KENNETH M. KRASE, as Special Administrator for the ESTATE of DONALD KRASE, Plaintiff,
LIFE INSURANCE COMPANY OF NORTH AMERICA and OCÉ-USA HOLDINGS, INC., Defendants.
JOHN F. GRADY, District Judge.
Cross-defendant Oce-USA Holdings, Inc.'s ("Oce") motion to dismiss cross-plaintiff Life Insurance Company of North America's ("LINA") counterclaim for indemnification is now before the court. For the reasons explained below, we grant Oce's motion.
Donald Krase filed this lawsuit on behalf of his deceased wife, Sandra Hansen-Krase, pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"). Hansen-Krase was employed full-time by defendant Oce-USA Holdings, Inc. ("Oce") for approximately 14 years. (Compl. ¶ 9.) As an Oce employee, Hansen-Krase was covered under separate long-term disability ("LTD") and life-insurance policies underwritten by LINA. (Id. at ¶¶ 9-10; see also Policy Number FLX 0961910, attached as Ex. A to Compl. (Hansen-Krase's group life insurance policy, hereinafter the "Policy").) On July 18, 2008, Hansen-Krase was placed on disability leave because she was diagnosed with "terminal pancreatic cancer." (Id. at ¶ 10.) Under the Policy, an insured who provides LINA with evidence establishing that he or she has been diagnosed with a "Terminal Illness" - i.e., "a prognosis of 12 months or less to live" - is entitled to a "Terminal Illness Benefit." (See Policy at 23-24.) In order to determine the existence of a Terminal Illness, the Policy requires the insured to submit to LINA: (1) "a written diagnosis and prognosis by two Physicians licensed to practice in the United States;" and (2) "[s]upportive evidence satisfactory to the Insurance Company, including but not limited to radiological, histological or laboratory reports documenting the Terminal Illness." (Id. at 24.) Krase does not allege that Hansen-Krase provided this information to LINA or otherwise attempted to claim the Terminal Illness Benefit during her lifetime. Instead, he alleges that LINA was aware of Hansen-Krase's condition based upon communications related to her claim for LTD benefits, which LINA approved on January 15, 2009. (Compl. ¶ 11.) In connection with Hansen-Krase's LTD claim, "LINA regularly monitored the state of [her] health and received periodic updates from her attending physicians." (Id.)
On or around January 19, 2009, Oce attempted to send Hansen-Krase a letter explaining that her employment and insurance coverage would be terminated effective January 31, 2009. (Id. at ¶ 13.) The letter also explained her right to apply for "conversion insurance, " essentially continuing her life insurance coverage on an individual basis in exchange for paying premiums. (Id.) Oce attempted to deliver the letter, but it was "misdirected." (Id.) Consequently, neither Hansen-Krase nor her husband received the letter before her conversion rights expired under the Policy's terms. On April 9, 2009, Hansen-Krase died of pancreatic cancer. (Id. at ¶ 15.) Approximately three months later, on July 8, 2009, Krase submitted a claim for life insurance benefits under the Policy as Hansen-Krase's designated beneficiary. (Id. at ¶ 18.) Oce denied Krase's claim because it concluded that Hansen-Krase was not covered by the Policy when she died. (Id.) On appeal of that decision, LINA affirmed Oce's decision to deny benefits. (Id. at ¶¶ 19-20.)
Krase initially filed claims against LINA and Oce for breach of fiduciary duty, pursuant to 29 U.S.C. § 1132(a)(3),  and wrongful denial of benefits, pursuant to 12 U.S.C. § 1132(a)(1)(B). In Krase v. Life Ins. Co. of North America, No. 11 C 7659, 2012 WL 4483506, *2-3 (N.D. Ill. Sept. 27, 2012), we dismissed Krase's § 1132(a)(3) claim against LINA because we concluded that the relief he sought was available under § 1132(a)(1)(B). See Mondry v. American Family Mut. Ins. Co. , 557 F.3d 781, 805 (7th Cir.2009) ("[A] majority of the circuits are of the view that if relief is available to a plan participant under subsection (a)(1)(B), then that relief is un available under subsection (a)(3)."). Krase later settled his claim against Oce and dismissed Oce with prejudice. LINA then amended its Answer to assert a crossclaim against Oce for "indemnification." (See Crossclaim ¶ 19.) The thrust of LINA's crossclaim is that Oce, as the sponsor of a self-administered plan, was responsible for providing notice to plan participants. (See id. at ¶¶ 12-16.) Accordingly, Oce is the more culpable party and should indemnify LINA for any award that Krase receives in connection with his § 1132(a)(1)(B) claim. (See id. at ¶ 19.)
Oce has moved to dismiss LINA's crossclaim on essentially two grounds: (1) failure to state a claim for relief; and (2) ERISA preemption. The purpose of a 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve the case on the merits. 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1356, at 354 (3d ed. 2004). To survive such a motion, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.' 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." Ashcroft v. Iqbal , 129 S.Ct. 1937, 1949 (2009) (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 556 (2007)). When evaluating a motion to dismiss a complaint, the court must accept as true all factual allegations in the complaint. Iqbal , 129 S.Ct. at 1949. However, we need not accept as true its legal conclusions; "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id . (citing Twombly , 550 U.S. at 555).
Preemption is an affirmative defense that should be raised on a Rule 12(c) motion for judgment on the pleadings after the defendant has answered. See Bausch v. Stryker Corp. , 630 F.3d 546, 561 (7th Cir. 2010). But LINA has not objected to Oce's motion on that basis. Moreover, it is unclear on the face of its pleading whether LINA is invoking state or federal law. It was not required to plead the legal theory underpinning its claim, see Del Marcelle v. Brown County Corp. , 680 F.3d 887, 909 (7th Cir. 2012), but by not doing so it presented a vague target for Oce. Under the circumstances, we think it is appropriate to address all of Oce's arguments at this time. See Doe v. GTE Corp. , 347 F.3d 655, 657 (7th Cir. 2003) (proceeding to address the plaintiff's challenge to the defendant's affirmative defense, erroneously raised in a Rule 12(b)(6) motion, "without fussing over procedural niceties to which the parties are indifferent").
A. ERISA Preemption
With exceptions that do not apply here, ERISA supersedes "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA. 29 U.S.C. § 1144. "A law relates to' an employee benefit plan if it has a connection with or reference to such a plan." Kolbe & Kolbe Health & Welfare Benefit Plan v. Medical College of Wisconsin, Inc. , 657 F.3d 496, 504 (7th Cir. 2011) ( citing Ingersoll-Rand Co. v. McClendon , 498 U.S. 133, 137-38, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990)). We agree with Oce that LINA's crossclaim "relates" to Oce's employee benefit plan. We cannot decide who was responsible for sending notices to Hansen-Krase without examining the Policy. See Krase, 2012 WL 4483506, *4 (highlighting an ambiguity in the plan concerning which party - LINA or Oce - is responsible for notifying participants about their conversion rights). More generally, LINA is asking us to shift the burden of paying benefits, which it voluntarily undertook as reflected in the Policy, to another party. So, in that sense, its claim is inextricably tied to the plan. Cf. Donovan v. Robbins , 752 F.2d 1170, 1179 (7th Cir. 1984) ("Where contribution is sought by one who has had to pay damages for violating a federal statute, the scope and limitations of the right of contribution are invariably treated as questions of federal rather than state law."). Indeed, LINA does not really argue otherwise except to say, without citing any relevant authority, that its claim "does not arise under or is governed by ERISA." (LINA Resp. at 4.) We conclude that LINA's claim, insofar as it is based on state law, is preempted by ERISA.
B. Whether LINA has Properly Pled a Claim for Relief Under ERISA or Federal Common Law
As Oce notes, whether there is an implied right of indemnification under ERISA is an unsettled question. See, e.g., BP Corp. N.A. Inc. Savings Plan Investment Oversight Committee v. Northern Trust Investments, N.A. , 692 F.Supp.2d 980, 982-85 (N.D. Ill. 2010) (thoroughly surveying a complicated legal landscape). In Free v. Briody , 732 F.2d 1331, 1337 (7th Cir. 1984), our Court of Appeals recognized an implied right of indemnification under ERISA in "narrowly appropriate circumstances." The defendant in Free served as one of two trustees of an employee benefit plan. Id. at 1333. The defendant breached his fiduciary duty by failing to monitor the actions of his co-trustee, who was misusing plan assets. Id. at 1336. Nevertheless, the court permitted the defendant to seek indemnification from his co-trustee on the theory that the latter was more culpable. Id. at 1338. Citing ERISA § 1105, which permits co-trustees to limit their liability exposure by contracting to undertake only certain duties, the Free Court reasoned that Congress "did not intend trustees to act as insurers of co-trustees' actions...." Id. at 1337; see also 29 U.S.C. § 1105(b)(1)(B). Sections 1132(a) and 1109, in turn, authorize suits to recover losses to a plan caused by breaches of fiduciary duty:
A civil action may be brought... by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief ...