Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94 C 6252 Charles P. Kocoras, Judge.
Before POSNER, Chief Judge, and HARLINGTON WOOD, JR. and RIPPLE, Circuit Judges.
On December 30, 1993, Kyle Plumb was involved in an automobile accident that resulted in severe bodily injuries, a lengthy hospital stay and hospital expenses exceeding $160,000. Kyle's father, Christopher Plumb, had worked for Fluid Pump Services, Incorporated ("Fluid") for over ten years, and Mr. Plumb thought his son's hospital stay would be covered by an insurance policy that had been set up for him by Fluid. However, Fluid had stopped paying its premiums. As a result, when Mr. Plumb submitted his son's hospital bills to the insurers, payment was denied. Mr. Plumb then filed suit against Fluid and the insurers. Fluid filed a cross-complaint against the insurers and a third-party complaint against the insurance trust that issued its policy and the company that assisted Fluid with obtaining insurance. The parties' claims arose under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. sec.sec. 1001 et seq., and state law. After the district court dismissed most of the claims, Mr. Plumb and Fluid settled. *fn1 The district court dismissed all of Fluid's cross-claims and third-party claims. Fluid now appeals. We affirm the district court's judgment in large part, but we vacate a portion of it and remand the case for further proceedings.
Mr. Plumb's complaint named as defendants Fluid, Star Marketing and Administration, Inc. ("Star Marketing"), Benefit Trust Life Insurance Company and Time Insurance Company. Fluid then filed a third-party complaint against the Starmark Trust and Christensen Key Financial, Incorporated ("Christensen"). *fn2 Fluid, Mr. Plumb's employer, is not a self-insurer; rather, it provides medical and health insurance for its employees through insurance companies. In October 1991, Fluid applied for health care coverage with Starmark. In that same month, Starmark issued a certificate to Fluid designating it a "participating employer" and issued certificates of insurance to each of Fluid's employees, including Mr. Plumb, designating him or her an "eligible employee" under the plan. Fluid also received a "Participating Employer Administration Guide" ("Administrative Guide"), which comprehensively explained the plan and its operation.
Once the Starmark plan was up and running, Fluid employees began to experience difficulties with Starmark's claims processing. According to Fluid, Starmark would demand excessive information, insist that the doctors were charging too much and handle complaints in an unpleasant and belated manner. All in all, Fluid's employees were having a difficult time obtaining payments from Starmark when medical attention was needed and sought. These problems, along with the fact that Starmark had decided to increase Fluid's premiums effective November 1, 1993, caused Fluid to begin searching for another company with which to insure its employees. In that effort, Fluid contacted Allan Thrasher, an insurance salesman. Through Christensen, the other third-party defendant brought into this suit by Fluid, Thrasher arranged for Time Insurance Company ("Time") to insure Fluid's employees. Time issued a group insurance certificate to Fluid, and Time's coverage began, as promised, on January 1, 1994.
Meanwhile, Fluid had failed to pay Starmark its premiums in November and December 1993. The Administrative Guide described the consequences of Fluid's failure. It provided that Fluid had a 31-day grace period for payment and that coverage would terminate after that grace period. In this case, once Fluid failed to pay its premiums, Starmark notified Fluid of the termination of coverage; the termination became effective on December 2, 1993. On December 30, 1993, Mr. Plumb's child, Kyle, was injured severely in an automobile accident. The accident having occurred between December 2 and January 1, both Starmark and Time denied coverage. Time denied coverage for the bills accrued after January 1 because Kyle was an in-patient on the day that Time's coverage commenced; under Time's policy, coverage did not begin until the end of hospital confinement if the covered individual was in the hospital on the effective date of the policy.
Starmark's policy provided that, if coverage ended for any reason, the employees would be granted the right to convert to individual coverage. This conversion privilege was to be effective for 31 days after the Starmark policy terminated, if the employees were given notice of the right to convert at least 15 days before the end of that 31-day period. In the event that notice was given later, employees were to have the right to convert for 15 days after notice was actually given; but, in any event, the plan provided that the period of time to apply for conversion would be no longer than 60 days after the original 31 days allowed. In this case, no notice was given, so Mr. Plumb would have been able to exercise his right to convert to individual coverage with Starmark until the beginning of March 1994. Mr. Plumb, however, never converted; he apparently was never told that his insurance coverage had terminated or that he could convert. Mr. Plumb's certificate of insurance provided that, if his coverage terminated, he would be given notice of the right to convert at least 15 days before the end of the original 31-day period allowed for conversion. The Administrative Guide stated that, when coverage is terminated, the employer is to notify its employees of the right to convert to individual coverage. Fluid nevertheless claims that it did not know of its responsibility to notify Mr. Plumb or its other employees of their conversion rights. The agreement between Starmark and Fluid, entitled "Participating Employer Application and Agreement," provides:
The Employer understands that as an employer he is establishing this plan and that neither Star Marketing and Administration, the Contractholder Trustees, nor the [Benefit Trust Life] Insurance Company is acting as "sponsor," as defined in the Employee Retirement Income Security Act of 1974 (ERISA), and that any compliance under this act that is applicable to the sponsor will be fulfilled by the employer . . . .
The Employer also requests that Star Marketing and Administration perform other administrative services as he and Star Marketing and Administration may mutually agree upon in connection with his employee welfare benefit plan . . ., provided, however, that no such administrative services shall involve the exercise of discretion by Star Marketing and Administration. R.32, Ex.A at 4.
B. District Court Proceedings
One set of claims brought by Mr. Plumb in his complaint and by Fluid in its cross-claim and third-party complaint alleged breach of fiduciary duty by Starmark for failure to notify Mr. Plumb of the lapse in coverage and of his conversion rights. The district court dismissed these claims on the ground that Starmark was not a "fiduciary" within the meaning of ERISA. See 29 U.S.C. sec. 1002(21)(A). Noting that a party may be a fiduciary with respect to some activities and not others, the court held that Starmark was not a fiduciary with respect to notifying participants of the termination of coverage or possible conversion rights. In its view, the plan documents show that Fluid had the responsibility to notify.
Mr. Plumb also brought an estoppel claim against Starmark, alleging that its representatives had made certain representations of coverage to Mr. Plumb and that Starmark, as a result, should be estopped from denying coverage. Fluid asserted estoppel, as well, claiming that Starmark had knowingly withheld information from Fluid. Relying on Coleman v. Nationwide Life Insurance Co., 969 F.2d 54 (4th Cir. 1992), cert. denied, 506 U.S. 1081 (1993), the district court held that estoppel could not be invoked to enlarge the coverage specified in the Starmark policy. When coverage has terminated due to the failure to pay premiums, the court held, an estoppel theory cannot be utilized to restore coverage. Moreover, with respect to Fluid, the court held that an estoppel theory was unavailable because Fluid admitted that Starmark had notified it that coverage would end in December if its premiums were not paid.
Mr. Plumb's claim against Time was that Time had violated an Illinois insurance statute that purportedly requires insurance policies to cover pre-existing conditions if the insured had coverage with another insurance company 30 days prior to the commencement of the new coverage. See 215 ILCS sec. 95/20. The district court held that any remedy that could be obtained under the statute was preempted by ERISA. The court recognized that state laws that regulate insurance are saved from preemption by ERISA, see Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985), but held that ERISA is the exclusive source for any remedy. Accordingly, any remedy under the Illinois statute was preempted.
Finally, the district court dismissed Fluid's claim against Christensen for breach of fiduciary duty under state law. Fluid's third-party complaint alleged that Christensen was an agent of Fluid and had a duty to inform Fluid of the consequences of allowing its Starmark policy to lapse prior to the effective date of replacement coverage. The court held that the claim was preempted by ERISA because it "relate[d] to" the Starmark ERISA plan. 29 U.S.C. sec. 1144(a). Moreover, Fluid had failed to allege facts that would ...