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Health v. Sun Life Assurance Co.

United States District Court, N.D. California, San Jose Division

November 6, 2014


Page 1155

For Bay Area Roofers Health and Welfare Trust, its Joint Board of Trustees, Keith Robnett, Bruce Lau, as Trustees, Plaintiffs: Anne M. Bevington, LEAD ATTORNEY, Richard Clayton Johnson, Shivani Nanda, Saltzman & Johnson Law Corporation, San Francisco, CA.

For Sun Life Assurance Company of Canada, Defendant: Byrne J. Decker, LEAD ATTORNEY, PRO HAC VICE, Pierce Atwood LLP, Portland, ME; Sean Patrick Nalty, LEAD ATTORNEY, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., San Francisco, CA.

Page 1156


BETH LABSON FREEMAN, United States District Judge.

This case involves interpretation of provisions of a stop-loss insurance policy issued by Defendant Sun Life Assurance Company of Canada (" Sun Life" ) regarding the scope of its contractual obligation to reimburse Plaintiff Bay Area Roofers Health and Welfare Trust (" the Trust" ) for claims paid on behalf of a worker's minor children for medical care. Sun Life asserts that coverage is precluded because

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the worker obtained his employment by fraud through submission of a false Social Security Number (" SSN" ). The Trust asserts that it determined that the worker was an eligible employee under the Health and Welfare Plan and thus, as required by the Policy, Sun Life is contractually obligated to reimburse it for its claims. Cross-motions for summary judgment are presently before the Court.

Plaintiffs are a Trust created for the purpose of providing health care benefits for employees and their dependents in the roofing industry, and two of its Trustees. The Trust purchased a stop-loss insurance policy (" the Policy" ) from Sun Life in order to mitigate costs related to large health care expenses that would otherwise fall upon the Trust's self-funded Health and Welfare Plan (" the Plan" ). In 2011, the third-party administrator of the Plan submitted reimbursement claims to Sun Life under the Policy for medical expenses paid out by the Plan for newborn twin dependents of a Plan participant, Participant X.[1] The twins were born prematurely and accrued substantial medical expenses for their treatment.

Defendant Sun Life is an insurance company that offers, among other plans and policies, stop-loss insurance policies that provide reimbursement to self-funded employee benefit plans for covered medical expenses incurred by employees. Upon receipt of Plaintiffs' claims and its own investigation, Sun Life denied the Trust's claims based on its determination that Participant X was not a covered " employee" for purposes of the Policy coverage because Participant X lacked a valid Social Security Number. Sun Life claims that the absence of a valid SSN means that Participant X obtained his employment by fraud and was not authorized to work in the United States, thus precluding him from being an " employee" for purposes of insurance coverage under the Policy. Following Sun Life's denial of Plaintiffs' claims, and two unsuccessful internal appeals of that denial, Plaintiffs brought suit.

After reviewing the parties' papers, evidence, and oral argument, as well as the governing law, the Court GRANTS IN PART AND DENIES IN PART Defendant's Motion for Summary Judgment, and GRANTS Plaintiffs' Motion for Partial Summary Judgment.


A. Procedural History

Plaintiffs filed their Complaint on September 10, 2013, alleging four causes of action, including breach of contract, breach of the covenant of good faith and fair dealing, and violations of California Business and Professions Code § § 17200 et seq. and the Employee Retirement Income Security Act (" ERISA" ) § 502(a)(3)(B)(ii). Defendant answered on October 18, 2013, and after Plaintiffs filed a successful Motion to Strike, filed an Amended Answer on January 6, 2014.

On April 17, 2014, this case was reassigned to the undersigned. On April 25, 2014, the parties filed their cross-motions for summary judgment. Following briefing, the Court heard oral argument on August 7, 2014.

B. Undisputed Facts

The Trust is a multiemployer Taft-Hartley Trust, created to provide employee benefits, including healthcare benefits and life insurance, for employees and their dependents covered by collective bargaining agreements in the roofing industry in the Bay Area. See Callahan Decl. ¶ ¶ 1, 3; see also id. Exh. A at 21 (Article I of the

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Trust Agreement). The Plan, which is self-funded, id. at ¶ 5, is administered by a Joint Board which includes equal representation from labor and management, and which has the exclusive authority to manage the operations of the Trust and its assets. Id. Exh. A at 22, 38-41.

The Joint Board, in order to mitigate the effects of large health claims due to the self-funded nature of the Plan, purchased the Policy from Sun Life in August 2009, and renewed the Policy on August 1, 2010 and August 1, 2011. See Callahan Decl. ¶ 6. Upon renewal in 2010, and thereafter, the Policy's deductible was $150,000. Id. at ¶ 7, Exh. B p. 24. The Trust provided Defendant with data regarding its past health insurance claim history, and also provided Defendant with a de-identified census, which included, among other information, the age, zip code, and number of dependents of each Plan participant. Barrett Decl. ¶ 5. Every month, to continue receiving coverage under the Policy, the Trust provided a head count of total Plan participants. Id. at ¶ 6. The Trust is not the employer of any of its covered employees.

The Policy includes two provisions regarding the obligations of the insurer to make a reimbursement to the Plan:

This is a reimbursement policy. You, or your Plan administrator, are responsible for making benefit determinations under Your Plan. We have no duty or authority to administer, settle, adjust, or provide advice regarding claims filed under Your Plan.
. . .
We have the right to require documentation from You that demonstrates You paid an Eligible Expense and that payment was made in accordance with the terms of your Plan. . . . For the purpose of determining Eligible Expenses under this Policy, We have the right to determine whether an expense was Paid by You in accordance with the terms of Your Plan.

Rollinson Aff., Exh. B. at 1, 18.

In May 2011, Participant X, a Plan participant, timely enrolled his newborn twins in the Plan. Barrett Decl. ¶ 7. The twins, who are citizens of the United States, were born prematurely, and incurred substantial medical expenses, with the Trust paying over $250,000 for Twin A's medical treatment and over $450,000 for Twin B's medical treatment. Id.

In November 2011, the Plan's third-party administrator, United Administrative Services (" UAS" ), submitted claims to Sun Life seeking reimbursement for the medical expenses greater than the $150,000 deductible per dependent. Barrett Decl. ¶ 8, Exh. B at 1-4. Later, in August 2012, UAS submitted a subsequent reimbursement claim for additional expenses paid out by the Plan for additional treatment for Twin B. In total, the Plan sought reimbursement from Sun Life in the amount of $408,841.59. Id. ¶ ¶ 7-8, Exh. B. at 3-6.

The Plan's claim forms, submitted to Sun Life, included Participant X's name and a Social Security Number, which ended in " 0724." Rollinson Aff. ¶ 7, Exhs. D, E. Following receipt of the claim forms, Sun Life requested additional information from Plaintiffs, including Participant X's original Plan enrollment form, see Barrett Decl. ¶ 11; on his enrollment form, Participant X included the same SSN ending in " 0724," Rollinson Aff. ¶ 9, Exh. F.

After receiving this information from the Trust, Sun Life cross-checked this SSN with a database called Accurint.[2] Rollinson

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Aff. ¶ 13, Exh. H. The Accurint report showed that the SSN ending in " 0724," provided by Participant X, did not belong to him; upon double-checking the accuracy of this readout, Accurint informed Sun Life that the 0724 SSN " is properly linked to another consumer, not [Participant X]." Rollinson Aff. ¶ 15, Exh. I. In December 2011, Sun Life denied the Trust's reimbursement claims, stating in two letters to the Trust (" Denial Letters" ) that:

In the absence of a valid Social Security number, [Participant X] may not be considered a lawful employee under the U.S. employment laws and Immigration Act. This is relevant because the Stop Loss Policy [], The Bay Area Roofers Health and Welfare Plan, and the Trust Agreement all make reference to the term 'Employee'. Where the term is not defined in the policy, the courts will look to Federal common law or other applicable sources to interpret the term 'Employee.'
. . .
[Defendant is] unable to provide reimbursement of this claim in the absence of documentation that [Participant X] is a lawful employee in accordance with the Employment and Immigration laws of the United States.

Barrett Decl. ¶ 9, Exh. C at 1, 3.

In January 2012, the Plan, through UAS, appealed Sun Life's denials.[3] Barrett Decl. ¶ 10, Exh. D. As a part of this appeal, UAS provided Participant X's I-9 form, which Participant X submitted in order to obtain his employment, as well as his Social Security Card and Permanent Resident Card. Callahan Decl. ¶ 14; see also Rollinson Aff. ¶ 14, Exh H. at 2. The I-9 form included the same 0724 SSN as the claim and enrollment forms.[4] Rollinson Aff. ¶ 16, Exh. J. Sun Life ultimately requested Participant X's W-2 form, which the Plan provided. Barrett Decl. ¶ 11, Exh. E; see also Callahan Decl. ¶ 15. Following receipt of this information, in April 2012, Sun Life attempted to verify Participant X's SSN with the Social Security Administration (" SSA" ). Rollinson Aff. ¶ 18. In October 2012, Sun Life received a response from the SSA which stated that " [t]he Social Security Number you provided [to SSA] doesn't belong to [Participant X]." Rollinson Aff. ¶ 18, Exh. O.

On December 21, 2012, Sun Life denied the Plan's appeal of the first reimbursement denial. Barrett Decl. ¶ 14, Exh. G. On February 14, 2013, the Plan requested a second appeal. Bevington Decl., ECF 37 ¶ 3, Exh. B. On May 3, 2013, Sun Life once again denied the Plan's appeal, confirming the denial of reimbursement. Id. ¶ 4, Exh. C.

After denying reimbursement, Sun Life sent UAS a check for $2,721.26, which represented a refund of the amount paid in premiums by the Plan for coverage related to Participant X. Barrett Decl. ¶ 18, Exh. H. On July 18, 2013, the Plan, through counsel, rejected this refund check and returned it to Sun Life. Bevington Decl., ECF 37 ¶ 5, Exh. D. Then, on September 10, 2013, the Trust and two of its trustees filed suit.

C. Evidentiary Objections

Defendant makes evidentiary objections to five paragraphs in the Declaration of

Page 1160

William Callahan, filed with Plaintiffs' Motion for Partial Summary Judgment. See Callahan Decl., ECF 35. Defendant objects to: (1) paragraph 8 as irrelevant parol evidence, pursuant to Federal Rule of Evidence 401; (2) paragraph 9 as irrelevant; (3) paragraphs 13, 15, and 17 as the irrelevant opinion of a lay witness, pursuant to Federal Rules of Evidence 401 and 701; and (4) paragraph 15 for lacking foundation.

As to paragraph 8, the Court SUSTAINS the objection as to the first sentence. The Policy language itself will be considered by the Court. As to paragraphs 9, 13, 15, and 17, the Court OVERRULES the objections on relevance grounds, and will give the statements the weight they deserve. However, the Court SUSTAINS Defendant's objection to paragraph 13 as to the use of " arbitrarily" and " summarily concluding," but OVERRULES its objection as to the remainder of the paragraph. The Court OVERRULES Defendant's lack of foundation objection to paragraph 15.


Federal Rule of Civil Procedure 56 governs motions for summary judgment. Summary judgment is appropriate " if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing Fed.R.Civ.P. 56(c)). The Court draws all reasonable inferences in favor of the party against whom summary judgment is sought. See, e.g., Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). " Partial summary judgment that falls short of a final determination, even of a single claim, is authorized by Rule 56 in ...

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