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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Southern Alaska Carpenters Health and Security Trust Fund v. Jones (03/07/2008) sp-6237
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| SOUTHERN ALASKA CARPENTERS | ) |
| HEALTH AND SECURITY TRUST | ) Supreme Court Nos. |
| FUND, | ) S- 11360/11379/11380 |
| ) | |
| Appellant/Cross-Appellee, | ) Superior Court No. 3AN-99-7380 CI |
| ) | |
| v. | ) O P I N I O N |
| ) | |
| SARA JONES and JUSTIN JONES and | ) No. 6237 March 7, 2008 |
| JANSSEN CONTRACTING CO., INC., | ) |
| ) | |
| Appellees/Cross-Appellants. | ) |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, John Suddock, Judge.
Appearances: Bradley D. Owens, Thomas A.
Ballantine, Jermain, Dunnagan & Owens, P.C.,
Anchorage, for Appellant/Cross-Appellee.
William Grant Callow, Law Offices of William
Grant Callow, Anchorage, for Appellees/Cross-
Appellants Sara and Justin Jones. Mary L.
Pate, Eide, Gingras & Pate, P.C., Anchorage,
for Appellee/Cross-Appellant Janssen
Contracting Company, Inc.
Before: Matthews, Eastaugh, and Carpeneti,
Justices. [Fabe, Chief Justice, and Bryner,
Justice, not participating.]
MATTHEWS, Justice.
An employee was told by his employer and a union-
sponsored trust that he would be covered by health insurance, but
their representations turned out to be false. The superior court
found the employer and the trust liable for negligent
misrepresentation and awarded compensatory damages, including
damages for emotional distress. The main questions presented in
this appeal are whether the claim is preempted by the Federal
Employee Retirement Income Security Act (ERISA) of 1974 and
whether the award of emotional distress damages was justified.
We find no error on either point, and affirm.
I. FACTS AND PROCEEDINGS
A. The Southern Alaska Carpenters Health and Security
Trust Fund
The Southern Alaska Carpenters Health and Security
Trust Fund (Trust) is a trust established to provide employee
benefits, including health insurance, to the members of certain
labor organizations. It is governed by a trust agreement and is
administered by a board of trustees (Trustees). At the times
relevant to this case, Carol Patton was the administrator of the
Trust, and Charlene Renz was her assistant.
Under the trust agreement, the Trust provides benefits
to the members of three local carpenters unions and to the
members of other labor organizations that the Trustees designate.
The Trust may also provide benefits to the nonunion staff of
employers that have collective bargaining agreements with the
designated labor organizations. But such coverage is only
provided if an employer enters into a special agreement with the
Trust that provides for such coverage.
In 1991 the Trust merged with the Alaska Bricklayers
Health and Welfare Trust. Under the terms of the merger,
employers and labor organizations who prior to 1991 were
participants in the bricklayers trust became participants in the
Trust. At the time relevant to this case the administrator for
the bricklayers trust was Betty ODell.
B. Janssen Contracting Co., Inc.
Janssen Contracting Co., Inc. (Janssen) is a
construction business controlled by George Janssen. Janssen is a
party to a collective bargaining agreement with the bricklayers
union and made regular contributions to the Trust on behalf of
its union employees. Donna Freitas was the bookkeeper for
Janssen.
Each month Janssen contributed to the Trust on behalf
of its union member employees. The amount was based on the
number of hours that each union member worked for Janssen during
the month in question. To make the monthly contribution, Freitas
would prepare a monthly remittance report, containing the names
and hours worked of the employees for whom Janssen made
contributions. Freitas would submit the report to the Trusts
bank along with a check. The bank would deposit Janssens checks
and send copies of the transaction and the remittance report to
the Trust. When Freitas had questions, she would request help
from ODell of the merged bricklayers trust.
At the Trust, Renz would receive the report. From the
report, Renz would prepare a list of employees who were eligible
for coverage and send the eligibility lists to Administrative
Services, Inc., the business that the Trust hired to process
contributions and pay them to plan providers. Shirley Pellitteri
was the employee at Administrative Services assigned to receive
eligibility lists and transmit them with corresponding premium
payments to plan providers.
In the late 1980s, Janssen began to make contributions
to the bricklayers trust on behalf of its nonunion employees.
After the merger, the Trust continued to accept these
contributions. But Janssen and the Trust did not enter into a
special agreement that included nonunion employees. This failure
gave rise to the present case.
C. Justin and Sara Jones
In 1997 Janssen offered a job to Justin Jones. At the
time, Justin was working for a company that provided health
insurance to him and his wife Sara. Justins employment with
Janssen was to be as a project engineer, a nonunion position.
Janssen promised to provide him with a health care plan through
the Trust. In April 1997 Justin accepted the position with
Janssen.
There was a gap between the time when Justins former
employer would no longer provide the Joneses with health
insurance and when the Trust health insurance would become
effective. Freitas told Justin that Janssen would not be able to
provide health insurance to the Joneses for Justins first ninety
days of employment. To fill this gap, Justin purchased COBRA
insurance. Justin was particularly concerned about insurance
coverage because Sara was pregnant.
Justin began to work for Janssen in May 1997. Within
weeks of beginning employment, Justin asked Freitas when coverage
would begin and was assured by Freitas that this would occur on
September 1, 1997. Between this initial inquiry and late August
1997, Freitas confirmed for Justin on a number of occasions that
coverage would begin on September 1. To verify that this was so
Freitas called the Trust and would speak to either Patton or
Renz, who assured Freitas that the Joneses coverage would indeed
begin on September 1.
In late August 1997, however, the Joneses learned that
Janssens promised coverage would not begin until October 1, 1997.
Around this time, Justin had again asked Freitas to confirm the
September 1 start date. Freitas called the Trust and, according
to Justins testimony, spoke to Patton, who told Freitas that the
insurance would begin October 1, 1997.
In mid-September 1997 Janssen began its attempts to
make contributions to the Trust on the Joneses behalf. Freitas
called ODell to find out how to make such contributions for
Justin. Following ODells instructions, Freitas prepared and
submitted a monthly remittance report that reported Justin had
worked 100 hours for each of the last three months.
The Trust received and processed this report. In
accordance with the normal practice for monthly remittance
reports, Renz entered Justins reported hours into the Trusts
computer records. Renz testified that while she found it a bit
unusual for Janssen to report hours for three separate months in
one monthly remittance report, it was not so extraordinary that
she thought much of it.
In contrast, Patton took notice. Evidently 100 hours
per month is the minimum time required for coverage. The report
of the exact minimums for three months running raised a red flare
for her, and she suspected that something was amiss. Patton
ordered an audit of Janssens books and records. Pending the
audit a freeze was ordered on any claims for medical insurance
that the Joneses might submit. Neither Patton nor anyone else
from the Trust communicated these problems to the Joneses.
Meanwhile, Sara, concerned, but unaware of the freeze
on the Joneses insurance, inquired whether the insurance would
cover her pregnancy. Sara first called Freitas, who confirmed
that the insurance would begin on October 1, but did not know
whether the insurance would cover Saras pregnancy. Sara then
called Patton. Although Patton knew that the Trust had frozen
the Joneses insurance, she did not mention this. Instead, she
confirmed to Sara that the insurance would begin on October 1.
However, Patton too did not know whether the insurance would
cover Saras pregnancy, so Patton referred Sara to Pellitteri of
Administrative Services. Pellitteri confirmed that the Joneses
insurance would begin on October 1 and that the insurance would
cover Saras pregnancy.
In early October 1997, after receiving confirmations
from Janssen, the Trust, and Administrative Services that their
health insurance would begin on October 1, the Joneses canceled
their COBRA coverage.
D. The Joneses Medical Insurance Claim
On November 4, 1997, Sara gave birth to a son, Tyler.
Tyler was born with Down syndrome and other problems. Sara was
confined to the hospital for several days following the birth.
Within a week of the birth, Justin sent to the Trust forms
notifying the Trust that it would need to add Tyler to the
Joneses health insurance.
Soon after Tylers birth, the Joneses began to learn of
problems with their health insurance coverage. The hospital
began to question the Joneses about it. Also, Freitas told
Justin that the Trust had called Janssen with questions about
Tylers condition.
In February the Joneses signed up Tyler for TEFRA, a
state insurance plan under which the state paid for Tylers
expenses. From November 4, 1997, to May 31, 1999, TEFRA paid
nearly $60,000 of Tylers expenses.
The Trust moved slowly to resolve the question of
whether it would provide health insurance to the Joneses. In
February Patton sent Sara a letter stating that there was a
problem with coverage. This was followed by a letter in late May
of 1998 that formally disclaimed coverage. The letter explained
that under the trust agreement and federal law, the Trust could
not provide health insurance to a nonunion employee without a
special agreement. The letter also apologized for the delay in
making this determination, blaming the delay on Janssens failure
to cooperate with an audit. At this point the Trust also
terminated the participation in the plan of Janssens other
nonunion employees.
In August 2000 the Federal Department of Labor sent the
Trust a letter of admonishment. The department faulted the Trust
for providing benefits to Janssens nonunion staff without a
special agreement in violation of the trust agreement. The
department stated that this constituted a violation of ERISA.
However, the department concluded that it would not pursue legal
action since the Trust had taken measures to prevent similar
occurrences in the future.
E. Proceedings
In June 1999 the Joneses filed a complaint in superior
court against Janssen and the Trustees for misrepresenting that
the Joneses were covered by health insurance. At this point
Justin was no longer an employee of Janssen.
The Trustees, with Janssens consent, removed the suit
to the United States District Court for the District of Alaska.
They alleged that ERISA preempted the Joneses state law claims
and provided the district court with subject matter jurisdiction.
The Joneses moved to remand the case to the superior court.
United States District Court Judge John K. Sedwick granted this
motion. Judge Sedwick issued a written opinion, portions of
which we refer to later in this opinion.
On remand, the Joneses filed an amended complaint,
adding several defendants, including the Trust. The Trustees
moved for summary judgment on the ground that section 514 of
ERISA preempted the Joneses claims. They also filed a separate
motion for summary judgment claiming that the factual basis for a
misrepresentation claim was lacking. The Joneses filed a cross-
motion for summary judgment on their claim of negligent
misrepresentation against the Trustees. The superior court
granted summary judgment for the Joneses on their negligent
misrepresentation claim against the Trustees and denied all other
summary judgment motions.
The case was then tried to the court without a jury.
The court concluded that Janssen was liable for negligent
misrepresentation and reaffirmed its summary judgment conclusion
that the Trustees were also liable for negligent
misrepresentation. The court awarded the Joneses $86,081.58.
This award consisted of $56,081.58 in net medical costs1 and
$30,000 in damages for emotional distress. The court allocated
seventy-five percent of the fault for the Joneses losses to the
Trustees and twenty-five percent to Janssen. The court reasoned
that the Trustees were akin to an insurance company and Janssen
was a lay consumer; the Trustees were thus better positioned than
Janssen to discover and remedy the absence of a special
agreement. The court also awarded attorneys fees against Janssen
and the Trustees based on their respective shares of
responsibility.
Janssen, the Joneses, and the Trust now appeal. The
following questions are presented: (1) whether section 514 of
ERISA preempted the Joneses state law claims; (2) whether the
court erred by awarding damages for emotional distress; (3)
whether the court erred by holding Janssen liable for negligent
misrepresentation; (4) whether the court erred in its
apportionment of liability; (5) whether the award of $30,000 in
emotional distress damages $15,000 for each of the Joneses is
inadequate; and (6) whether the superior court abused its
discretion by declining to award punitive damages.
II. DISCUSSION
A. The Trust Has Standing To Appeal.
The superior court awarded damages against the
Trustees. However, the Trust not the Trustees now appeals.
The Joneses argue that the Trust has no standing to appeal since
the superior court did not award damages against the Trust.
We disagree. No individual Trustees were made parties
to this suit and no argument was presented that the Trustees
constituted a legal entity separate from the Trust. The Joneses
cross-motion for summary judgment and supporting memorandum
referred to the Trustees and the Trust together. When speaking
to the acts of the Trust employees, the memorandum referred to
the Defendant Trusts/Trustees, through their employees and made
no effort to distinguish whether the employees were employed by
the Trustees or the Trust. The superior courts decision is based
on the assumption that the Trustees and the Trust are the same
entity. As no persuasive argument to the contrary has been
presented, we proceed on the same assumption.
B. Section 514 of ERISA Does Not Preempt the Joneses State
Law Claims.
The Trust is an employee benefit fund regulated by the
Federal Employee Retirement Income Security Act (ERISA).2 The
Trustees argue that the Joneses claims for negligent
misrepresentation are preempted by section 514 of ERISA.3
Section 514 of ERISA contains an express preemption
section stating that (a) . . . the provisions of this subchapter
. . . shall supersede any and all State laws insofar as they
. . . relate to any employee benefit plan. State laws are
defined broadly to include all laws, decisions, rules,
regulations, or other State action having the effect of laws of
any State.4 The question presented therefore is whether Alaskas
common law right of recovery for negligent misrepresentation is,
in the context of this case, related to the Trust Fund within the
meaning of section 514. If it is, it is superceded.5
Another section of ERISA, section 502, also gives rise
to a type of preemption. Section 502 permits a participant,
beneficiary, or fiduciary to bring a civil action to enforce plan
provisions or provisions of ERISA6 or to enjoin acts which
violate plan provisions or provisions of ERISA.7 It vests
exclusive jurisdiction to hear such claims in the federal courts,
except for claims of participants or beneficiaries to recover
benefits.8
Judge Sedwick remanded this case to the superior court
based on lack of jurisdiction under section 502. Judge Sedwick
reasoned that because the Joneses had not pled a federal cause of
action, removal would only be appropriate if there was complete
preemption. Complete preemption, Judge Sedwick wrote, occurs
only if ERISA preempts the applicable state law [a reference to
section 514 preemption] and the claimant is within the scope of
ERISAs civil enforcement provision, 29 U.S.C. 1132(a) [section
502]. Since Judge Sedwick found the latter condition to be
lacking, he had no occasion to rule on whether preemption by
supersession under section 514 would apply. In concluding that
complete preemption did not exist, Judge Sedwick relied on a
Ninth Circuit case, The Meadows v. Employers Health Insurance,9
that held that the other prong of the complete preemption test
supersession of state law was not satisfied. We quote part of
Judge Sedwicks discussion concerning The Meadows:
In The Meadows v. Employers Health
Insurance, the Ninth Circuit determined that
a third-party health care providers state law
claims pled against a health care insurer and
alleging causes of action for negligent
misrepresentation, estoppel, and breach of
contract were not preempted by ERISA. In
that case, the third-party provider was
trying to recover the costs it incurred in
treating a patient for substance abuse. The
third-party providers claims were based on
repeated representations by the health care
insurer that the patient was covered by an
ERISA plan. Relying on those
representations, the provider treated the
patient. The insurer subsequently denied the
providers claims because, in fact, the
patient was not covered by the plan. The
Ninth Circuit reasoned that the third-party
providers state law claims did not relate to
an ERISA plan because neither the third-party
provider nor the patient had any connection
to an ERISA plan at the time of treatment.
(Citations omitted.)
The Ninth Circuits decision in The Meadows is
representative of a number of cases where courts have held that
negligent misrepresentation claims against ERISA entities may be
maintained. Often such cases involve third-party health care
providers who have relied on misrepresentations as to coverage
made by ERISA insurers.10 But misrepresentation claims asserted
by employees have also been allowed, especially when the
employees are not plan participants or beneficiaries.11
One such case that in some respects resembles the
present case is Smith v. Texas Childrens Hospital.12 Smith, an
employee of another hospital, was induced by a related
corporation to work for Texas Childrens Hospital. Texas
Childrens promised that Smiths existing long-term disability
benefits would be duplicated at Texas Childrens.13 This promise
turned out to be untrue, as Smith discovered when she became
disabled. She sued Texas Childrens for fraudulent inducement
based on its misrepresentation of coverage.14 Texas Childrens
removed the case to federal court and asserted an affirmative
defense based on section 514 of ERISA. The district court held
that her claim was not preempted by ERISA and remanded the case
to state court.15 On appeal the Fifth Circuit also held that
Smiths misrepresentation-based claim was not preempted.16 The
court noted that Smiths claim would be preempted if she were
claiming entitlement to benefits under Texas Childrens ERISA
plan.17 But since her claim was for benefits that she gave up
based on Texas Childrens misrepresentation, her claim could be
maintained:
We are persuaded that ERISA preemption
would not apply to such a claim. Smith
alleges that, because she relied upon
misrepresentations by Texas Childrens, she
lost a quantifiable stream of income that she
would now be receiving had she never left St.
Lukes. Such a claim escapes ERISA preemption
because it does not necessarily depend upon
the scope of Smiths rights under Texas
Childrens ERISA plan. For example, if Texas
Childrens did not have any benefits plan,
ERISA would not apply, leaving Smith with a
non-preempted claim based upon the benefits
relinquished. That Texas Childrens has such
an ERISA plan does not alter the nature of
her claim, which is based upon benefits given
up for purposes of ERISA preemption. The
ultimate question of Texas Childrens
liability for fraudulently inducing Smith to
leave St. Lukes turns not on the quantum of
benefits available at Texas Childrens, but on
the question whether Texas Childrens misled
Smith when it told her that she would keep
what she had.[18]
Based primarily on the case law permitting negligent
misrepresentation claims against ERISA entities of which The
Meadows and Texas Childrens are representative, we conclude that
there is no ERISA preemption in this case. We must rely heavily
on case law because as the United States Supreme Court has
recognized, the relate to language of section 514 is not
especially helpful in determining the outer limits of preemption:
The governing text of ERISA is clearly
expansive. Section 514(a) marks for
pre-emption all state laws insofar as they
. . . relate to any employee benefit plan
covered by ERISA, and one might be excused
for wondering, at first blush, whether the
words of limitation (insofar as they . . .
relate) do much limiting. If relate to were
taken to extend to the furthest stretch of
its indeterminacy, then for all practical
purposes pre-emption would never run its
course, for [r]eally, universally, relations
stop nowhere[.] But that, of course, would
be to read Congresss words of limitation as
mere sham, and to read the presumption
against pre-emption out of the law whenever
Congress speaks to the matter with
generality. That said, we have to recognize
that our prior attempt to construe the phrase
relate to does not give us much help drawing
the line here.[19]
Even though the reach of section 514s relate to
language is not ascertainable from the text of the statute,
decisions interpreting section 514 are generally clear in
holding certain recurring fact patterns to be within the scope of
the section. For example, state laws that refer to employee
benefit plans and affect their administration are preempted.20
The same is true of state law claims that involve the right to
receive benefits under the terms of an ERISA plan or require the
interpretation of an ERISA plan.21
Beyond these categories generalizations as to the scope
of section 514 are problematic. Some state laws affect employee
benefit plans in too tenuous, remote or peripheral a matter to
warrant a finding that the law relates to the plan.22 Moreover,
the Supreme Court has held that lawsuits against ERISA plans for
run-of-the-mill state-law claims are not preempted by section 514
of ERISA.23 But whether a particular relationship is too tenuous
or a suit involves a run-of-the-mill state-law claim is often
difficult to say. In the two cases we decided under section 514
we were faced with these difficulties.
In Alaska State Council of Carpenters v. United
Brotherhood of Carpenters & Joiners of America, Local 1281, the
issue was whether state law governing how organizations select
their board members would apply to the question of whether a
trustee of an ERISA organization had been properly replaced.24 We
held that there was no ERISA preemption, noting that the
applicable state law in question contract law and the law
governing the functioning of organizations was an area of
traditional state regulation that Congress probably did not
intend to supersede: If the organizations which appoint ERISA
trustees are not subject to state law on matters not covered by
ERISA, they are, for the most part, not subject to any law at
all.25
Eight years after our Local 1281 decision we had
another occasion to interpret section 514. In Andrews v. Alaska
Operating Engineers-Employers Training Trust Fund, a trust
employee claimed that he had been discharged to prevent him from
reporting the misuse of trust funds by a trustee.26 We agreed
that preemption of this claim was appropriate, noting: Courts
addressing ERISA preemption in this context have uniformly held
that state law retaliatory discharge and whistleblower claims
based on alleged violations of public policy relate to ERISA
plans and are thus preempted.27 We also held that the employees
claim was preempted under section 502(a) of ERISA because that
section provided a remedy for the employee: In addition, ERISA
provides the exclusive remedy for the wrong alleged by Andrews.
As a fiduciary, Andrews is authorized under [section] 502(a) to
bring a civil action in federal district court to enforce ERISAs
retaliatory discharge provision.28
This case does not fall within the fact patterns of
claims that are categorically preempted under section 514. The
common law of misrepresentation is a law of general application;
it does not entail any elements that make what might be regarded
as a specific reference to employee benefit plans.29 Further,
this case does not involve a claim for benefits under an ERISA
plan or require the interpretation of a plan.30 As one court
stated in an analogous situation, [t]he existence of the Plan is
not a critical factor to establishing liability because the same
causes of action would exist if the Plan had never come into
existence or was merely a fraudulent scheme.31
Not only does this case not fit within the
categorically barred fact patterns suggested by the case law, a
number of other factors point to nonpreemption. The Joneses are
not participants or beneficiaries of an ERISA plan and as such
have no claim under ERISA.32 Preemption in this case would deny
the Joneses any remedy for the harm that they suffered.33
Finally, and relatedly, the common law of negligent
misrepresentation is an area of traditional state concern.34 Each
of these factors points, albeit not conclusively, toward a
conclusion that this case should not be considered preempted by
section 514.
Based on the reasons stated above and the foregoing
authorities we conclude that section 514 of ERISA does not
preempt the Joneses claims.
C. Were Damages for Emotional Distress Justified?
The other main issue presented by this case is whether
the $30,000 award to the Joneses for their emotional distress was
legally and factually justified.
The trial court in this case ruled that the Joneses
suffered severe emotional distress between the time of Tylers
birth and the time that the state agreed to pay for Tylers
medical bills. The court awarded Justin and Sara $15,000 each
for the emotional distress they experienced during this period.35
Janssen challenges this award, arguing that it was
legally unjustified because in the absence of physical injury no
award for the negligent infliction of emotional distress can be
made unless the defendant has a pre-existing duty to the
plaintiff which, if breached, would foreseeably result in
emotional harm to the plaintiff. Such a duty is absent in this
case, according to Janssen, because its run of the mill
employment agreement with Justin does not fit the pre-existing
duty requirement.
The Trust makes a similar argument. It contends that
the pre-existing duty that is required for emotional distress
damages must be based on either a contractual or fiduciary
relationship, neither of which existed between the Joneses and
the Trust. The Trust also argues that the Joneses did not
present evidence of emotional distress that was sufficiently
severe to justify an award of emotional distress damages.
The Joneses respond by arguing that misrepresentations
concerning health insurance can with ready foreseeability lead to
emotional distress. They also contend that the emotional
distress they suffered was severe.
The seminal case on damages for emotional distress in
the absence of physical injury in Alaska is Chizmar v. Mackie.36
The plaintiff in Chizmar was misdiagnosed by her physician as
having AIDS. The physician reported this misdiagnosis not only
to the plaintiff but to her husband, without authorization from
the plaintiff.37 Plaintiff brought a claim against her physician
for emotional distress damages.38 At trial the superior court
directed a verdict against the plaintiff on such damages since
the plaintiff did not suffer physical injury.39 On appeal, we
reversed holding that when a defendant stands in a pre-existing
relationship with the plaintiff and a breach of the duties
arising from this relationship would foreseeably result in
emotional harm to the plaintiff, an accompanying physical injury
is not a prerequisite for the recovery of damages for emotional
distress.40
In Chizmar we referred to an earlier case, Hancock v.
Northcutt,41 in which we held that a plaintiff may not recover
damages for negligently caused emotional distress arising out of
the negligent performance of a contract to build a house. We
stated in Chizmar in explanation of our immediate holding and
with reference to Hancock:
We do not believe that the traditional
tort principle of foreseeability, standing
alone, properly defines the scope of a
defendants duty in an action for damages for
negligently inflicted emotional distress.
See Hancock, 808 P.2d at 258. Rather we
believe that a plaintiffs right to recover
emotional damages caused by mere negligence
should be limited to those cases where the
defendant owes the plaintiff a preexisting
duty. In Hancock, we recognized that a
plaintiff may recover emotional distress
damages in certain cases where a contractual
relationship exists between the parties. Id.
at 258. In holding that the contract at
issue in Hancock did not imply such a duty,
we observed:
In our view, breach of a
house construction
contract is not
especially likely to
result in serious
emotional disturbance.
Such contracts are not so
highly personal and laden
with emotion as contracts
where emotional damages
have typically been
allowed to stand on their
own. Examples of the
latter include contracts
to marry, to conduct a
funeral, to sell a sealed
casket, to conduct a
cesarean birth, to
surgically rebuild a
nose, to provide promised
maternity coverage, to
provide medical services,
and to keep a daughter
informed of her mothers
health.
Id. at 258-59 (footnotes omitted) (emphasis
added). Under Hancock, whenever a defendant
stands in a contractual or fiduciary
relationship with the plaintiff and the
nature of this relationship imposes on the
defendant a duty to refrain from conduct that
would foreseeably result in emotional harm to
the plaintiff, the plaintiff need not
establish a physical injury in order to
recover for the negligent infliction of
emotional distress.
A growing number of jurisdictions have
adopted this approach.[42]
Based on the above language, it is apparent that an
undertaking to provide medical services, particularly one that
provides coverage to a pregnant woman, qualifies as just the sort
of emotionally laden promise which, if not fulfilled, properly
may give rise to emotional distress damages. The requirement of
foreseeability established in Chizmar is therefore satisfied.
In the case of Janssen, the pre-existing contractual
relationship requirement of Chizmar is also met. Janssen was
Justins employer. Providing health insurance was an important
part of the employment contract, and Janssens misrepresentations
concerning coverage caused the Joneses to cancel their existing
coverage.
The Trust likewise made a negligent misrepresentation
concerning medical coverage and did so specifically with respect
to coverage for Saras pregnancy. Thus the foreseeability element
of the Chizmar test was met. But there is considerable doubt as
to whether the pre-existing duty requirement of Chizmar was also
satisfied with respect to the Trust. All parties believed, for a
time, that there was a contractual relationship between Janssen
and the Trust under which the Trust would provide coverage for
the Joneses. If this belief, in fact, had been true, the pre-
existing duty requirement could have been satisfied. But, as we
now know, this was not the case.
Nonetheless, we think that because both Chizmar
requirements were satisfied as to the claim against Janssen, the
award against the Trust must be allowed to stand. The Trust, as
the trial court found, not only made negligent misrepresentations
on its own, it also bore a heavy responsibility for the negligent
misrepresentations made by Janssen. It would be anomalous to
hold that the Trust the party most responsible for the
misrepresentations is not responsible for emotional distress
damages while holding the less responsible party Janssen
liable. If the claim against the Trust for emotional distress
damages was found wanting because of failure to meet the pre-
existing duty requirement, this holding would mean that Janssen
would have to pay the full amount of the damages. This result
would be unjust to Janssen.
In part, the requirement of a pre-existing relationship
was imposed as a screening device in an effort to separate worthy
claims for emotional damages from unworthy ones.43 That purpose
is served by focusing on the relationship between the Joneses and
Janssen. The bona fides of the Joneses claims are not made
stronger by requiring the Joneses also to have a pre-existing
relationship with the Trust. Indeed, if the Trust had not been
sued by the Joneses or joined by Janssen in an action for
equitable apportionment under Alaska Civil Rule 14(c), Janssen
would have borne full responsibility for the whole award of
emotional distress damages to the Joneses.
Both Janssen and the Trust also argue that the Joneses
damages were not sufficiently severe to give rise to emotional
distress damages. This decision is ultimately a question of
fact. The trial judge explicitly addressed it, finding that both
Joneses experienced severe emotional distress. In our view this
finding is not clearly erroneous.44
For the above reasons we believe that the award of
emotional distress damages of $15,000 for each of the Joneses was
legally and factually justified.
D. The Superior Court Did Not Err when Holding Janssen
Liable to the Joneses for Negligent Misrepresentation.
The tort of negligent misrepresentation comprises four
elements.45 First, the tortfeasor must have made a statement in
the course of business, employment, or some other enterprise in
which he had a pecuniary interest.46 Second, the statement must
have been false when the tortfeasor made it.47 Third, the victim
must have justifiably relied upon the statement to his detriment.48
Fourth, the tortfeasor must have failed to exercise reasonable
care when making the statement.49
The superior court held that Janssens repeated
assertions to the Joneses that it would provide them with health
insurance through the Trust constituted actionable negligent
misrepresentations. Janssen claims that this holding was error.
It concedes that its conduct satisfied the first and third
elements of the test of negligent misrepresentation but
challenges the courts conclusion that its conduct satisfied the
second and fourth elements. With respect to these elements,
Janssen argues that its statements were neither false nor made
without due care because it reasonably believed that it would
provide the Joneses with health insurance. Janssen emphasizes
that it had successfully provided other nonunion employees with
coverage through the Trust.
Whether Janssens communications to the Joneses were
false and negligent are questions of fact which we review under
the clearly erroneous standard.50
With respect to whether the representations that the
Joneses would be provided with health insurance were false,
Janssen argues that the statements were true when made. Janssen
contends that only the unexpected decision by the Trust to
disqualify the Joneses (and Janssens other office employees)
resulted in their lack of coverage. Janssen argues that its
statements were analogous to the statements made in Bubbel v.
Wien Air Alaska, Inc.51 There the employer hired Bubbel as a
replacement pilot during a labor dispute. The employer
represented to him that it intended to fight the striking pilots
successfully and replacement pilots were going to be hired
permanently.52 Bubbel sued the employer for breach of contract
and misrepresentation. The breach of contract claim was held
superseded by a subsequent collective bargaining agreement under
the provisions of federal labor law.53 With respect to the
misrepresentation claim, we held that the employers statement as
to the permanency of Bubbels employment was true when made the
employer intended Bubbel to be a permanent employee. It was only
later that the employers position was changed when it was
pressured by the presidential emergency board to settle the
strike.54 Thus the tort of negligent misrepresentation had not
been established.
The superior court considered Janssens true when made
argument and rejected it:
Janssen told Justin Jones that as an
employee, he would have health insurance
coverage. That representation was untrue
because there was no health insurance
coverage for Justin Jones through his
employment with Janssen at the time he was
hired or at any time thereafter. Hence, the
second element is satisfied here.
We see no problem with this reasoning, and thus conclude that the
false information element has been satisfied.
Janssen also argues that the evidence was insufficient
to establish the fourth element failure to exercise reasonable
care in obtaining or communicating the information. The superior
court noted that Janssen had a duty to exercise due care in
obtaining and maintaining health insurance coverage, and found
that by taking a casual hands off approach on insurance matters
Janssen had failed to satisfy this duty. Specifically, the court
found that it was imprudent of Janssen to continue to rely on
ODell of the bricklayers trust after the merger with the
carpenters trust. The court also found that Janssens attorney
advised George Janssen that the Trust health plan would have to
include all nonunion office employees rather than just some. The
court found that a reasonably prudent employer in Janssens shoes
presented with this information would have taken affirmative
action to determine just what the SACTF health plan required.
Some inquiry was necessary and Janssen made none whatsoever.
Finally, the court found that the lack of written documentation
concerning coverage was an indication of careless conduct:
In addition, it is noteworthy that there is a
complete lack of written documentation of
communications between Janssen and the Health
Insurance program or members of the Trusts or
written documentation as to whose [sic]
covered by the insurance plan, when they are
covered and how they are covered. One would
expect a prudent employer to have written
documentation concerning matters of
importance dealing with insurance.
Based on these findings the court concluded
that Janssen did fail to exercise reasonable
care or competence in obtaining or
communicating the information concerning
health care insurance. In other words, had
Janssen exercised reasonable care in the
area, it is more likely than not that Justin
Jones would never have been told that he had
health insurance coverage through Janssen
Contracting.
As noted, whether Janssen failed to exercise reasonable
care or competence in determining whether its representations to
the Joneses concerning their health insurance coverage were
correct was a question of fact. Although Janssens position that
it reasonably relied on Trust representations and practices is a
sympathetic one, the trial court found that Janssen also had a
responsibility to take affirmative action to determine the nature
and extent of the health care coverage that it believed it was
providing for its nonunion employees. Since we do not have a
definite and firm conviction that the court was mistaken in
making this determination, it must be affirmed.
E. The Superior Court Did Not Err in Apportioning Seventy-
Five Percent of the Damages to the Trustees and Twenty-
Five Percent to Janssen.
The superior court apportioned seventy-five percent of
the fault for the Joneses damages to the Trustees and twenty-five
percent to Janssen. Although the trial court observed that there
is a tie as to causation, and a tie as to the mundane ways in
which these two entities dropped the ball, it justified placing a
greater percentage of fault on the Trustees as follows:
Janssen is a construction company, and as
such is more akin to a lay consumer. The
Trustees are de facto in the business of
selling insurance, and are more akin to an
insurance company. An insurance company
holds itself out to have special competence
in insurance matters, and a construction
company does not.
The Trust and Janssen each challenge the superior
courts allocation of fault. Each claims that a higher share
should have been allocated to the other.
Whether a trial court has properly determined the
percentage of fault of the actors in a tort claim under AS
09.17.080 is a question of fact, reviewed under the clearly
erroneous standard. In our view the allocation was not clearly
erroneous. As the superior court found, the Trust was better
placed than Janssen to determine whether Justin Jones was
eligible for coverage. Further, the Trusts act of accepting
premiums on behalf of nonunion employees of Janssen without
protest until learning of the possibility of a very substantial
claim based on Tyler Joness condition is a logical basis for
ascribing greater fault to the Trust. The same may be said for
Pattons confirmation to Sara Jones that the Trust would be
providing the Joneses with coverage at a time when Patton knew
that a freeze had been placed on any claims the Joneses might
submit.
Janssen argues that it should be liable at most for
only ten percent of the Joneses damages based on its reliance on
the Trusts assurances and the Trusts past practices of accepting
premiums for nonunion employees and paying their health care
claims. While we agree that apportioning a smaller share of the
overall liability to Janssen would not have been clearly
erroneous, we are also unable to conclude that imposing a twenty-
five percent share exceeded reasonable limits.
III. CONCLUSION
For the above reasons the judgment of the superior
court is AFFIRMED.55
_______________________________
1 The court found that medical costs for Tyler from his
birth until May 31, 1999, were $57,729.86, and medical costs for
Sara for the same period were $4,021.72. The court deducted from
the total of these amounts $5,670 which represented the $315 per
month cost of COBRA coverage for the eighteen-month period in
question that the Joneses would have paid.
2 29 U.S.C. 1001-1461.
3 29 U.S.C. 1144(a).
4 29 U.S.C. 1144(c)(1).
5 In Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142
(1990), the United States Supreme Court described the purpose
underlying section 514(a):
Section 514(a) was intended to ensure that
plans and plan sponsors would be subject to a
uniform body of benefits law; the goal was to
minimize the administrative and financial
burden of complying with conflicting
directives among States or between States and
the Federal Government. Otherwise, the
inefficiencies created could work to the
detriment of plan beneficiaries.
6 29 U.S.C. 1139(a)(3)(B)(ii).
7 29 U.S.C. 1139(a)(3)(A).
8 29 U.S.C. 1139(e)
9 47 F.3d 1006 (9th Cir. 1995).
10 See in addition to The Meadows, 47 F.3d 1006, Lordmann
Enters., Inc. v. Equicor, Inc., 32 F.3d 1529, 1532 (11th Cir.
1994) (ERISA does not preempt a third-party health care providers
negligent misrepresentation claim against an ERISA plan
administrator.); Hospice of Metro Denver, Inc. v. Group Health
Ins. of Oklahoma, Inc., 944 F.2d 752, 756 (10th Cir. 1991)
(allowing third-party state law action based upon
misrepresentation by insurance carrier); Meml Hosp. Sys. v.
Northbrook Life Ins. Co., 904 F.2d 236, 250 (5th Cir. 1990)
(third-party health care provider seeking damages from an
insurance company for negligent misrepresentations not preempted
by ERISA); Alliance Health of Santa Teresa, Inc. v. Natl Presto
Indus., Inc., 113 P.3d 360, 363-64 (N.M. App. 2005) (third-party
healthcare provider suit for breach of contract, fraud, and
promissory estoppel not preempted). There is also contrary
authority. According to one commentator, the leading case
finding preemption of misrepresentation of coverage causes of
action is Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272
(6th Cir. 1991). This case is said to represent the minority
view. Scott C. Walton, Note, ERISA Preemption of Third-Party
Provider Claims: A Coherent Misrepresentation of Coverage
Exception, 88 Iowa L. Rev. 969, 983 (2003).
11 See in addition to Smith v. Texas Childrens Hospital
discussed in the text immediately following this note, Hobson v.
Robinson, 75 Fed. Appx. 949 (5th Cir. 2003) (unpublished) (claim
of employee against agent and plan provider for negligent
misrepresentation of coverage not preempted); Wilson v. Zoellner,
114 F.3d 713, 718 (8th Cir. 1997) (employees suit for
misrepresentation of coverage against agent of insurance company
not preempted by ERISA even though insurance company could be
liable for the agents misrepresentation: If Prudential incurs
any liability as a result of this suit, it will do so only as the
employer of a tortfeasor, and not as a plan fiduciary.); Smith v.
Cohen Benefit Group, Inc., 851 F. Supp. 210, 213 (M.D.N.C. 1993)
(negligent misrepresentation claim by employee not preempted);
Martin v. Pate, 749 F. Supp. 242, 246 (S.D. Ala. 1990), affd sub
nom. Martin v. Contl Investors, 934 F.2d 1265 (11th Cir. 1991)
(fraud-in-inducement claim by non-beneficiary against group
health insurer not preempted).
12 84 F.3d 152 (5th Cir. 1996).
13 Id. at 153.
14 Id. at 154.
15 Id.
16 Id. at 155.
17 Id.
18 Id. at 155-56.
19 New York State Conference of Blue Cross & Blue Shield
Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995) (citation
omitted).
20 Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138-39
(1990).
21 See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987).
22 Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 100 n.21
(1983).
23 Mackey v. Lanier Collection Agency & Serv., Inc., 486
U.S. 825, 833 (1988) (state law claims such as unpaid rent,
failure to pay creditors, or even torts committed by an ERISA
plan . . . are not pre-empted).
24 727 P.2d 306 (Alaska 1986).
25 Id. at 310.
26 871 P.2d 1142 (Alaska 1994).
27 Id. at 1144-45.
28 Id. at 1147 (citation omitted).
29 See Ingersoll, 498 U.S. at 139 (suggesting limited
scope of ERISA preemption when dealing with laws of general
application).
30 The claim on which the judgment under review is based
is for benefits that the Joneses would have received under their
existing health insurance had they not been induced by
misrepresentations concerning new coverage to give up the
existing insurance. See supra note 1.
31 Smith v. Cohen Benefit Group, Inc., 851 F. Supp. 210,
213 (M.D.N.C. 1993).
32 See Harris v. Provident Life & Accident Ins. Co., 26
F.3d 930, 933 (9th Cir.1994) (non-participant in ERISA lacks
standing to claim an injury under ERISA); see also The Meadows v.
Employers Health Ins., 47 F.3d 1006, 1009 (9th Cir. 1995)
(finding the fact that employees did not have ties to an ERISA
plan as relevant to showing claim did not relate to ERISA plan).
33 See Hospice of Metro Denver, Inc. v. Group Health Ins.
of Oklahoma, Inc., 944 F.2d 752, 755 (10th Cir. 1991) (for
entity that is not a participant or a beneficiary . . . lack of
alternate remedies in the event of preemption is deserving of
consideration); see also Meml Hosp. Sys. v. Northbrook Life Ins.
Co., 904 F.2d 236, 248 n.16 (5th Cir. 1990) (noting that [o]ther
courts have reasoned that a lack of available remedies is an
important consideration in determining if Congress intended a
particular state law to be preempted in a particular factual
situation and citing cases).
34 See, e.g., Associated Builders & Contractors of S.
California, Inc. v. Nunn, 356 F.3d 979, 984-85 (9th Cir. 2004)
(Congress did not intend ERISA to preempt regulation in areas of
traditional state concern). See generally Karen A. Jordan,
Travelers Insurance: New Support for the Argument to Restrain
ERISA Pre-emption, 13 Yale J. Reg. 255, 305 (1996) (state common
law claims should be accorded a weighty presumption against pre-
emption because they are within the domain of traditional state
powers).
35 The court stated concerning its award of emotional
distress damages:
The Joneses also seek a recover[y] for the
emotional distress they experienced as a
result of the defendants conduct. Under
Alaska law, the plaintiffs can recover only
if there is proof of severe emotional
distress. The unique facts of this case are
compelling. The evidence reflects that
despite their young age, the Joneses were
extremely careful about securing health
insurance to cover the birth of their child.
On the eve of Tylers birth, there was no
reason for the Joneses to be concerned about
the childs health or the fact that there was
adequate coverage for what might lay ahead.
Of course, Tylers birth was complicated and
expensive. He had digestive and heart
problems initially and later proved to have
Down Syndrome. Tylers severe medical needs
were unanticipated and no doubt shocking and
disturbing to his parents. Without question,
even if all of their medical bills had been
paid, the plaintiffs would have experienced
great anxiety and distress as a result of
Tylers birth. But while the Joneses were
dealing with this extremely tragic situation,
they learned that their expectation
concerning health insurance was misplaced.
This young couple of modest means had reason
to fear that they would be saddled with
enormous medical bills that should have been
covered by insurance. The court finds by a
preponderance of the evidence that in this
situation, a reasonable person would
experience severe emotional distress and in
this particular case Sara and Justin Jones
did experience severe emotional distress.
Fortunately, in February, 1998, Sara learned
that the State of Alaska would be able to pay
Tylers medical bills and this was
subsequently accomplished. Had this not
occurred, the plaintiffs harm would have been
extraordinary. The court therefore focuses
on the period between the time of Tylers
birth and the time the State agreed to pay
his medical bills. And this of course is a
relatively brief time so recognizing the
severe emotional distress experienced by the
plaintiffs and the relatively brief time that
they would have experienced that, the court
award[s] each of the plaintiffs $15,000.
36 896 P.2d 196 (Alaska 1995).
37 Id. at 199-200.
38 Id. at 200.
39 Id.
40 Id. at 213.
41 808 P.2d 251 (Alaska 1991).
42 Chizmar, 896 P.2d at 203 (footnote omitted) (first
emphasis added).
43 See id. at 202.
44 There was evidence that the distress experienced by
Sara caused her to cease lactating in addition to causing her
loss of sleep and dietary problems. Both Joneses testified that
the lack of coverage and related financial issues was a major
contributing factor to their eventual divorce. Sara also
testified that the lack of coverage resulted in incessant calls
from creditors and ultimately forced her to file for personal
bankruptcy.
The clearly erroneous standard of review governs this
and the other questions of fact involved in this appeal. Under
this standard, [w]e review . . . factual findings for clear
error. We will find clear error only if, after a thorough review
of the record, we come to a definite and firm conviction that a
mistake has been made. Afognak Joint Venture v. Old Harbor
Native Corp., 151 P.3d 451, 456 (Alaska 2007) (citations
omitted).
45 Bubbel v. Wien Air Alaska, Inc., 682 P.2d 374, 380
(Alaska 1984).
46 Id.
47 Id.
48 Id.
49 Id.
50 See supra note 44.
51 682 P.2d at 381.
52 Id. at 376.
53 Id.
54 Id. at 381.
55 The Joneses raise two issues that we determine
summarily. They claim that $15,000 each in emotional distress
damages to Justin and Sara Jones is inadequate as a matter of
law. We conclude that the award is not clearly inadequate based
on the facts and circumstances of the case. See supra note 44.
The Joneses also argue that they are entitled to punitive damages
as a matter of law against the Trust and Janssen. Punitive
damages may only be awarded based on proof by clear and
convincing evidence of outrageous conduct, including acts done
with malice or bad motives, or conduct that evidences reckless
indifference to the interests of another. AS 09.17.020(b). Here
the trial courts conclusions that Janssen and the Trust were
liable only for negligent misrepresentation precludes an award of
punitive damages. In our judgment the record would not support a
determination of more culpable reckless conduct as against
Janssen. While the record might support such a determination
against the Trust, the courts conclusion that the Trust was only
negligent is not clearly erroneous.
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