Opinion
Case No. 2:03-CV-788 TC
May 17, 2004
ORDER
This matter is before the court on Plaintiff Cindy Stanley's Motion to Remand. Defendants Life Insurance Company of North America, CIGNA Group Insurance, and CIGNA Corporation (collectively "CIGNA" or "Defendants") removed this case to federal court on the basis of federal question jurisdiction. Specifically, CIGNA alleges that Ms. Stanley's claims for disability benefits under a CIGNA insurance policy purchased while she was an employee of Questar are governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. Ms. Stanley contends that her Complaint alleges only causes of action arising under state law. She further contends that ERISA does not apply to this case because the insurance policy falls within the Department of Labor's "safe harbor" regulation, 29 C.F.R. § 2510.3-1(j), which exempts some employee welfare benefit plans from ERISA coverage. Ms. Stanley requests that the court send her case back to state court and award her attorneys' fees and costs pursuant to 28 U.S.C. § 1447(c).
Ms. Stanley was actually an employee of Wexpro, a subsidiary of Questar Corporation. Because the benefits at issue were offered by Questar on behalf of its subsidiaries such as Wexpro, and their employees, her employer will be referred to as Questar.
For the reasons set forth below, the court DENIES Plaintiff's Motion to Remand.
FACTUAL BACKGROUND
Ms. Stanley was a Questar employee until June 2000, when, as a result of injuries sustained in a car accident, she stopped working due to what she alleges is a total and permanent disability. Ms. Stanley submitted a claim for disability benefits pursuant to coverage under a group insurance policy she obtained while a Questar employee. The group policy, called the Questar Corporation Catastrophe Accident Insurance Program (the "Plan"), is an accidental death and dismemberment ("ADD") policy issued by Life Insurance Company of North America, a CIGNA company. CIGNA denied Ms. Stanley's claim for disability benefits. At some point thereafter, Ms. Stanley filed suit in state court and Defendants removed the matter to federal court.
Questar Employee Benefits
Questar offers various benefits to its employees. For example, Questar provides health insurance, basic group life insurance (automatically provided at no cost to the employee), supplemental life insurance (optional for the employee), two different accidental death and dismemberment ("ADD") policies (including the optional ADD policy at issue here and a mandatory travel ADD policy), and a retirement plan. (See Questar Employee Information and Benefits Handbook, attached as Ex. 2 to Defs.' Opp'n to Mot. to Remand.) The benefits are provided by various insurance companies. Questar self-insures the health insurance benefits offered to Questar employees. (Id.) The life insurance (both basic and supplemental) is issued by Principal Mutual Life Insurance Company. (Id.) And the ADD policies (the travel and optional coverages) are issued by CIGNA. (Id.) These benefits are summarized in the Questar Information and Benefits Handbook ("Employee Handbook" or "Handbook"). (See Ex. 2 attached to Defs.' Opp'n to Pl.'s Mot. to Remand.)
Questar considers all of its benefits, including the optional ADD benefit at issue in this case, to be part of one overall package. Ms. Stanley asserts that the optional ADD policy is its own program and should not be considered with the other Questar benefits when evaluating whether ERISA applies.
The Optional ADD Policy (the Plan)
Eligible Questar employees are offered two types of accidental death and dismemberment benefits. The first is the Questar Business Travel Accident Insurance Plan (the "Travel Plan"). The second is the Questar Corporation Catastrophe Accident Insurance Program, the Plan at issue in this case.
The Travel Plan automatically covers eligible employees during the time they are away on authorized business trips. Questar pays 100% of the premiums of that insurance, which is issued by CIGNA.
The Plan at issue here is an optional benefit for Questar employees, who, if they select coverage, pay 100% of the policy premiums. CIGNA issues this accidental death and dismemberment policy as well. Ms. Stanley, like other Questar employees who chose coverage under this optional Plan, paid her premiums through payroll deductions. Questar collects the premiums and then remits them to CIGNA. Questar does not receive any consideration from the employees' premiums paid to CIGNA.
According to Melody Richardson, Questar's benefits coordinator, Questar decided which ADD policy to offer to its employees. To make that determination, Questar sought and evaluated bids from different insurance carriers, including CIGNA. Questar provided the insurance vendors with a list of employees by code, date of birth, sex, and location. Questar ultimately accepted CIGNA's bid, both for the Travel Plan and the optional Plan. Defendants assert that Questar negotiated with CIGNA, but Ms. Richardson acknowledges that Questar essentially accepted the rates that CIGNA offered. (See Dep. of Melody Richardson at 13-14, attached as Ex. 1 to Defs.' Opp'n to Mot. to Remand.) Still, Questar essentially "shopped around for other insurance carriers." (Id.)
Questar established the eligibility requirements that an employee must meet in order to obtain any or all benefits (optional or otherwise). In order for an employee to be eligible for any of the benefits offered, Questar required the employee to work either thirty hours per week, or twenty hours per week in the Questar Gas Call Center. There is, however, no dispute that CIGNA handles all claims for benefits and determines whether the employee's claim for benefits will be granted or denied.
The Employee Handbook
The Employee Handbook, which is given to all eligible Questar employees, contains information on various topics. The categories of topics discussed in the Handbook are listed as Health Care, Life Insurance, Retirement Planning, Accident Insurance, Absent From Work, Assistance Programs, Employee Relations, and Miscellaneous. The Questar logo is printed on the front of the Employee Handbook. On the Handbook's first page, entitled "Your Information and Benefits Handbook," Questar states that "[t]his handbook only summarizes your benefit plans. The official legal texts of the plans, contracts and trust agreements govern your rights under your benefit plans and are available for review in the Questar personnel services department." (See Employee Handbook.) The language continues by essentially identifying Questar as the plan administrator: "Questar's Employee Benefits Committee administers the benefit plans." (Id.) In the Handbook's Introduction, Questar notes that Questar's goal is to "[p]rovide competitive employee compensation and benefit plans." (Id. at Introduction, p. 1.)
In the Handbook's section entitled "Accident Insurance," Questar discusses both the Travel Plan and the Plan at issue here. Questar sets forth eligibility requirements in this section and dictates when and where the enrollment form should be returned (to the Questar personnel services department). The Handbook states that "[c]laim forms are available from the Questar personnel services department" and that completed claim forms "should be returned to the personnel services department within 30 days following the loss or as soon as possible." (Id. at Accident Insurance, p. 6.) There is no specific mention of ERISA in the Accident Insurance section, but in the "Miscellaneous" section of the Employee Handbook, Questar sets forth its "ERISA Statement": "As a participant in Questar's . . . Catastrophe Accident Insurance . . . plan [i.e., the Plan], . . . you have certain rights and protections under the act [i.e., ERISA]." (Id. at Miscellaneous, p. 2.)
ANALYSIS
Ms. Stanley asserts that Defendants' removal of the case was improper because the court does not have subject matter jurisdiction over her state law claims. Removal statutes are to be strictly construed, and any doubts are to be resolved in favor of remand. Fajen v. Foundation Reserve Ins. Co., Inc., 683 F.2d 331, 333 (10th Cir. 1982).
Neither party has addressed whether the court has diversity jurisdiction. On the face of the Notice of Removal, it appears that the court does have diversity jurisdiction under 28 U.S.C. § 1332. The amount of demand listed on the Civil Cover Sheet, at least according to the Defendants, is "[a]t least $280,000.00." Ms. Stanley is a resident of the State of Utah, whereas the Defendants are Pennsylvania corporations with their principal places of business in Pennsylvania. Because the issue was not raised in the Motion to Remand or related pleadings, the court will not address it here. Moreover, even if the court has diversity jurisdiction, it must still determine whether ERISA governs Ms. Stanley's claims. See Ackerman v. Fortis Benefits Ins. Co., 254 F. Supp. 792, 794 (S.D. Ohio 2003) (finding that although court had diversity jurisdiction over case that was removed from state court on the basis of ERISA preemption, determination of the ERISA issue was necessary because it had both procedural and substantive ramifications for the case).
Ms. Stanley asserts six state law causes of action: Recovery of Benefits, Breach of Implied Covenant of Good Faith and Fair Dealing, Breach of Fiduciary Duties, Breach of Contract, Negligence, and Punitive Damages. (See Complaint, attached as Ex. 1 to Defs.' Notice of Removal.) Defendants assert that the federal statute of ERISA completely preempts Ms. Stanley's state law claims and governs Ms. Stanley's claim for disability benefits. In response, Ms. Stanley contends that the Plan falls within the "safe harbor" regulatory exception to ERISA and therefore the court does not have federal question jurisdiction.
Because Defendants are claiming that the court has federal question jurisdiction pursuant to ERISA and that ERISA preempts Ms. Stanley's state law claims, Defendants bear the burden of proof to establish federal question jurisdiction and ERISA preemption. Baxter v. Life Ins. Co. of N. America, 982 F. Supp. 1453, 1454 (D. Wyo. 1997). To decide the matter, the court must first apply the safe harbor regulation to determine whether the Plan is exempt from ERISA. If the Plan is not exempt, the court must determine whether the Plan is a "plan" (as defined by ERISA) that Questar "established or maintained" with the intent of providing benefits to its employees. Finally, the court must determine whether ERISA completely preempts Ms. Stanley's state law claims. See, e.g., Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d 460 (10th Cir. 1997); Thompson v. American Home Assurance Co., 95 F.3d 429, 434-35 (6th Cir. 1996).
Should the Plan Be Considered Apart From the Other Questar Benefits?
Ms. Stanley argues that the ADD group policy issued by CIGNA and offered by Questar on an optional basis should be evaluated apart from (i.e., severed from) the other benefits (such as health insurance and life insurance) offered by Questar. In other words, Ms. Stanley asserts that because Questar's various benefits plans were obtained from different insurance companies, the plans should not be considered as a whole. In fact, she seems to be arguing that the optional ADD coverage issued by CIGNA should be considered apart from Questar's automatic travel ADD coverage also issued by CIGNA.
Even if the court were to evaluate the optional CIGNA ADD policy apart from all other benefits offered by Questar, as Ms. Stanley suggests it should, the policy does not fall within the safe harbor provision, as discussed below. Accordingly, the court assumes, without deciding, that the optional CIGNA ADD policy should be severed from all other benefits. The court will evaluate it separately.
Does the Safe Harbor provision Apply?
ERISA governs employee benefit plans offered by an employer engaged in interstate commerce. 29 U.S.C. § 1003(V): Peckham v. Gem State Mut. of Utah, 964 F.2d 1043, 1047 (10th Cir. 1992). An "employee welfare benefit plan" is a form of employee benefit plan. 29 U.S.C. § 1002(3); Peckham, 964 F.2d at 1047. According to the Tenth Circuit, a plan is an "employee welfare benefit plan" under ERISA if it satisfies five statutory criteria: (1) a plan, fund, or program (2) established or maintained (3) by an employer (4) for the purpose of providing health care or disability benefits (5) to participants or their beneficiaries. Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d 460, 464 (10th Cir. 1997) (citing 29 U.S.C. § 1002(1)).
The United States Department of Labor has issued a regulation that creates a "safe harbor" exception to the applicability of ERISA to certain employee benefit programs. The safe harbor regulation provides that the term "employee welfare benefit plan" shall not include programs in which:
(1) No contributions are made by the employer;
(2) Participation in the program is completely voluntary for the employees;
(3) The sole function of the employer is, without endorsing the program, to permit the insurer to publicize the program to employees, to collect premiums through payroll deductions, and to remit those premiums to the insurer; and
(4) The employer receives no consideration in connection with the program, other than reasonable compensation for administrative services provided in connection with the payroll deductions.29 C.F.R. § 2510.3-1(j) — Of the four criteria above, only the third one is in dispute here (assuming that the optional ADD policy should be considered apart from all other Questar benefit plans). Specifically, the central issue is whether Questar "endorsed" the Plan within the meaning of the safe harbor provision, 29 C.F.R. § 2510.3-1 (j)(3).
To determine whether Questar endorsed the Plan, the primary inquiry is whether an objective reasonable employee would have believed that the employer endorsed the plan. Thompson v. American Home Assurance Co., 95 F.3d 429, 436-37 (6th Cir. 1996); Ackerman v. Fortis Benefits Ins. Co., 254 F. Supp.2d 792, 807 (S.D. Ohio 2003);Baxter, 982 F. Supp. at 1455-56. Also important is the employer's behind-the-scenes design and creation of the plan, if any. Ackerman, 254 F. Supp.2d at 806-07; see also Thompson, 95 F.3d at 436 (articulating the standard as that of an objective reasonable employee but also basing decision on facts that could not have been known to the average employee). "[A] finding of endorsement is appropriate if, upon examining all the relevant circumstances, there is some factual showing on the record of substantial employer involvement in the creation or administration of the plan." Thompson, 95 F.3d at 436 (emphasis added).
Ms. Stanley presents an affidavit setting forth her understanding and belief regarding the nature of the CIGNA ADD insurance policy offering. Her affidavit is offered in part to demonstrate the belief of an employee of Questar. The court, however, finds that Ms. Stanley's affidavit, although taken as true, does not assist the court in making a determination about what an objective reasonable employee would understand based on the documentation and actions of Questar. See, e.g., Ackerman v. Fortis Benefits Ins. Co., 254 F. Supp.2d 792, 808 (S.D. Ohio 2003) (finding that subjective belief of plaintiff, who had obvious interest in outcome of evidentiary hearing, was "simply a poor indicator of the objective belief of reasonable employees in general" and finding that "the trier of fact, which in this instance is the Court, is substituted as the objective employee").
As evidence that Questar endorsed the Plan, Questar emphasizes the fact that it files an annual Form 5500 with the United States Department of Labor and that such fact was announced to employees in the Accident Insurance portion of the Employee Handbook. The court, however, does not give this fact any weight, because the average employee would not know that a Form 5500 is filed pursuant to ERISA. (See Dep. of Melody Richardson at 27-28 (acknowledging that "rank-and-file employee of Questar or Wexpro who is not involved in the benefit process would [not] have any idea that a reference to Form 5500 would have anything to do with ERISA").) Moreover, as Ms. Stanley points out, Questar may have simply filed the Form 5500 for the Accident Insurance benefit out of an abundance of caution, even if it was not required under ERISA. (See Pl.'s Reply Mem. at 9-10 (citing Johnson v. Watts Regulator Co., 63 F.3d 1129, 1137 (1st Cir. 1995)).)
Employer neutrality is a key factor in the determination to refuse to treat a program as an employee benefit plan governed by ERISA. "[W]here the employer `offends the ideal of employer neutrality' as a result of its level of involvement, ERISA is properly invoked." Id. (quoting Johnson v. Watts Regulator Co., 63 F.3d 1129, 1133 (1st Cir. 1995)). "`Where, however, the employer separates itself from the program, making it reasonably clear that the program is a third party's offering, not subject to the employer's control, then the safe harbor may be accessible.'" Id. (quoting Johnson, 63 F.3d at 1137); see also Magee v. Life Ins. Co. of N. America, 261 F. Supp.2d 738, 744 (S.D. Tex. 2003) ("The essence of the [endorsement] inquiry is the employer's `involvement in [the] program'") (quoting Hansen v. Continental Ins. Co., 940 F.2d 971, 977 (5th Cir. 1991)).
Here, the following evidence shows that Questar endorsed the Plan. Questar's Employee Benefits Committee is named as the plan administrator.See, e.g., Thompson, 95 F.3d at 436 ("[W]here the employer is named as the plan administrator, a finding of endorsement may be appropriate"). Questar's Employee Handbook expressly states in the "Miscellaneous" section that the Plan is subject to ERISA. (See Employee Handbook at Miscellaneous, p. 2 ("ERISA Statement": "As a participant in Questar's . . . Catastrophe Accident Insurance . . . plan [i.e., the Plan], . . . you have certain rights and protections under the act [i.e., ERISA]").) See also Thompson, 95 F.3d at 437 ("[W]here the employer provides a summary plan description that specifically refers to ERISA in laying out the employee's rights under the policy or that explicitly states that the plan is governed by ERISA, the employee is entitled to presume that the employer's actions indicate involvement sufficient to bring the plan within the ERISA framework"). Questar determined which employees would be eligible for coverage under the Plan. Id. ("[W]here the employer plays an active role in . . . determining which employees will be eligible for coverage . . . the extent of employer involvement is inconsistent with `employer neutrality' and a finding of endorsement may be appropriate. . . .") Questar selected the CIGNA plan over other insurance plans and, to some extent, negotiated the terms of the agreement between CIGNA and Questar employees. See id. ("[W]here the employer plays an active role . . . in negotiating the terms of the policy or the benefits provided thereunder, the extent of employer involvement is inconsistent with `employer neutrality' and a finding of endorsement may be appropriate. . . ."). In the Employee Handbook Introduction, Questar notes that Questar's goal is to "[p]rovide competitive employee compensation and benefit plans." (Employee Handbook at Introduction, p. 1.) In the Employee Handbook, Questar refers to the optional ADD policy as the "Questar Corporation Catastrophe Accident Insurance Program." (See id. at Accident Insurance, p. 2.) The Employee Handbook, which summarizes the optional ADD policy benefits, has the Questar logo printed on the front page. And the Plan is essentially an optional extension of ADD coverage automatically offered (and paid for) by Questar to traveling employees under the Questar Business Travel Accident Insurance Plan.
Given the above indicia of endorsement, and considering all the relevant circumstances, the court finds that Questar endorsed the Plan. Accordingly, the Plan does not fall within the safe harbor exception to ERISA.
Is the Plan an ERISA Employee Welfare Benefit Plan?
Even though the safe harbor provision does not apply, the court must still determine whether the Plan is actually an ERISA plan "established or maintained" by Questar. "[A] program that fails to satisfy the [safe harbor provision] is not automatically deemed to have been `established or maintained' by the employer, but, rather, is subject to further evaluation under the conventional tests." Gaylor, 112 F.3d at 463 (internal citations and quotations omitted) (quotingJohnson, 63 F.3d at 1133).
A plan is an "employee welfare benefit plan" under ERISA if it satisfies five statutory criteria showing that it is: (1) a plan, fund, or program (2) established or maintained (3) by an employer (4) for the purpose of providing health care or disability benefits (5) to participants or their beneficiaries. Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d 460, 464 (10th Cir. 1997) (citing 29 U.S.C. § 1002(1)). There is no question that Questar is an employer, and that the Plan was offered for the purpose of providing disability benefits to the employee participants. So the question is whether the first two elements ("plan, fund, or program" that is "established or maintained") are also satisfied.
"Plan, Fund or Program" Requirement
A plan "exists if `from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and the procedures for receiving benefits.'"Gaylor, 112 F.3d at 464 (quoting Peckham, 964 F.2d at 1047). The record clearly establishes that Questar employees are the class of beneficiaries, and the Employee Handbook sets forth the intended benefits (accidental death and dismemberment insurance), the source of financing for those benefits (Questar and/or the employee), and the procedures for receiving those benefits. Therefore, the package of benefits offered by Questar constitutes a "plan" as defined by ERISA.
The "Established or Maintained" Requirement
To determine whether the Questar plan has been established or maintained by an employer, a court should look at "whether the employer's purchase of the policy is an expressed intention by the employer to provide benefits on a regular and long-term basis." Gaylor, 112 F.3d at 464. The "established or maintained" requirement is "designed to ensure that the plan is part of an employment relationship."Peckham, 964 F.2d at 1049.
Questar sought out bids from different insurance companies with the intent of finding the best benefits it could for its employees. (See Dep. of Melody Richardson at 13-14, 19-20, 28-29, 35.) In its Employee Handbook, Questar expressly states that its goal is to "[p]rovide competitive employee compensation and benefit plans" to all of its employees. (See Handbook at Introduction, p. 1.) The record clearly supports the finding that Questar's disability Plan was established and maintained by Questar.
In view of the above, the Questar Corporation Catastrophe Accident Insurance Program is an ERISA employee welfare benefit plan.
Are Ms. Stanley's State Law Claims Preempted by ERISA?
The preemption clause of ERISA states that "the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . ." 29 U.S.C. § 1144(a) (emphasis added). The scope of ERISA preemption is very broad. Straub v. Western Union Tel. Co., 851 F.2d 1262, 1263 (10th Cir. 1988). "Congress intended not only to preempt state law applicable to individual employee benefit rights, but to displace it with ERISA's civil enforcement provisions." Hemphill v. Unisys Corp., 855 F. Supp. 1225, 1231 (D. Utah 1994) (emphasis in original) (citing Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65-67 (1987)).
"A law `relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan."Shaw v. Delta Air Lines, 463 U.S. 85, 96-97 (1983). Ms. Stanley asserts causes of action for recovery of benefits, bad faith (breach of the implied covenant of good faith and fair dealing), breach of fiduciary duties, breach of contract, and negligence.
Ms. Stanley's state law claims all relate to the Plan. The basis for her claims is CIGNA's denial of benefits under the ADD policy. Accordingly, they are completely preempted by ERISA. See, e.g.,Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62 (1987) (holding that state law claim for breach of contract that relates to an employee benefit plan is completely preempted by ERISA);Gaylor, 112 F.3d at 466 (finding that ERISA preempted bad faith claim); Cannon v. Group Health Serv. of Oklahoma, Inc., 77 F.3d 1270 (10th Cir. 1996) (finding that ERISA preempted negligence claim);Peckham, 964 F.2d at 1049-50 (finding bad faith and punitive damages claims preempted by ERISA); Carland v. Metropolitan Life Ins. Co., 935 F.2d 1114, 1119 (10th Cir. 1990) (holding that state law claim for bad faith denial of benefits under employee benefit plan is completely preempted by ERISA and is necessarily converted into federal ERISA claim).
Moreover, Ms. Stanley's state law claims fall within the scope of ERISA's civil enforcement provision. See Carland, 935 F.2d at 1119 ("A state law claim will convert to a federal claim only if the claim is preempted by ERISA and within the scope of ERISA's civil enforcement provisions") (emphasis added). ERISA's civil enforcement provision states that "[a] civil action may be brought . . . by a participant . . . to recover benefits due . . . under the terms of the [the] plan. . . ." 29 U.S.C. § 1132(a)(1)(B). Clearly Ms. Stanley is a participant of the Plan. See 29 U.S.C. § 1002(7) (defining "participant"). Ms. Stanley is seeking disability benefits under the Plan, as is indicated by her Complaint. (See, e.g., Complaint at ¶¶ 13-22 (asserting claim for "recovery of benefits").) Because Ms. Stanley's claims fall within the scope of ERISA's civil enforcement provision, her claims must be converted to claims under ERISA. "[W]here Congress has completely preempted a particular area of law . . . any civil complaint raising a claim in that area is necessarily federal in character." Carland, 935 F.2d at 1118 (converting state law claim to federal ERISA claim upon finding of preemption and applicability of ERISA's civil enforcement provision). The procedural and substantive rules of ERISA govern Ms. Stanley's claims against the Defendants.
ORDER
For the foregoing reasons, Ms. Stanley's Motion to Remand is DENIED,