: : Disability Policy Offered By Employer Determined To Be Governed By State Law

ERISA preempts state law that “relate[s] to any employee benefit plan.”[2] 29 U.S.C. § 1144(a). Plaintiff asserts his claims under a disability policy that, according to Plaintiff, is not subject to ERISA regulation. . . . The undisputed facts establish that DLL&R requested the removal of Plaintiff’s policy from the FlexBill, Defendant sent Plaintiff a letter that offered to continue coverage separately, and Plaintiff thereafter remitted payment for non-discounted premiums directly to Defendant.
Nathans v. Unum Life Insurance Company of America (C.D. Cal. 2021)

Is a policy acquired by an insurance agent recommended by an employer and included on a group billing covered by ERISA?

Facts Indicating Group Coverage

In this case, the plaintiff worked in a law office but the parties disputed whether the the arrangement was for leased office space or actual employment. Nonetheless, the parties appear to have agreed that one of the partners referred him to an insurance agent, that he applied for disability insurance and that Unum issued him a policy.

The employer had further involvement through a billing arrangment:

Upon completion, the application bore Plaintiff’s name and requested that Plaintiff be included on the DLL&R FlexBill arrangement (the “FlexBill”). Plaintiff also indicated in the application that the “employer” would pay the premiums. Paragraph 6 of the application’s agreement provided, “[p]ayment of all premium is my responsibility as owner of the policy. If my employer . . . collects, pays or forwards any part of the premium for this policy, they act as my agent and not as agent for [Defendant]. If [Defendant] does not receive premium as due, the policy will lapse.”

“While the parties do not dispute that DLL&R paid the premiums, they dispute whether Plaintiff reimbursed DLL&R for the premiums.”

Facts Indicating Individual Coverage

Ultimately, the employer requested the plaintiff be removed from the group billing. The plaintiff then paid the premiums (now undiscounted) directly to Unum. The plaintiff sent payments to Unum’s individual billing department. The plaintiff eventually claimed and was approved for disability benefits.

Defendant Asserts ERISA Defense

When a dispute arose over termination of the benefits, the Defendant asserted that ERISA governed the dispute.

Plaintiff completed the form and was approved for benefits in 2019. Sometime in 2020, Defendant unsuccessfully attempted to contact Plaintiff’s physician. Defendant subsequently terminated the benefits in May 2020 and asserted for the first time that ERISA applied to the claim.

The plaintiff alleged state law claims for breach of contract and breach of the implied covenant of good faith and fair dealing. The plaintiff filed a Motion for Summary Adjudication seeking a determination that the subject disability policy is governed by California law, not ERISA.

Once ERISA Always ERISA?

The court observed that:

The undisputed facts establish that DLL&R requested the removal of Plaintiff’s policy from the FlexBill, Defendant sent Plaintiff a letter that offered to continue coverage separately, and Plaintiff thereafter remitted payment for non-discounted premiums directly to Defendant. Plaintiff paid those premiums pursuant to a contract exclusively between Plaintiff and Defendant.

The Defendant asserted a purported maxim, “once ERISA, always ERISA.” Kerton, 2005 WL 3440716, at *4. The Court found this maxim inapplicable. in that the defendant fails to contextualize this phrase.”

The court in Kerton recognized an important qualification to the “once ERISA, always ERISA” notion based on a reading of Waks: “‘once ERISA always ERISA,’ even if the policy continues after termination of the employment relationship, unless the policy is converted to an individual policy.” Kerton, 2005 WL 3440716, at *4 (emphasis added). There was no reason for the Kerton court to consider the existence of an individual policy because the plaintiff claimed benefits under the original group plan. Id.

Things Equal To The Same Thing Are Equal To Each Other

Citing the Ninth Circuit’s decision in Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872 (9th Cir. 2001), the court found a useful analogy.

“In Waks, the Ninth Circuit held that ERISA does not preempt claims arising under a converted policy-that is, an individual policy based on conversion rights in a group plan. 263 F.3d at 875-76. To be sure, Plaintiff’s Removed Policy does not arise from conversion rights like the policy in Waks.

As one court recognized, however, policies like the one at bar “much more closely resemble[] a ‘converted policy’” than continuation coverage and are therefore not sufficiently “related to” an ERISA plan. See Jilka, 2019 WL 1221058, at *2 (citing Waks, 263 F.3d at 875) (noting that, where plaintiff elected to separately maintain individual coverage after the employer ceased payment of premiums, “[plaintiff’s] policy much more closely resembled a ‘converted policy’ . . . that was no longer subject to ERISA”).”

Holding For Plaintiff

The court found disposivit the removal of the policy from the group billing and payment of non-discounted premiums directly to defendant under a contract exclusively between plaintiff and defendant and therefore granted the plaintiff’s Motion for Summary Adjudication on the issue of ERISA’s inapplicability to the policy. “[E]ven assuming that the DLL&R FlexBill constituted an ERISA plan, Plaintiff’s Removed Policy constituted independent coverage not sufficiently “related to” such a plan.”

Note: An important factor bearing on the decision was that “[t]he contract under the [Removed P]olicy is directly between the insurer and insured. It is independent of the ERISA plan and does not place any burdens on the plan administrator or the plan.” Waks, 263 F.3d at 876.
Nathans v. Unum Life Insurance Company of America (C.D. Cal. 2021).

Additional Factors – The court found support in two key factors as follows:

[C]ourts routinely evaluate ERISA preemption with the backdrop of the “two central objectives of ERISA regulation: protection of employee interests, and administrative ease for employers.” Waks, 263 F.3d at 875 (citations omitted). Neither of these objectives is implicated here, as DLL&R had no connection with the Removed Policy and has been defunct since 2000. Indeed, “in this case ERISA preemption would be an absurd result because there is no ERISA plan and no administrator. . . . State law therefore cannot impose conflicting requirements on any employer or ERISA plan administrator.” Id. at 876; see also Demars v. CIGNA Corp., 173 F.3d 443, 450 (1st Cir. 1999) (“[W]hat matters for ERISA purposes is . . . the nature of the employer’s ongoing administrative and financial ties to the policy. If no such ties exist, the policy should not be subject to ERISA regulation.”).

Definition of “Plan” – ERISA defines an employee benefit plan to include, among other things, “any plan, fund, or program . . . established or maintained by an employer or by an employee organization . . . through the purchase of insurance . . . medical, surgical, or hospital care or benefits.” 29 U.S.C. § 1002(1).

Cases Distinguished – These cases had different outcomes on slightly different facts:

Other cases that Defendant cites are distinguishable because those courts confronted the existence or nonexistence of an ERISA plan, not the relationship between the ERISA plan and the plaintiff’s policy. See Peterson v. Am. Life & Health Ins. Co., 48 F.3d 404, 407-08 (9th Cir. 1995) (holding that plaintiff’s policy, which was part of a group ERISA plan, remained subject to ERISA after the only covered employee was transferred to a different policy); see also Finkelstein v. Guardian Life Ins. Co. of Am., No. C 07-01130 CRB, 2007 WL 1345228, at *4-5 (N.D. Cal. May 8, 2007) (holding that ERISA preempted plaintiff’s policy despite the employer’s dissolution and plaintiff’s status as the sole insured under the subject policy); Kerton, 2005 WL 3440716, at *4 (holding that plaintiff’s disability policy was an ERISA policy despite the termination of plaintiff’s employment and the insolvency of the employer); Judith Miller, M.A., LMFCT v. Provident Life & Accident Ins. Co., No. CV99-9464ABCRNBX, 2000 WL 1341480, at *4 (C.D. Cal. Sept. 5, 2000) (stating “that an insurance policy that was part of an established ERISA plan is governed by ERISA even if the plan is no longer maintained as an ERISA plan by the employer”).