Rodney Miller v. Monumental Life Insurance Company and NASRA TPA, Inc., et al.

Rodney Miller filed suit in the United States District Court for the District
of New Mexico challenging Monumental Life Insurance's (Monumental's) denial
of a request for long-term disability benefits. The district court granted summary
judgment for Monumental. Because the Employment Retirement Income Security
Act (ERISA), 29 U.S.C. §§ 1001-1461, governs the terms of Monumental's
master-group insurance policy, the district court's jurisdiction arose under 28
U.S.C. § 1331. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reverse
and remand.

I. BACKGROUND

In September of 1997, Rodney Miller was injured in an automobile accident
while working for Aycock Transportation, a Texas corporation. After receiving
24 months of Temporary Disability benefits from Monumental, Aycock's provider
of a master-group policy (the Plan), Mr. Miller applied for the Plan's Continuous
Total Disability Benefit (Continuous Benefit), a long-term disability payment. In
order to qualify for the Continuous Benefit, an applicant must be "Totally
Disabled," which the Plan defines as "unable to perform every duty pertaining to
any occupation for which he is or may become qualified by education." Aplt's
App. at 37 (Monumental's Master Policy, effectuated June 10, 1996). The Plan
also requires applicants to present proof of a Social Security Disability Award,
which the Plan defines as "Social Security disability benefits for which the
Insured Person has submitted a claim and [has] been approved for payment by the Social Security Administration." Id.

Mr. Miller applied for disability benefits under Title II and Title XVI of the
Social Security Act, 42 U.S.C. § 401 et. seq. Although the Social Security
Administration (SSA) administers both programs, the Supreme Court has outlined
their distinctions: "Title II is an insurance program. Enacted in 1935, it provides
old-age, survivor and disability benefits to insured individuals irrespective of
financial need. Title XVI is a welfare program. Enacted in 1972, it provides
[Social Security Insurance] benefits to financially needy individuals who are
blind, or disabled regardless of their insured status." Bowen v. Galbraith, 485
U.S. 74, 75 (1988) (citation omitted).

The SSA denied Mr. Miller's claim for Title II disability insurance benefits
because he had failed to accrue "sufficient quarters of coverage1 to confer
disability insured status." Aplt's App. at 93 (Social Security Administration
Office of Hearings and Appeals Decision, filed August 28, 2003) (Title II
Decision). Nevertheless, the SSA granted Mr. Miller's claim for Title XVI
supplemental social security income benefits because the administrative law judge
(ALJ) determined that he met the regulatory standard for physical disability and
had basically no income. Mr. Miller sent Monumental notice of the SSA's Title
XVI Decision, but Monumental denied payment on the grounds that it was not a
Social Security Disability Award. Mr. Miller brought suit challenging
Monumental's conclusion.

Because Monumental had not retained authority to interpret the Plan, the
district court reviewed Monumental's denial of coverage de novo. Reasoning that
"there is little difference between New Mexico law and Texas law," Miller v.
Monumental Life Ins. Co., 376 F. Supp. 2d 1238, 1248 (D. N.M. 2005), the
district court applied New Mexico law to interpret the term Social Security
Disability Award. The court granted Monumental's motion for summary
judgment on the theory that the Plan unambiguously provided that a Title XVI
award was not a Social Security Disability Award. More specifically, the district
court found that the "phrase [Social Security Disability Award] has a technical
meaning that does not include [Social Security Income] payments" and refused to
"go beyond the technical meaning of Social Security Disability Award." Id. at
1250. The court emphasized "that the language in each of these places means
what Monumental meant it to say when it wrote [the] definition." Id. This appeal
followed.

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Congress enacted ERISA to ensure national uniformity in fiduciary
standards for the administration of employee benefit plans. See Shaw v. Delta Air
Lines, Inc., 463 U.S. 85, 104 (1983). To that end, it included a broad provision that "pre-empts all state laws insofar as they may now or hereafter relate to any
employee benefit plan." Ky. Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329,
333 (2003) (internal quotation marks omitted). Nevertheless, even under this
expansive preemption scheme, "state ‘law[s] . . . which regulat[e] insurance' . . .
are saved from pre-emption." Id. (quoting 29 U.S.C. § 1144(b)(2)(A)). In Miller,
the Supreme Court held that "for a state law to be deemed a ‘law . . . which
regulates insurance' under § 1144(b)(2)(A), it must satisfy two requirements.
First, it must be specifically directed toward entities engaged in insurance.
Second . . . the state law must substantially affect the risk pooling arrangement
between the insurer and the insured." Id. at 341-42.

Like the Seventh Circuit, "[w]e cannot imagine any rational basis for the
proposition that state rules of contract interpretation ‘regulate insurance' within
the meaning of § 1144(b)(2)." Hammond v. Fid. & Guar. Life Ins. Co., 965 F.2d
428, 430 (7th Cir. 1992). In the context of the saving clause, the Miller Court
described an insurance regulation as a law that placed "conditions on the right to
engage in the business of insurance." 538 U.S. at 338. Rules of contract
interpretation "force the insurer to bear the legal risks associated with unclear
policy language." Hammond, 965 F.2d at 430. Shifting legal risk is, however, "a
far cry from . . . transferring or spreading a policyholder's risk." Id. (internal
quotation marks omitted). Thus, the rules of contract interpretation at issue do
not satisfy the first prong of the Miller inquiry.

Our decision to apply federal common law is consistent with our precedent,
and that of the vast majority of other circuits. See Blair, 974 F.2d at 1222
("MetLife urges us to apply federal common law, governed by principles of trust
law. We do so.") (internal citation omitted); see also Thibodeaux v. Cont'l Cas.
Ins. Co., 138 F.3d 593, 596 (5th Cir. 1998); Hammond, 965 F.2d at 430; Brewer
v. Lincoln Nat'l Life Ins. Co., 921 F.2d 150, 153 (8th Cir. 1990); Evans v. Safeco
Life Ins. Co., 916 F.2d 1437, 1440-41 (9th Cir. 1990); McMahan v. New England
Mut. Life Ins. Co., 888 F.2d 426, 429-30 (6th Cir. 1989); Sampson v. Mut. Benefit
Life Ins. Co., 863 F.2d 108, 110 (1st Cir. 1988).

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