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Salyers v. Metropolitan Life Insurance Company

In Salyers v. Metropolitan Life Insurance Company, 871 F.3d 934 (2017), the United States Court of Appeals for the Ninth Circuit reversed the district court’s entry of judgment after a bench trial for defendant Metropolitan Life Insurance Company (“MetLife”). 

Plaintiff Susan Salyers, a nurse at Providence Health & Services (“Providence”) applied for dependent life insurance for her husband on a group policy issued by MetLife. The Summary Plan Description for the policy lists a requirement of submission of evidence of insurability for coverage in excess of $50,000 (or in excess of a set increase per year). In 2013, Salyers elected coverage for herself and her husband; as she elected $20,000 in coverage for each of them, which is below the amount required for evidence of insurability, no evidence of insurability was required. Providence mistakenly entered $500,000 in coverage for Salyers’s husband into its system, and deducted premiums from Salyers’s paycheck accordingly. Neither Providence nor MetLife requested evidence of insurability, despite that this amount of coverage required it. During open enrollment, Salyers then elected coverage for her husband in the amount of $250,000, to be effective January 1, 2014. The 2014 Plan documents again reiterated the requirement for evidence of insurability. Salyers did not submit evidence of insurability, yet her premium payments were adjusted to reflect the new amount of coverage and, again, neither MetLife nor Providence requested evidence of insurability. Salyers’s husband died on January 10, 2014. Providence sent a condolence letter to Salyers, referencing the $250,000 coverage for her husband. Salyers submitted a claim for benefits to MetLife, accompanied by an Employer’s Statement from Providence reflecting $250,000 coverage. 

When MetLife received the claim, it confirmed with Providence that there was no statement of health for the decedent on file, which then led Providence to discover its initial error in Salyers’s enrollment. Providence submitted a revised Employer’s Statement reflecting $30,000 in coverage (reflecting the amount for which he was eligible without evidence of insurability). MetLife paid Salyers $30,000 and Providence refunded to Salyers the premiums deducted based on the unapproved higher coverage amount. Salyers called MetLife to inquire regarding the amount of the payment. At that time, a MetLife employee made a note in the file explaining that the full amount should be paid based on the employee’s expectation of coverage. Despite this, Providence’s counsel explained to Salyers’s counsel that she was not entitled to the additional coverage as she failed to provide the required evidence of insurability. Salyers appealed to MetLife. “MetLife responded that additional benefits were not payable because MetLife had not received and approved evidence of insurability [ . . . ] as required by the Plan,” and “its receipt of premiums did not create coverage.” Salyers appealed this formal denial, and MetLife upheld its initial denial of benefits on the same ground. 

Salyers then filed suit against MetLife claiming “MetLife should be estopped from contesting coverage or, in the alternative, that MetLife waived its right to enforce the evidence of insurability requirement.” After a bench trial, the district court “concluded that Salyers had not sustained her burden of establishing an entitlement to the unpaid benefits.” 

The Court initially noted the standard of appeal: clear error as to findings of fact, and de novo as to legal findings.

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.

In considering Salyers’s waiver argument, the Court agreed with Salyers that “under agency law, Providence’s knowledge and conduct may be attributed to MetLife.” “In UNUM Life Ins. Co. of Am. v. Ward, [526 U.S. 358 (1999),] the Supreme Court held that ERISA preempts state laws that deem a policyholder-employer an agent of the insurer in administering group policies.” However, that holding “left open the opportunity for federal courts to apply agency laws in the ERISA context as a matter of federal common law.”

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." [Citation.] 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." [Citations.] Common law principles of agency effectuate those policy goals.

The Restatement of Agency [footnote] 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 § 2.01 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).

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." [Citation.] 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." [Citation.] 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.” [Citations.]

In applying these principles, the Court noted it could not ascertain whether Providence was acting with express authority from MetLife, absent the contract and other relevant communications that were not in the record, but the Court “ha[d] no trouble concluding that Providence had apparent authority, and perhaps even implied authority, to enforce the evidence of insurability requirement on MetLife’s behalf.” The Court found no error in the district court’s finding that Providence was responsible for ensuring Salyers provided evidence of insurability. While “MetLife retained final say on the form and contents of the statement of health document,” it “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. [Citation.] 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.

* * *

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. [Citation.]

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, 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." [Citations.] Accordingly, MetLife waived the evidence of insurability requirement, and it cannot contest coverage on that basis. [Footnote.]

The Court reversed and remanded “with instructions to enter judgment in favor of Salyers for the amount of the $250,000 policy that remains unpaid.”

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