., 952 F.2d at 1559; see
also Gaines, 329 F. Supp. 2d at 1222. Accordingly, MetLife
4
Several district courts in our circuit have held that waiver “cannot
be used to create coverage beyond that actually provided by an employee
benefit plan.” Flynn v. Sun Life Assur. Co. of Canada, 809 F. Supp. 2d
1175, 1187 (C.D. Cal. 2011); Yale v. Sun Life Assur. Co. of Canada, No.
1:12-cv-01429-AWI-SAB, 2013 WL 5923073, at *13 (E.D. Cal. Oct. 31,
2013). But where, as here, premium payments have been accepted
despite the plan participant’s alleged noncompliance with policy terms,
“giving effect to the waiver . . . does not expand the scope of the ERISA
plan; rather it provides the Plaintiff with an available benefit for which
he paid.” Gaines v. Sargent Fletcher, Inc. Grp. Life Ins. Plan, 329 F.
Supp. 2d 1198, 1222 (C.D. Cal. 2004).
16 SALYERS V. METROPOLITAN LIFE INS. CO.
waived the evidence of insurability requirement, and it
cannot contest coverage on that basis. 5
CONCLUSION
The district court erred when it held that MetLife did not
waive the evidence of insurability requirement.
Accordingly, we REVERSE and REMAND with
instructions to enter judgment in favor of Salyers for the
amount of the $250,000 policy that remains unpaid.
5
Generally, “[t]he doctrine of waiver looks to the act, or the
consequences of the act, of one side only, in contrast to the doctrine of
estoppel, which is applicable where the conduct of one side has induced
the other to take such a position that it would be injured if the first should
be permitted to repudiate its acts.” Intel Corp. v. Hartford Accident &
Indem. Co., 952 F.2d 1551, 1559 (9th Cir. 1991) (internal citations and
quotation marks omitted). We are mindful, however, of our previous
statement that “in the insurance context, the distinction between waiver
and estoppel has been blurred. . . . [I]t is consistent with ERISA to
require an element of detrimental reliance or some misconduct on the
part of the insurance plan before finding that it has affirmatively waived
a limitation defense.” Gordon v. Deloitte & Touche, LLP Grp. Long
Term Disability Plan, 749 F.3d 746, 752-53 (9th Cir. 2014) (internal
citations and quotation marks omitted). Assuming, without deciding,
that our holding in Gordon applies beyond the waiver of a statute of
limitations defense at issue in that case, the record reflects that Salyers
detrimentally relied on Providence and MetLife’s conduct, presumably
by not buying other insurance. In a letter to Salyers, MetLife admits that
“it appears that Ms. Salyers detrimentally relied on having Dependent
Life Insurance great[er] than $30,000.”