Douglas Y. Tester, as Personal Representative of the Estate of Annie Ruth Tester,… v. Reliance Standard Life Insurance Company

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
DOUGLAS Y. TESTER, as Personal
Representative of the Estate of
Annie Ruth Tester, Deceased,
Plaintiff-Appellee,
No. 97-1589
v.
RELIANCE STANDARD LIFE INSURANCE
COMPANY,
Defendant-Appellant.
Appeal from the United States District Court
for the District of South Carolina, at Greenville.
G. Ross Anderson, Jr., District Judge.
(CA-96-2545-6-13)
Argued: September 24, 1998
Decided: September 25, 2000
Before WIDENER, WILLIAMS, and MICHAEL, Circuit Judges.
_________________________________________________________________
Affirmed by published opinion. Judge Widener wrote the opinion, in
which Judge Williams and Judge Michael joined.
_________________________________________________________________
COUNSEL
ARGUED: Michael J. Burns, CHRISTIE, PABARUE, MORTEN-
SEN & YOUNG, P.C., Philadelphia, Pennsylvania, for Appellant.
Robert Edward Hoskins, FOSTER & FOSTER, L.L.P., Greenville,
South Carolina, for Appellee. ON BRIEF: James A. Young, CHRIS-

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TIE, PABARUE, MORTENSEN & YOUNG, P.C., Philadelphia,
Pennsylvania; Heyward E. McDonald, MCDONALD, MCKENZIE,
RUBIN, MILLER & LYBRAND, Columbia, South Carolina, for
Appellant.
_________________________________________________________________
OPINION
WIDENER, Circuit Judge:
Defendant, Reliance Life Insurance Co. (Reliance), appeals the dis-
trict court's judgment awarding death benefits to plaintiff, Douglas
Tester. Mr. Tester, as a personal representative of the estate of his
wife Annie Ruth Tester, filed this complaint in district court alleging
that Reliance improperly withheld death benefits due him in violation
of the Employee Retirement Income Security Act (ERISA), 29 U.S.C.
§ 1001, et seq. The first cause of action alleged that pursuant to 29
U.S.C. § 1132(a)(1)(B) Reliance wrongfully refused to pay him death
benefits under a group accidental death insurance plan issued by Reli-
ance and administered by Mrs. Tester's employer, The Bibb Com-
pany (Bibb). Alternatively, the second cause of action alleged that
Reliance should pay Mr. Tester death benefits because it breached a
fiduciary duty to Mrs. Tester under 29 U.S.C. § 1104 by failing to
advise her that her coverage under the group plan terminated at the
beginning of February 1995, thus denying her the opportunity to exer-
cise conversion privileges available under the plan. Under either the-
ory, Mr. Tester sought payment of $50,000 in death benefits, plus
attorney's fees and costs pursuant to 29 U.S.C.§ 1132(g).
After denying motions for summary judgment, the district court
conducted a bench trial. The court found that the Reliance policy cov-
ered Mrs. Tester at the time of her death and was of opinion that Reli-
ance improperly denied Mr. Tester death benefits under the group
insurance plan. The district court further held, alternately, that Reli-
ance breached a fiduciary duty owed to Mrs. Tester by failing to
notify her of its claimed coverage termination which deprived her of
the opportunity to convert her coverage under the policy. The court
entered judgment in the amount of $50,000 plus interest and costs
against Reliance. Reliance then filed this appeal. For the reasons
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stated below, we affirm the district court's judgment on the first cause
of action. We conclude that the policy covered Mrs. Tester at the time
of her death and that Reliance owed death benefits pursuant to 29
U.S.C. § 1132(a)(1)(B).1
Mrs. Tester began working for Bibb on June 1, 1993. At the time
of her death, she was on medical leave from her position as a creeler
weaver at Bibb's plant in Greenville, South Carolina. Her regular
work schedule consisted of thirty-six hours one week and forty-eight
hours the next.
Reliance issued a policy for group accident coverage to Bibb that
became effective August 1, 1993. Bibb distributed a Certificate of
Insurance to each participating employee that explained the basic pol-
icy terms and conditions. Mrs. Tester's coverage under the policy
became effective on September 1, 1993 and provided for a death ben-
efit to the designated beneficiary of $50,000. Mrs. Tester named her
husband as her sole beneficiary under the policy.
The policy provided the conditions under which Reliance could ter-
minate an employee's coverage. The policy states:"An Insured Per-
son's coverage will terminate on the first of the following to occur:
. . . The first of the Policy month coinciding with or next following
the date the Insured Person ceases to be in a class eligible for this insur-
ance."2 The policy defines whether an employee qualifies as a mem-
ber of a class eligible for insurance according to this provision:
"ELIGIBILITY: Each active, Full-time and Part-time employee,
except any person employed on a temporary or seasonal basis,
according to the following classifications: Class 1: salaried employee,
Class 2: hourly employee." Further, the policy defines a "Full-time"
or "Part-time" employee as one who works "a minimum of 20 hours
during [the] person's regularly scheduled work week."
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1 Because we affirm the district court's decision on the first cause of
action in this case, it is unnecessary to consider Mr. Tester's alternative
argument for recovery under a breach of fiduciary duty theory.
2 Other provisions for termination are described in the body of this
opinion.
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The last day that Mrs. Tester worked on the job in the plant at Bibb
was January 8, 1995. On that day, she took an approved medical leave
because of health problems unrelated to her later accidental death.
Subsequently, Mrs. Tester, on February 15, 1995, died from injuries
sustained as a passenger in an automobile accident on that same day,
at which time she had not yet returned to work. Mr. Tester applied for
death benefits on March 29, 1995, and Bibb submitted his application
to Reliance. Before receiving the application, Reliance was unaware
of Mrs. Tester's leave of absence or her recent death. Shawn Abner,
a Senior Claims Examiner for Reliance, wrote to Bibb on April 5,
1995 requesting information concerning Mrs. Tester's last day of
work. On April 10, 1995, Miss Abner was told that the last day that
Mrs. Tester actually worked was January 8, 1995.
Miss Abner reviewed Mr. Tester's claim application, the policy
language, and the information regarding Mrs. Tester's last day of
work and concluded that Mrs. Tester's coverage had terminated on
February 1, 1995, the first of the month next following the beginning
of medical leave because Mrs. Tester ceased to be a"member of the
eligible class" on January 8, 1995. She advised Bibb and Mr. Tester
in writing that no benefits were available and explained the proce-
dures for requesting a review of Reliance's decision. On February 13,
1996, Mr. Tester filed for a review of Reliance's decision upon the
grounds that Bibb still considered Mrs. Tester to be an employee as
of the date of her death. Reliance reviewed the appeal and, on March
14, 1996, affirmed its denial of benefits, explaining that Bibb's per-
spective on Mrs. Tester's employment status did not change the con-
tractual terms, which required Mrs. Tester to be an"active" employee
at the time of her death. It then took the position that the coverage
ended January 8, 1995.3
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3 In a letter dated March 14, 1996 to Mr. Tester's attorney from one
Beth Holcomb, a supervisor in the life claims department of Reliance,
Reliance took the position that the insurance ended on January 8, 1995,
the last day that Mrs. Tester worked at the plant.
In an earlier letter dated May 31, 1995 to Lucy Ware, an employee of
Bibb, signed by Shawn Y. Abner, a senior examiner in that same depart-
ment of Reliance, the insurance company took the position that the cov-
erage had ended February 1, 1995, under the same policy provision it
later construed to have ended the coverage on January 8th.
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In August 1996, Mr. Tester filed this ERISA action in district court
to recover the death benefits. After conducting a bench trial, the dis-
trict found that the term "active" in the eligibility provision of the pol-
icy was vague and ambiguous. The court ruled that Reliance
improperly denied Mr. Tester benefits because Mrs. Tester was an
"active" employee under the policy's terms and entitled to coverage
as of the date of her death. Reliance then appealed, challenging the
district court's finding that the policy's terms were ambiguous and the
district court's awarding of benefits to Mr. Tester. Therefore, we con-
sider whether Mrs. Tester was an "active" employee under the terms
of the policy and eligible for coverage at the time of her death, thus
requiring Reliance to pay Mr. Tester death benefits.
In cases involving the denial of benefits under an ERISA plan, a
reviewing court must review the denial de novo unless the terms of
the plan give the administrator or fiduciary discretionary authority to
determine eligibility for benefits or to construe the terms of the plan.
See Quisenberry v. Life Insurance Company of North America, 987
F.2d 1017, 1021 (4th Cir. 1993); Firestone Tire and Rubber Co. v.
Bruch, 489 U.S. 101, 107 (1989). The district court reviewed Reli-
ance's denial of benefits de novo, and Reliance does not challenge
this standard on appeal. Therefore, we apply the same standard as the
district court and review Reliance's denial de novo.
In reviewing the terms of an ERISA plan, we are mindful that
ERISA plans are contractual documents, and "established principles
of contract and trust law" govern their interpretation. See Haley v.
Paul Revere Life Ins. Co., 77 F.3d 84, 88 (4th Cir. 1996). As with
other contractual provisions, we construe the plan's terms without
_________________________________________________________________
Reliance in its brief now takes the position that the coverage ended on
February 1, 1995, which would seem to be contrary to the wording of the
policy which provides for "the first of the following [dates] to occur."
These different constructions of the same language in the same policy
by two different employees and the attorneys for the same company only
go to reinforce the opinion of the district court that the term "active" as
an employee of The Bibb Company as described in the Reliance policy
is ambiguous.
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deferring to either party's interpretation. See Firestone Tire, 489 U.S.
at 112; Wheeler v. Dynamic Eng'g Inc., 62 F.3d 634, 638 (4th Cir.
1995) (stating that an ERISA plan should be interpreted "under ordi-
nary principles of contract law"). Furthermore,"[w]here a term is
ambiguous, we must construe it against the drafter, and in accordance
with the reasonable expectations of the insured." Bailey v. Blue Cross
& Blue Shield of Virginia, 67 F.3d 53, 57 (4th Cir. 1995) (quoting
Wheeler, 62 F.3d at 638).
The insurance policy defines class eligibility according to its eligi-
bility provision. This provision states that "each active, Full-time and
Part-time employee, except any person employed on a temporary or
seasonal basis, according to the following classifications: Class 1: sal-
aried employee, Class 2: hourly employee." The policy further defines
"Full-time" or "Part-time" employee as one who works a minimum of
20 hours during [the] person's regularly scheduled work week."
Therefore, the policy provides coverage for an employee if the
employee is "active" and works a minimum of 20 hours during the
employee's regularly scheduled work week. The definition of "active"
is necessary in determining whether Mrs. Tester was eligible for cov-
erage at the time of her death. The policy, however, is ambiguous as
to the meaning of "active" because it neither defines "active," nor pro-
vides criteria for determining when an employee is"active."
Reliance argues that the term "active" is unambiguous when it is
interpreted in accordance with the policy's definition of the terms "ac-
tively at work" and "active work." The policy defines these phrases
as satisfied when "the insured is performing on a Full-time or Part-
time basis each and every duty pertaining to his job in the place where
and in the manner in which the job is normally performed. This
includes approved time off for vacation, jury duty and funeral leave,
but does not include time off as a result of injury or illness." Reliance
argues that Mrs. Tester would not be covered because the meaning of
"active" in the context of "actively at work" or "active work" specifi-
cally would exclude employees from coverage who take time off for
an illness.
The policy's eligibility provision, however, does not include the
phrase "actively at work" or "active work," and we will not read those
terms into that provision. The policy does contain provisions that
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incorporate the phrases "actively at work" and"active work." But they
are used with respect to effective date, not eligibility. The policy
states: "EFFECTIVE DATE OF INDIVIDUAL INSURANCE: An
eligible person must apply in writing for the insurance to go into
effect. You will become insured on the later of . . . if an eligible per-
son is not actively at work on the day his insurance is to go into
effect, his insurance will take effect on the date he returns to active
work for one (1) full day." Thus the policy incorporates "actively at
work" and "active work" to establish when an individual's coverage
initially will begin. It does not incorporate those terms to determine
if an employee is eligible for coverage. These terms have specific
meanings within the provisions that include them, but they are absent
in the eligibility provision, and thus do not control in defining "ac-
tive."
The policy's terms also distinguish between being at"active work"
and being a member of a "class eligible for this insurance." The policy
provides in the reinstatement of coverage section that an employee
"must return to active work with you (Bibb) within the period of time
shown on the schedule of benefits. He must also be a member of a
class eligible for this insurance" (italics added). The use of the word
"also" may only indicate that the policy intentionally regards "active
work" and "class eligible for this insurance" as two independent clas-
sifications or descriptions. Therefore, the phrases"actively at work"
and "active work" should not be used to control the meaning of the
term "active" in the eligibility provision.
Reliance next argues that Mrs. Tester was out on sick leave and,
therefore, does not qualify as an "active, Full-time employee" because
the term "active" requires a present work capability. According to the
latest, March 14, 1996, Reliance interpretation of the policy before
suit was filed, every time an employee calls in sick with a cold or
leaves work early with a headache, or stays home with the flu, or a
thousand other legitimate ailments, that employee's insurance cover-
age would terminate because the employee was no longer "active."
Such an interpretation, however, would lead to absurd results outside
of the insured's reasonable expectations. An employee reasonably
would expect his coverage to extend beyond the time periods that he
is physically at work and to cover those hours and days when he is
out of the plant due to an illness. Reliance's construction of the term
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"active" does not eliminate the ambiguity of the eligibility provision
because it unreasonably restricts coverage to the time that an
employee is actually at work.
Reliance further argues that any ambiguities in the eligibility provi-
sion are cured by the phrase "Full-time." The policy defines "Full-
time" as requiring an employee to work a minimum of 20 hours dur-
ing the employee's regularly scheduled work week in order to qualify
for the class eligible for insurance. According to Reliance, Mrs. Tes-
ter was not covered at the time of her death because she had been
absent for several weeks and never fulfilled the minimum hourly
requirement. This argument, however, contains the same vagueness
and ambiguity as arguing that "active" means that the employee is
physically at work. For example, under Reliance's interpretation of
the policy an employee who works two eight-hour days and then dies
in an automobile accident on route to work would not be covered
because he had not accumulated the requisite 20 hours for coverage.
No insured employee would reasonably expect his coverage to termi-
nate if he died from an accident a few hours short of completing his
mandatory 20-hour work week.
Reliance's policy does not define "active" in the employee eligibil-
ity provision nor does it contain any clear standard by which this
court may determine that an employee is not "active." The policy does
not specify under what circumstances the employee must work, how
frequently the employee must work, and how long the employee must
be out of work before he is no longer considered"active." As is the
case here, where a term is ambiguous, we must construe it against the
drafter, and in accordance with the reasonable expectations of the
insured. See Bailey, 67 F.3d at 57. A reasonable employee would not
expect his insurance coverage to terminate if he takes a sick day or
if he dies on account of an accident before working 20 hours in a par-
ticular week. An employee would reasonably expect that his coverage
continues while he regularly works for the company, even if he is
home with the flu or injured in a car accident. Therefore, the proper
inquiry for considering whether Mrs. Tester was an"active, Full-time
employee" under the policy at the time of her death depends on
whether or not she worked at Bibb on a regular basis despite her sick
leave.
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At the time of Mrs. Tester's death, there is no indication that Bibb
terminated her employment or temporarily laid her off, indeed the
inference is to the contrary, for the claim form completed by Bibb
shows that Mrs. Tester on January 8, 1995 was an"Active" employee
on "Approved Leave of Absence" . . . "Medical." The evidence also
does not suggest that Mrs. Tester considered herself terminated.
Rather, she continued to receive checks from Bibb after she left work
on January 8, 1995, even though it was apparently for sick pay. Fur-
thermore, Bibb withheld an insurance premium from Mrs. Tester's
paycheck for the week ending January 14, 1995. Bibb then submitted
this premium, which was accepted by Reliance, to Reliance on Febru-
ary 16, 1995, the day after Mrs. Tester's death. These facts indicate
that Mrs. Tester was working for Bibb on a regular basis and that she
was simply out sick when she died.
Finally, we note that in the case of Canada Life Assurance Co. v.
Estate of Lebowitz, 185 F.3d 231 (4th Cir. 1999), a case in which the
employer was the administrator, as here, the court properly took
account of the fact that the premiums on the insurance in question had
been paid through the time when the insurance company defaulted on
giving notice of conversion. Canada Life Assurance Co. v. Estate of
Lebowitz, 185 F.3d at 236. Indeed, Lebowitz held that the payment of
the premiums on behalf of the employee was conclusive evidence that
the employer considered the employee covered under the policy.
While we need not go so far as to decide that the payment of premi-
ums in the case at hand is conclusive, because there may be some dif-
ference in the status of the administrators of which we are not aware,
we are of opinion that this is evidence of some considerable weight
in the case and is not sufficiently disputed by the claim now made that
the premiums were paid by mistake, which contention indeed is sup-
ported by little or nothing more than argument.
Accordingly, we are of opinion and decide that Mrs. Tester was an
active employee of Bibb at the time of her death within the meaning
of the policy and that the plaintiff, her husband, is entitled to the ben-
efits therefrom.
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The judgment of the district court is accordingly
AFFIRMED.4
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4 Reliance claims as erroneous the admission of the testimony of Doug-
las Tester about Mrs. Tester's intention to resume work as soon as she
was able and about a prior medical leave taken by Mrs. Tester. It also
claims as erroneous admitting an excerpt from an ITT Hartford policy
issued to an employer other than Bibb. We are of opinion the testimony
of Mr. Tester was admissible under Quisenberry v. Life Ins. Co. of North
America, 987 F.2d 1017 (4th Cir. 1993), as "necessary for the district
court to conduct an adequate de novo review of an ERISA claim." The
introduction of the ITT Hartford policy, we think, was error, but harm-
less and not reversible. We have not considered the evidence of the ITT
Hartford policy in arriving at our decision; and in all events, vacation of
the district court's judgment on that account is not required to obtain sub-
stantial justice. See 28 U.S.C. § 2111; Fed. R. Evid. 61; Mullen v. Prin-
cess Anne Volunteer Fire Co., Inc., 853 F.2d 1130, 1135 (4th Cir. 1988).
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