UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 99-60877
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J.L. HOLLIS,
Plaintiff-Appellant-Cross-Appellee,
v.
PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY,
Defendant-Appellee-Cross-Appellant,
and
PAUL REVERE INSURANCE GROUP
Defendant-Appellee.
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Appeals from the United States District Court
for the Southern District of Mississippi
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August 8, 2001
Before REYNALDO G. GARZA, DAVIS and JONES, Circuit Judges.
REYNALDO G. GARZA, Circuit Judge:
This case involves claims for denial of benefits under two
disability insurance policies. Appellant-cross-appellee Larry
Hollis (“Hollis”) began work with R.M. Hendrick Graduate Supply
House, Inc. (“Graduate Supply”) as a salesman in 1970. Graduate
Supply sells class rings, diplomas, regalia, graduation
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invitations, yearbooks, and other similar items to high schools
and colleges.
As a Graduate Supply sales representative, Hollis was
assigned a territory and was responsible for servicing the
schools within that territory. Hollis would load his car with
Graduate Supply products, deliver them to the schools, make a
sales presentation to the students, and then reload his car. In
addition, Hollis serviced some of Graduate Supply’s commercial
accounts.
Prior to August 1, 1981, Graduate Supply treated Hollis as
an employee, but, on August 1, 1981, Hollis and Graduate Supply
signed an agreement that made Hollis an independent contractor.
Under the agreement, Hollis was required to pay his own travel
expenses, provide his own vehicle, and pay his own employment and
income taxes. Hollis determined when he would visit his assigned
schools, and he was solely responsible for maintaining Graduate
Supply’s contracts with those schools. In return, Graduate
Supply paid Hollis a commission on the items he sold. However,
Graduate Supply was Hollis’s primary source of income, he had the
same duties as employee-sales representatives, and he shared in
year-end bonuses like Graduate Supply’s employees.
Additionally, Graduate Supply had a program to provide life,
medical, and disability insurance for its employees in which
Hollis participated. Pursuant to this program, Hollis procured a
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disability insurance policy from Provident Life and Accident
Insurance Company (“Provident”). Graduate Supply’s employee-
sales representatives obtained disability policies from a company
called Lincoln Life. On his own, Hollis obtained a second
disability policy from Paul Revere Insurance Company (“Paul
Revere”).
Graduate Supply paid $600.00 per year, or $50.00 per month,
of the premium of each salesman’s policy procured pursuant to its
benefit program. If a salesman purchased a policy that cost more
than $600.00 per year, Graduate Supply would pay the excess as it
became due and then deduct it from the salesperson’s monthly
compensation. The premiums on Hollis’s Provident policy were
paid in this fashion.
The Provident policy would pay a monthly benefit of
$4,100.00 in case of disability at a cost of $2,020.00 per year.
The Paul Revere policy would pay a monthly benefit of $2,100.00
in case of disability. Both policies provide benefits in case of
“total disability,” but each policy defines that term in a
slightly different way. Under the Provident policy, “total
disability” means that “due to injury or sickness” the insured is
“not able to perform the substantial and material duties of [his]
occupation.” Under the Paul Revere policy, “total disability”
means that “because of injury or sickness,” the insured is
“unable to perform the important duties of [his] occupation.”
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Beginning in 1980, Hollis experienced occasional lower back
pain and muscle spasms. Between 1980 and 1995, Hollis visited
physicians several times for diagnosis and treatment of his back
pain. The physicians told him that he did not have a ruptured
disk or any other surgical problems. They advised Hollis to stay
off his feet for a few days and take pain medication. In May of
1995, Hollis experienced severe back pain and spasms while
unloading boxes of merchandise from his vehicle. He again visited
a physician, Dr. Lynn Stringer, who performed an MRI on him and
diagnosed him with advanced degenerative disc disease. His
physician told him that excessive driving, bending, lifting and
stooping was the reason for his back pain. Hollis attempted to
continue working, but on August 17, 1995 he resigned from
Graduate Supply due to his back problems.
On August 23, 1995, Hollis submitted his claim forms to
Provident and Paul Revere. Dr. Stringer completed the Attending
Physician Statement portion of the form. She reported the
diagnosis as advanced degenerative disc disease and explained
that the condition was permanent. She advised Hollis to either
change his work habits or stop working. Within six months of the
filing of the claim, both Provident and Paul Revere began paying
benefits to Hollis.
In early 1997, Provident acquired Paul Revere and
transferred Hollis’s file to a different claim representative,
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Sally Moore. Moore contacted Hollis and told him that the typed
attending physician’s statements he had been submitting must be
handwritten. In a telephone conversation, Hollis informed her,
“very aggressively” according to Provident and Paul Revere, that
he would continue to submit typed forms to save his physician
time. Approximately one and half hours after this telephone
conversation, Moore reopened the investigation into Hollis’s
claim and ordered additional physician statements and
surveillance of Hollis’s daily activities. Both Provident and
Paul Revere terminated his benefits in early 1998 on the ground
that he did not have a “total disability” as that term is defined
under the policies.
In April of 1998, Hollis filed suit against Provident and
Paul Revere in Mississippi state court for breach of contract and
bad faith denial of disability insurance benefits. The case was
removed to federal district court on May 5, 1998. In the federal
district court, Provident moved for summary judgment on Hollis’s
state law claims on the ground that they were preempted by the
federal Employee Retirement Income Security Act (“ERISA”). The
district court denied its motion. The case was tried to a jury
on May 28, 1998. As to Provident, the jury found that Hollis was
totally disabled as defined by the Provident policy and that
Provident acted in bad faith in denying Hollis’s claim. As to
Paul Revere, the jury found that Hollis was not totally disabled
under its policy.
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In addition to policy benefits, the jury awarded $100,000 in
damages for mental anguish and emotional distress to Hollis for
Provident’s bad faith denial of disability benefits. Hollis
moved the district court to award attorney’s fees and costs, but
the district court denied the award.
On appeal, Hollis raises two points of error. First, he
claims that the district court erred by failing to award
attorney’s fees and costs. Second, he claims that the jury’s
answer that he was not totally disabled under the Paul Revere
policy must be set aside because: it cannot be reconciled with
the jury’s answer that he was totally disabled under the
Provident policy, the jury arrived at this answer by
impermissibly considering evidence regarding Hollis’s preexisting
condition, and it is against the great weight of the evidence.
Provident raises three points of error by way of cross appeal.
First, Provident contends that Hollis’s state law claims are
preempted by ERISA. Alternatively, Provident argues: 1) there
was insufficient evidence to support an award of damages for
emotional distress and 2) Hollis’s expert witness was not
qualified to testify as to whether Provident denied his benefits
in bad faith.
I.
The first issue we must decide is whether ERISA preempts
Hollis’s state law claims against Provident. Provident moved for
summary judgment on the ground that ERISA preempts Hollis’s state
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law claims, but the district court denied the motion. We reverse
the decision of the district court.
ERISA “shall supersede any and all State laws insofar as
they may now or hereafter relate to any employee benefit plan . .
.” 29 U.S.C. § 1144(a) (1994). More specifically, Section
1144(a) bars state law causes of action when two elements are
present: 1) the state law claims address areas of exclusive
federal concern, such as the right to receive benefits under the
terms of an ERISA plan; and 2) the claims directly affect the
relationship between the traditional ERISA entities–the employer,
the plan and its fiduciaries, and the participants and
beneficiaries. See Weaver v. Employers Underwriters, Inc., 13
F.3d 172, 176 (5th Cir. 1994); Memorial Hosp. Sys. v. Northbrook
Life Ins. Co., 904 F.2d 236, 245 (5th Cir. 1990). Hollis’s state
law claims concern the right to receive benefits under an ERISA
plan, and his claims directly affect the relationship between
traditional ERISA entities. Therefore, ERISA preempts his state
law claims against Provident.
A. ERISA Plan
The first element of preemption–whether the state law claims
address areas of exclusive federal concern, such as the right to
receive benefits under an ERISA plan–is met. Clearly, Hollis
claims a right to receive benefits under the disability insurance
policy Provident issued. However, this fact alone is
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insufficient to meet the first element of preemption. He must
claim a right to receive benefits under an ERISA plan for
preemption to occur. See Weaver, 13 F.3d at 176. Hollis
concedes that Graduate Supply established and maintained an ERISA
plan1. The issue, therefore, is whether Hollis’s disability
insurance policy with Provident constitutes part of Graduate
Supply’s ERISA plan.
As mentioned above, under the terms of the Graduate Supply
plan, a salesman would choose a disability insurance policy, and
Graduate Supply would pay $600 per year in premiums on that
policy. Hollis chose a disability policy from Provident, and
Graduate Supply paid $600 per year in premiums on that policy.
Holis argues that his Provident Policy was not part of Graduate
Supply’s ERISA plan because he selected Provident as his
insurance company, while all the other salesmen selected Lincoln
Life. The terms of the Graduate supply plan, however, provided
that Graduate Supply would pay $600 regardless of which insurance
company was selected. With respect to disability insurance,
Graduate Supply treated Hollis the same as it treated any other
1
Hollis states in his brief that “[t]he ‘plan’ did exist as
to the employees of Graduate Supply, and Hollis could only have
been a plan participant if he had been designated a beneficiary
by one of the employees of the plan or by a provision of the plan
itself.” At oral argument, Hollis’s attorney was asked, “[do]
you agree it’s an ERISA plan?” He responded by stating “I don’t
disagree with the district court’s finding of fact to that
effect.”
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salesman. Thus, Hollis’s Provident policy was part of Graduate
Supply’s ERISA plan.
B. “Participant” or “Beneficiary”
Although the existence of an ERISA plan is a necessary
requirement for preemption, its existence does not necessitate
preemption. See Weaver, 13 F.3d at 176. For preemption to
occur, the claims must “directly affect the relationship between
traditional ERISA entities–the employer, the plan and its
fiduciaries, and the participants and beneficiaries.” See 29
C.F.R. § 2510.3-3(b) (2001); Memorial Hosp. Sys., 904 F.2d at
245. Because Hollis’s claims directly affect the relationship
between traditional ERISA entities, the second element of
preemption is met.
Claims of breach of duty of good faith, breach of contract,
and denial of benefits, like Hollis’s claim against Provident,
certainly can be preempted by ERISA. See Weaver, 13 F.3d at 177.
However, the rule that the claims must “directly affect the
relationship between traditional ERISA entities” has a standing
component as well. See id. Claims, such as those referenced
above, are preempted only when the claimant is a plan
“participant” or “beneficiary.” See id. Thus, for preemption to
occur, Hollis must be either a participant or beneficiary as
ERISA defines those terms. Provident does not assert that Hollis
is a participant.
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Thus, ERISA preempts his claims only if he is a beneficiary.
ERISA defines beneficiary as “a person designated by a
participant, or by the terms of an employee benefit plan, who is
or may become entitled to a benefit thereunder.” 29 U.S.C. §
1002(8). Clearly, Hollis is a person who, by the terms of the
Provident policy, a part of Graduate Supply’s ERISA plan, “is or
may become entitled to a benefit thereunder.” Id. He was the
beneficiary of the disability insurance policy, he was entitled
to receive benefits under that policy in the event of total
disability, and he did, in fact, receive benefits from Provident
for several months. Therefore, under the definition’s plain
language, Hollis is a beneficiary.
In spite of the definition, Hollis gives two separate and
independent reasons why he is not a beneficiary. First, he
argues that independent contractors, such as himself, cannot be
ERISA beneficiaries. Second, he argues that the definition of
beneficiary does not include a person whose services resulted in
the accrual of the benefit. We are not persuaded by either
argument.
Relying on our decision in Weaver, the district court
concluded that an independent contractor can not be an ERISA
beneficiary. In that case, Weaver, an independent contractor,
sued his employer and the insurance carrier obligated to pay
benefits under the ERISA benefit plan. See Weaver, 13 F.3d at
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173-74. We decided that ERISA did not preempt state law in that
case because Weaver was neither a participant nor a beneficiary.
See id. at 176. We said that Weaver was not a participant
precisely because he was an independent contractor. After all,
ERISA defines a participant as “any employee . . . who is or may
become entitled to a benefit.” 29 U.S.C. § 1002(8). However, we
gave an entirely different reason why Weaver was not a
beneficiary. See id. at 177. Weaver was not a beneficiary
because the benefit plan did not designate him as a beneficiary.
See id. In other words, Weaver was not a person who could ever
become entitled to benefits; thus, he did not meet the definition
of beneficiary.
For this particular issue, what we did not say in Weaver is
more important than what we said. We did not say that his status
as an independent contractor had anything to do with him not
being a beneficiary. In fact, implicit in our holding in Weaver
is that an independent contractor can be a beneficiary so long as
he is a person “who is or may become entitled to a benefit” under
the plan. Therefore, Hollis’s independent contractor status does
not preclude him from being a beneficiary.
Similarly, Weaver’s claim that his own services accrued a
benefit had nothing to do with our holding that he was not a
beneficiary. However, citing a footnote from an opinion of the
Fourth Circuit, Hollis argues that a beneficiary under ERISA
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includes only “a person other than one whose service resulted in
the accrual of the benefits, but who is designated as the
recipient of benefits accrued through the service of another.”
Darden v. Nationwide Mutual Ins. Co., 796 F.2d 701, 704 n.3 (4th
Cir. 1986)(emphasis added). In other words, Hollis argues that a
beneficiary is limited to people such as the worker’s spouse and
children. Until now, we have not squarely decided this issue.
However, the other courts of appeals faced with this issue have
decided that beneficiary includes those persons whose services
accrued the benefit. We agree with our sister courts.
In Peterson v. American Life and Health Ins. Co., the Ninth
Circuit, relying on the plain language of ERISA’s definition of
beneficiary, held that an ERISA beneficiary includes “any person
designated to receive benefits from a policy that is part of an
ERISA plan.” 48 F.3d 404, 409 (9th Cir. 1995). The Peterson
court reasoned that “to hold otherwise would create the anomaly
of requiring some insureds to pursue benefit claims under state
law while requiring others covered by the identical policy to
proceed under ERISA.” Id. The Peterson court noted that “such a
scenario would frustrate Congress’s intent of achieving
uniformity in the law governing employment benefits.” Id.
Other circuits have found the Ninth Circuit’s reasoning as
persuasive as we do. In Prudential Ins. Co. of America v. Doe,
the Eighth Circuit held that the controlling shareholder in a law
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firm was an ERISA beneficiary because he was “designated to
receive benefits under the terms of the “employee benefit
policy.” 76 F.3d 206, 208 (8th Cir. 1996). In Wolk v. Unum Life
Ins. of America, the Third Circuit held that a partner in a law
firm was an ERISA beneficiary because she was designated to
receive benefits under an employee welfare benefit plan. 186
F.3d 352, 356 (3d Cir. 1999). Finally, in Engelhardt v. Paul
Revere Life Ins. Co., the Eleventh Circuit held that a physician-
shareholder of a professional corporation was an ERISA
beneficiary because he was a beneficiary under the group
disability insurance plan. 186 F.3d 352, 356 (11th Cir. 1999).
At the end of this analysis, we reach the unremarkable
conclusion that ERISA’s definition of beneficiary means precisely
what it says. A beneficiary is “a person designated by a
participant, or by the terms of an employee benefit plan, who is
or may become entitled to a benefit thereunder.” 29 U.S.C. §
1002(8). Because Hollis was a person designated by the terms of
the plan who could become entitled to benefits thereunder, he is
an ERISA beneficiary.
Both elements of preemption are satisfied in this case.
Hollis’s state law claims address areas of exclusive federal
concern because he is claiming a right to receive benefits under
the terms of an ERISA plan. Because Hollis is an ERISA
beneficiary, his claims directly affect the relationship between
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traditional ERISA entities. Therefore, ERISA preempts Hollis’s
state law claims against Provident for bad-faith denial of
disability benefits.
The judgment against Provident is vacated and the case is
remanded to the district court so Hollis’s claims against
Provident can be concluded as appropriate under ERISA. We leave
it to the district court to determine whether Hollis has
exhausted his administrative claims against Provident. If not,
the district court should remand Hollis’s claims against
Provident to the plan administrator. If the claims have been
administratively exhausted, then the district court should
consider whether to allow Hollis to amend his suit to seek review
of the administrative findings under the appropriate standard of
review.2
II.
In addition to preemption, Provident raises two more issues
by way of cross appeal. Provident argues that there was
insufficient evidence to support the award of emotional distress
and mental anguish damages and that Hollis’s expert was
unqualified to testify as to whether Provident denied benefits in
2
“This court requires that claimants seeking benefits from
an ERISA plan must first exhaust available administrative
remedies under the plan before brining suit to recover benefits.”
Bourgeois v. Pension Plan for Employees of Santa Fe Int’l Corps.,
215 F.3d 475, 479 (5th Cir. 2000) (citing Denton v. First Nat’l
Bank of Waco, 765 F.2d 1295, 1300 (5th Cir. 1985)).
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bad faith. Since we hold that ERISA preempts Hollis’s state law
claims against Provident, both of these issues are moot.
III.
Hollis challenges the judgment rendered on the take nothing
verdict in favor of Paul Revere. He argues first that the
verdict in favor of Paul Revere can not be reconciled with the
verdict against Provident. As indicated above, the district
court erred in allowing Hollis’s claims against Provident to go
to the jury, so the jury’s verdict on those claims is essentially
a nullity. Thus, we are only left with the take nothing verdict
in favor of Paul Revere.
Hollis also argues that the jury improperly considered
evidence that he had a preexisting condition at the time he
applied for the Paul Revere policy. During deliberations, the
jury sent a note to Judge Barbour which asked: “Are we allowed to
consider good-faith/bad-faith in determining our decision in
regards to the written application for a policy.” According to
Hollis, the note shows that the jury found in favor of Paul
Revere because it believed he applied for the policy in bad
faith.
Judge Barbour sent a note back to the jury room instructing
them that they should not consider evidence of bad faith/good
faith in the application process to determine whether Hollis was
totally disabled. Juries are presumed to follow the instructions
of the court. See Richardson v. Marsh, 481 U.S. 200, 206, 107
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S.Ct. 1702, 95 L.Ed.2d 176 (1987). Therefore, we must presume
that the jury followed Judge Barbour’s instructions and ignored
the evidence of bad faith in the application process.
Hollis next argues that we should grant a new trial in his
action against Paul Revere because the verdict is against the
great weight of the evidence. After reviewing the record, we are
not persuaded that the verdict in favor of Paul Revere was
against the great weight of the evidence.
Hollis claims the district court erred by failing to award
him attorney’s fees in his action against Provident. Because
Hollis’s state law claims against Provident are preempted by
ERISA, the issue is moot.
IV.
We VACATE the judgment rendered against Provident and REMAND
Hollis’s action against Provident so it can be handled as an
ERISA action. We AFFIRM the take nothing judgment rendered in
favor of Paul Revere.
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