preempted, § 502(a) suit is demonstrated in Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482 (7th Cir. 1996).
In Jass, the plaintiff sued a registered nurse employed by her insurance company for alleged negligence in denying her medical treatment. The court applied the Rice factors and found that the plaintiff's negligence claim was in reality a § 502(a) denial-of-benefits claim completely preempted by ERISA, because the issue could not be resolved without interpreting the benefits contract. 88 F.3d at 1489-90.
Tormey's causes of action similarly fall within § 502(a). First, Tormey is a participant in the plan eligible to bring suit under § 502(a). Second, because General American denied coverage for his third heart attack, he is seeking to recover benefits under the plan. Third, because the plan's preexisting condition clause is the main issue in this case, the claim cannot be resolved without interpreting that provision's language. His allegations are therefore completely preempted under § 502(a)(1)(B) and must be recharacterized as arising under federal law.
Tormey battles ERISA preemption by asserting that General American waived its right to proceed under ERISA because the plan states that "the policy is delivered in Illinois and is governed by its laws." (Pl.'s Mem. in Resp. to Def.'s Mot. for Summ. J. at 4-6). The policy may be governed by Illinois law in general, but that cannot prevent ERISA preemption. One of the primary purposes of ERISA is to create uniform standards for employee benefit plans. Shaw, 463 U.S. at 99 & n.20 (citing various legislators' statements). Even if the plan is governed by Illinois law, that law is preempted to the extent that it is a law "relating to" an employee benefit plan, which is superseded by ERISA's § 514. See 29 U.S.C. § 1114(a); see also Central States, S.E. & S.W. Areas Health & Welfare Fund v. Neurobehavioral Assocs., P.A., 53 F.3d 172, 174 (7th Cir. 1995) (establishing that ERISA displaces any state law affecting employee benefit plans). Therefore, ERISA governs Tormey's claim regardless of any private contractual agreement to waive federal law.
Although Tormey has never amended his original state court complaint to add any ERISA causes of action, since he has made several ERISA claims in the briefing of the pending motion, we will proceed to address the merits of Tormey's potential claims under ERISA. See Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir. 1992).
C. Estoppel Claim
We begin by analyzing the merits of Tormey's estoppel claim under ERISA. The estoppel claim is based on Boxall's oral representation that his previous heart attacks were not preexisting conditions. Estoppel may be applicable to ERISA claims under certain circumstances. Black v. TIC Inv. Corp., 900 F.2d 112, 115 (7th Cir. 1990). Unfortunately, Tormey's estoppel claim here is barred because the Seventh Circuit has held that oral modifications of ERISA plans are invalid. Pohl v. Nat'l Benefits Consultants, Inc., 956 F.2d 126, 128 (7th Cir. 1992); see also Russo v. Health, Welfare, and Pension Fund, Local 705, Int'l Bhd. of Teamsters, 984 F.2d 762, 767 (7th Cir. 1993) ("As a general rule, ERISA does not recognize oral modifications of a written benefit plan which precludes the use of estoppel principles to alter ERISA plans.").
One of ERISA's purposes is to protect the financial integrity of pension and welfare plans by confining benefits to the terms of the plan as written. For this reason, suits based on oral representations are generally prohibited. Pohl, 956 F.2d at 128. The main objection to oral modifications is that they enable the plan to be "eroded by relatively low-level employees who in response to inquiries about the scope of coverage advise participants that a particular medical procedure is covered," even though the plan explicitly states that it is not covered. Miller v. Taylor Insulation Co., 39 F.3d 755, 759 (7th Cir. 1994). This is exactly what happened when Boxall told Tormey he would receive medical coverage. According to the applicable definition in the plan, Tormey's heart condition is a preexisting condition because he received medical treatment from Dr. Teplitz within the 90 day probationary period before becoming insured. Without Boxall's statement, Tormey would have had no reason to believe otherwise. "Though it is unfortunate that an insurance company's agent would lead a policy holder to believe [he] was covered when [he] was not, the policies underlying ERISA require a preference for written over oral contract terms." Vershaw v. Northwestern Nat'l Life Ins. Co., 979 F.2d 557, 559 (7th Cir. 1992).
In addition, Tormey has not shown the necessary elements of estoppel. A party asserting estoppel must show that: (1) the opposing party knowingly misrepresented or concealed a material fact; (2) the complaining party, not knowing the truth, reasonably relied on that misrepresentation or concealment; (3) the complaining party suffered detriment; and (4) the complaining party had no knowledge or convenient means of ascertaining the true facts. Loyola Univ. v. Humana Ins. Co., 996 F.2d 895, 902 (7th Cir. 1993). Even assuming that Boxall told Tormey he was covered under the plan, there was still no knowing misrepresentation. Boxall made her statement on the basis of a false impression that Tormey was not receiving medical care. Although the parties' testimony conflicts as to what Boxall asked Tormey at the informational meeting, the dispute is immaterial because both parties agree that Tormey said he was not receiving medical care. In fact, however, Tormey was taking four daily heart medications that he had been prescribed by his treating cardiologist, Dr. Eric Teplitz. This surely constitutes medical care, especially in combination with Tormey's two visits to Dr. Teplitz that summer. As Boxall was unaware of this pertinent detail of Tormey's medical history, she did not make a deliberate misrepresentation to him when she said he would be covered. Even if oral modifications to a covered plan could be the basis for an estoppel claim, Tormey has failed to show the necessary elements of estoppel.
D. Decision to Deny Benefits
Tormey also argues that defendant's motion for summary judgment should fail because General American incorrectly denied medical coverage based on the plan's preexisting condition clause. General American's plan states that the plan administrator "shall have discretionary authority, shall determine eligibility for benefits, construe the terms of the plan and resolve any disputes which may arise with regard to the rights of any persons under the terms of the plan." When a plan grants the plan administrator such discretionary authority, the Seventh Circuit reviews the administrator's decision under the arbitrary and capricious standard. Brehmer v. Inland Steel Indus. Pension Plan, 114 F.3d 656, 660 (7th Cir. 1997) (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110-11, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989)). Under this deferential standard, the plan administrator's decision to deny benefits is reviewed only to determine whether it was "downright unreasonable." Id.; see also Donato v. Metropolitan Life Ins. Co., 19 F.3d 375, 380 (7th Cir. 1994).
General American based its decision to deny benefits on a statement from Tormey's cardiologist, Dr. Teplitz, disclosing that between June 1, 1995 and September 1, 1995 Plaintiff was taking, on a daily basis, four prescribed medications for his heart condition and that Dr. Teplitz examined him on June 7, 1995 and July 6, 1995. According to the Principal-Meyers plan,
a preexisting condition is a sickness or injury for which a person was confined or received treatment or service in the 90 day period before becoming an insured. Tormey's heart problem qualifies as a preexisting condition using this definition. The purpose of Tormey's medications was to treat his heart condition. Similarly, his visits to Dr. Teplitz after his third heart attack were reasonably deemed "services" by the plan administrator. General American's decision to deny Tormey medical coverage was not arbitrary and capricious because it was based on a reasonable interpretation of the preexisting condition clause.
Even though General American's decision was not arbitrary and capricious, that decision might nonetheless require reconsideration if General American did not follow ERISA's procedure and notification requirements when it denied Tormey's claim for benefits. See Halpin v. W.W. Grainger, Inc., 962 F.2d 685 (7th Cir. 1992) (reversing administrator's decision where flawed notification denied the claimant effective review). Section 1133 of ERISA requires that specific reasons for denial be communicated to the claimant and that the claimant be afforded an opportunity for "full and fair review."
The regulations promulgated pursuant to the statute set forth with greater specificity what the initial notice of the claim must contain:
(1) the specific reason or reasons for the denial;
(2) specific reference to pertinent plan provisions on which the denial is based;