The opinion of the court was delivered by: Honorable Valerie Baker Fairbank United States District Judge
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Trial Date: July 19, 2011 Time: 8:30 a.m. Ctrm: 9
The Parties tried this case to the Court based on an administrative record on July 19, 2011. Plaintiff was represented by Gary Tysch. Defendant Sun Life Assurance Company of Canada was represented by Daniel Maguire of Burke, Williams & Sorensen LLP. Defendant Pulau Electronics Corporation Employee Benefits Plan was represented by Roland Juarez and Jennifer Ellis of Hunton & Williams LLP. Having reviewed the administrative record, considered all timely submissions by the Parties, and the arguments of counsel at trial, the Court makes the following findings of fact and conclusions law. Parenthetical references are to the pages of the Administrative Record, filed on June 6, 2011. (Doc. 31.)
A. The Benefit Plan Offered By Pulau
1. Plaintiff Karen Flynn is the widow of Edward Flynn ("Flynn"), one of a group of former Raytheon employees hired by Pulau Corporation on May 1, 2008. (133, 277, 280.)
2. Pulau provides program management, operation and maintenance, instructor/operator, logistics and supply chain management, vehicle repair and maintenance, live fire range and shoot house maintenance and training system relocations to the U.S. Government and other major prime contractors. (133, 280.)
3. In early 2008, Pulau began performing services for the U.S. Government at Fort Irwin, California when it was awarded a subcontract with Raytheon Technical Services Company, a company that provides services similar to those provided by Pulau. (Id.) Under the new contract arrangements, a large number of Raytheon employees left Raytheon and joined Pulau, as new hires. (Id.) Flynn, Plaintiff's deceased husband, was one of those employees and began his employment with Pulau on May 1, 2008. (133, 277, 280.)
4. New Pulau employees, including Flynn, were offered the opportunity to participate in Pulau's ERISA-governed benefit plan. The Pulau benefit plan is self-administered. (270-71.) Pulau structures the benefit package and is responsible for enrollment of eligible participants in all plan benefits. Pulau maintains all enrollment records, including enrollment forms and billing information. (Id.) The terms, conditions and limitations of the benefits are governed by the plan documents.
5. The new employees, including Flynn, could choose between two benefit options. (280.) Option 1, known as the "insurance option," allowed participation in Pulau's Group Health and Welfare Plan. (113-14, 283-84.*fn1 ) This included a total package of medical, dental, vision, disability and life insurance under group insurance policies issued to Pulau by various insurers, among other Company benefits. (Id.)
6. Option 2, the "extra pay" option, offered an additional $3.16 per hour, in lieu of any participation in the Health & Welfare Plan. (113-14; 285-86.) The extra pay would enable the employee to purchase his or her own insurance, if they so desired. (285.)
7. Option 1 was all or nothing. The new hire could not pick and choose which of the insurance coverages he or she wanted. (113-14, 283-84.) The insurance package had to be accepted as a whole. Within Option 1, the life insurance benefit was funded by Pulau through a group insurance policy issued by Sun Life, effective October 1, 2003. (168.)
8. A Memorandum describing the choice between Options 1 and 2 and enclosing copies of both benefits options, was provided to the new Raytheon hires, including Flynn, by Memorandum dated May 1, 2008. (282-86.)
9. The group life insurance policy allowed Flynn to elect basic life coverage of $50,000. (171.) Under the guaranteed issue provision of the Sun Life policy, optional life insurance coverage was limited to the lesser of three times annual earnings or $50,000. (172, 123.) The guaranteed issue amount is defined as follows:
"Guaranteed Issue Amount means the maximum amount of insurance available under this Policy without Evidence of Insurability. If the Employee's or Dependent's amount of insurance exceeds the Guaranteed Issue Amount available under this Policy, any amount in excess of the Guaranteed Issue Amount is available to the Employee or Dependent only if he has furnished Evidence of Insurability to Sun Life and has been approved for any excess amount above the Guaranteed Issue Amount." (176) (emphasis added).
10. Additional optional coverage up to the lesser of $500,000 or five times his annual earnings was available, but only if Flynn submitted, and Sun Life accepted, his Evidence of Insurability application. (171-72.) At the time of his death, Flynn's Basic Annual Earnings were $50,000. (277.) Flynn acknowledged the Evidence of Insurability requirement on the enrollment form. (123.)
B. Flynn Initially Selected The Insured Option
11. In May 2008, Flynn initially selected Option #1 -- i.e., to participate in Pulau's health and welfare plan. However, rather than enrolling in all of the benefits packages that make up Pulau's Option #1, Flynn attempted to enroll in life, dental, vision, and disability insurance, and then attempted to decline participation in other benefits, such as medical insurance. (117, 120.) This was not a proper election of coverage. (283-286.)
12. Similarly, Flynn incorrectly completed the optional life insurance enrollment form. He attempted to apply for $500,000 in optional life insurance coverage, although his Optional Maximum Benefit was $250,000.*fn2 (123.)
13. Although Flynn could not obtain optional life insurance coverage beyond $50,000 without providing evidence of insurability and obtaining approval from Sun Life for any excess amount above $50,000, he never submitted such evidence of insurability and never obtained any such approval from Sun Life. (5, 26, 108.)
14. Because Flynn had selected Option #1, which included the health insurance package (i.e., medical, dental, vision), short and long term disability insurance, and basic life insurance coverage, and because he never submitted evidence of insurability for optional life insurance above $50,000, Pulau began deducting the appropriate employee contributions, including $80.00 for health insurance beginning with his June 4, 2008 paycheck, and $15.95 for the $50,000 in optional life insurance, $14.03 for short term disability insurance, and $8.97 for long term disability insurance, beginning with Flynn's June 18, 2008 paycheck. (124.)
15. Pulau enrolled the new hires in the Meritain health insurance policy in May and set-up the payroll deductions to begin in the employees' June 4, 2008 paycheck. (124.) Pulau did not begin processing enrollments for the life insurance policy until June. (125, 133.) Although Vickie Wasik, HR Administrator at Pulau, set up Flynn's payroll deductions for the $50,000 in optional insurance coverage to begin in his June 18, 2008 paycheck, she did not complete his enrollment with Sun Life because she wanted to speak with Flynn first. (276.)
16. In fact, when Ms. Wasik first received the life insurance enrollment forms, she noted Flynn's improper election, and observed that he could only elect $100,000 of total coverage without evidence of insurability. (Id.) This is why Ms. Wasik held off on completing Flynn's enrollment in the group life insurance policy and noted she would need to speak with Flynn about this issue. (Id.) Flynn never submitted evidence of insurability. (5, 26, 108.) Therefore, the application process was never completed.
C. Flynn Cancels the Enrollment Process Before It Is Complete
17. Upon noticing the $80.00 deduction for health insurance in his June 4, 2008 paycheck, Flynn sought clarification from Katrina Griego, another Pulau employee, regarding his benefit options. (281.) He inquired whether he could participate in only some of Pulau's benefits or whether he had to participate in all of them, and asked Ms. Griego if she could find out for him. (Id.)
18. Ms. Griego contacted Ms. Wasik, who explained to Ms. Griego that the benefits were a "package deal." (Id.) Ms. Wasik asked Ms. Griego to have Flynn call her, so she could make sure all of his questions were answered and that he fully understood. (Id.) When Ms. Griego explained all of this to Flynn, he told her that he "more than likely would be collecting the $3.16" but that he would call Ms. Wasik just to make sure "things were straight." (Id.)
19. On June 11, 2008, Flynn spoke with Ms. Wasik. (113-14, 276, 280.) She explained that if he wanted life insurance, he also had to pay for the health insurance package. (Id.) Flynn did not want medical insurance because he already had such coverage through his wife's employer. He therefore explained to Ms. Wasik that he changed his mind and did not want Option #1. (Id.)
20. Ms. Wasik reiterated to Flynn the consequences of that election, including that he would not be eligible for either the basic or the optional life insurance, and repeatedly asked if selecting Option #1 was what he really wanted to do. (Id.) He voiced his understanding, and stated he wanted to receive the additional $3.16 per hour "right away." (Id.)
21. Because Pulau's processing of the former Raytheon employees' life and short and long term disability insurance enrollments had not yet been completed or submitted to the insurers, including Sun Life, Ms. Wasik allowed Flynn to stop the enrollment process. (133-34, 280.) Ms. Wasik recorded Flynn's declination of coverage in writing on the benefits enrollment forms he had previously submitted, on copies of memoranda he received regarding his benefits, and on an Employee Change of Status Authorization form. (117, 121-23, 127, 130-31.)
22. Ms. Wasik also adjusted Flynn's payroll so that he would begin receiving the $3.16 per hour payment effective June 9, 2008, and reimbursed him for any deductions for the optional life insurance coverage and short and long term disability coverage.*fn3 (125-26.) His paychecks, beginning with the paycheck dated July 2, 2008, reflect that Flynn was receiving the $3.16 per hour payment at the time of his death. (Id.)
D. Flynn's Death and Plaintiff's Life Insurance Claim
23. On July 27, 2008, Flynn died as the result of a heart attack. (158, 163.)
24. In August or September 2008, Flynn's son, Thomas, contacted Pulau, requesting that Pulau send Plaintiff pertinent information concerning Flynn's life insurance coverage. (113-14.)
25. Toni L. Tattoli, then Director of Human Resources, spoke with and obtained written statements from both Ms. Wasik and Ms. Griego. (280-81.) After review of this information, and Flynn's file, Ms. Tattoli sent a letter to Plaintiff, dated September 3, 2008, explaining that although Flynn had initially chosen Option #1 of Pulau's benefits package, his election was cancelled at his request prior to completion of the enrollment process. (113-14.)
26. Ms. Tattoli explained that once the deductions started being taken out of Flynn's paycheck, he decided that he did not want Option #1 but wanted to receive the $3.16 per hour payment instead. (Id.) Ms. Tattoli attached copies of the benefit options Flynn received when he was hired by Pulau, as well as the Change of Status Authorization form on which Ms. Wasik recorded in writing Flynn's decision to cancel his election,*fn4 and the Payroll Journal showing that Flynn was receiving the $3.16 per hour payment effective June 9, 2008. (Id.)
27. Pulau considered the following information and documents in responding to Plaintiff's son: (1) the Policy documents; (2) Pulau's informational sheets describing Options #1 and #2 (282-86); (3) Flynn's Employee Records Jacket (277);
(4) the welcome letter and Employee Packet provided to Flynn at the time of hire (287-96); (5) Flynn's completed enrollment forms, on which Ms. Wasik noted his June 11, 2008 change in election from Option #1 to Option #2 (117-23); (6) the May 19, 2008 and June 5, 2008 memoranda to Flynn regarding his insurance coverages, on which Ms. Wasik noted his change in election (130-31); (7) Employee Change of Status Authorization forms, on which Ms. Wasik noted Flynn's change in election (127-28); (8) Flynn's payroll register (124-26); and (9) the August 20, 2008 and August 21, 2008 written statements from Ms. Wasik and Ms. Griego, explaining the circumstances regarding Flynn's change in election (280-81).
28. Six months later, on March 23, 2009, Plaintiff completed a claim packet, which Sun Life received on April 22, 2009. (164-167.)
29. Upon receipt of the claim, Sun Life commenced its investigation. As part of that investigation, Sun Life contacted Pulau, spoke to its attorney on April 30, 2009, and obtained relevant information and documentation from Pulau. (94, 98, 133-57).
30. In preparing its response to Sun Life, Pulau again reviewed and relied upon the documents enumerated above, as well as a December 15, 2008 letter from US Army Captain and Legal Assistance Attorney Donel J. Davis (279) and a March 2, 2009 memorandum from Ms. Wasik (276).
31. On May 21, 2009, Sun Life determined that no benefits were payable. (107-110.) In its written claim decision, Sun Life stated that Flynn could only have qualified for the guaranteed issue amounts of $50,000 basic and $50,000 optional coverage without Sun Life's approval of his Evidence of Insurability application, had he not opted out of the insurance package entirely. However, by ...