Opinion
Cause No. IP99-1520-C-T/G
August 21, 2000
ENTRY ON PLAINTIFFS' MOTION TO REMAND
Plaintiffs, Myra E. Creel and Claude Creel ("Creel"), filed a motion to remand to the Marion Superior Court pursuant to 28 U.S.C. § 1447. Defendant, Fortis Benefits Insurance Co. ("Fortis"), removed this case from the Marion Superior Court contending that original federal question jurisdiction exists pursuant to 28 U.S.C. § 1331 and 1332(a)(1) because Creel's Complaint relates to, and seeks, benefits under an "employee welfare benefit plan" within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1002(1). Based upon the applicable law, review of the memorandum submitted by the parties and review of the testimony and evidence presented at a hearing held on this jurisdictional issue, Plaintiffs' motion should be DENIED.
I. Background
Ms. Creel is a former employee of Winona Memorial Hospital ("Winona"), employed as a quality control specialist in the business department. While so employed, Ms. Creel elected to participate in a Group Long Term Disability Insurance policy ("Policy") offered through her employer by Fortis. Ms. Creel paid her premiums due on the Policy to Winona which remitted the collected premiums to Fortis.
The Policy is attached to the Complaint and labeled Exhibit A.
The Policy was established under the Hospital Employee Benefit Association, Inc. ("HEBA") Trust Fund. The Policy was issued to the Trustees of the HEBA Trust Fund who are the policyholders. (See Policy at coverpage). Winona applied to become a participant in the Policy and was accepted. Under the terms of the Policy, Fortis agreed to provide disability insurance to Policy participants subject to the payment of premiums. (See id.). In accordance with the terms of the Policy, participating employers had the authority to design certain elements of the Policy, such as requiring an employee to complete a "Service Requirement," the length of which was determined by the employer, before an employee became eligible for insurance. (See id. at 8).
On May 13, 1994, Ms. Creel suffered injuries as a result of an automobile collision for which she sought medical attention. As a result of her injuries, Ms. Creel sought to collect long term disability benefits under the Policy. On November 25, 1998, Fortis informed Ms. Creel that it was denying her request for long term disability insurance benefits. On April 30, 1999, Fortis informed Ms. Creel that her appeal of the denial of disability benefits had been rejected.
Ms. Creel then filed the current suit in Marion Superior Court for breach of contract, bad faith, tort of outrage and intentional infliction of emotional distress. Fortis subsequently removed this case to federal district court alleging federal question jurisdiction on the grounds that the Policy establishes and funds an ERISA "employee welfare benefit plan." Ms. Creel filed a motion to remand on the grounds that Fortis failed to establish federal question jurisdiction. A hearing was held in which the parties were permitted to present witness, affidavits and/or other properly authenticated documentary evidence to aide the court in determination of the issues addressed here.
II. Analysis
The current dispute centers on whether the Policy is an "employee welfare benefit plan" covered under ERISA, 29 U.S.C. § 1001, et seq. If the Policy is covered under ERISA, this court has federal subject matter jurisdiction and removal from the state court was proper. See Brundage-Peterson v. Compcare Health Servs. Ins. Corp., 877 F.2d 509, 510 (7th Cir. 1989) (holding that "a suit for benefits allegedly due under an ERISA plan arises under ERISA, and therefore under federal law, and hence is removable to federal district court"); 28 U.S.C.A. § 1441 (West 1994). On the other hand, if the Policy is not covered under ERISA, this court has no jurisdiction over this matter and must remand the case to the state court.
Fortis, as the party seeking to remove the case to a federal forum, "has the burden of establishing jurisdiction." See Wellness Community-National v. Wellness House, 70 F.3d 46, 49 (7th Cir. 1995). Because the court's jurisdiction in this case has been challenged as a factual matter, Fortis must support its jurisdictional allegations with "competent proof[,]" which "has been interpreted to mean a preponderance of the evidence or proof to a reasonable probability that jurisdiction exists." NLFC, Inc. v. Devcom Mid-America, Inc., 45 F.3d 231, 237 (7th Cir. 1995) (quotations omitted). "Any doubt regarding jurisdiction should be resolved in favor of the states." Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993) (citations omitted); see also Illinois v. Kerr-McGee Chem. Corp., 677 F.2d 571, 576 (7th Cir. 1982) ("[T]he removal statute should be construed narrowly and against removal."). Finally, "[b]ecause jurisdiction is determined as of the instant of removal," In re Shell Oil Co., 970 F.2d 355, 356 (7th Cir. 1992), only evidence that "sheds light on the situation which existed when the case was removed" may be considered. Harmon v. OKI Sys., 115 F.3d 477, 480 (7th Cir. 1997).
Ms. Creel appears to argue that because Fortis did not come forward with evidence to support its claim of federal jurisdiction at the time it filed its removal petition, Fortis failed to meet its burden. Ms. Creel's argument misses the mark. A party petitioning for removal need not come forward with evidence to carry its burden at the time the removal petition is filed, rather only evidence that existed at the time the petition was filed may be considered. In other words, a court may not consider events, such as an amended complaint or post-removal affidavit, that occurred subsequent to the filing of the removal petition, the purpose of which is to defeat federal subject matter jurisdiction. See In re Shell Oil, 970 F.2d at 356 ("Because jurisdiction is determined as of the instant of removal, a post-removal affidavit or stipulation is no more effective than a post-removal amendment of the complaint."); Prince v. Rescorp Realty, 940 F.2d 1104, 1105 n. 2 (7th Cir. 1991) ("Federal courts base decisions about subject matter jurisdiction after removal (continued . . .) on the plaintiff's complaint as it existed at the time that the defendant filed the removal petition.") (quotation omitted; citing, e.g., Price v. Highland Community Bank, 722 F. Supp. 454, 456 (N.D.Ill. 1989) (Posner, J., sitting be designation) (plaintiff's dropping the sole federal claim in removed case "did not affect federal jurisdiction, which with immaterial exceptions depends on the facts and claims when the suit is removed, rather than on subsequent developments"); Hammond v. Terminal R.R. Assoc. of St. Louis, 848 F.2d 95, 97 (7th Cir. 1988) ("The defendant's right to remove a case from state to federal court depends on the complaint filed by the plaintiff in state court. If the complaint states a claim that is removable . . . removal is not defeated by the fact that, after the case is removed, the plaintiff files a new complaint, deleting the federal claim or stating a claim that is not removable.").
A. Employee Welfare Benefit Plan
An employee welfare benefit plan is defined by ERISA as:
any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, . . . benefits in the event of . . . disability. . . .29 U.S.C.A. § 1002(1) (West 1999). The Seventh Circuit has interpreted this "broad definition," Brundage-Peterson, 877 F.2d at 510; see also Fiene v. V J Foods, Inc., 962 F. Supp. 1172, 1178 (E.D.Wis. 1997) ("It is well-established that courts must construe the definition of `welfare benefit plan' broadly.") (quotation and citation omitted), as requiring the following five elements: "(1) a plan, fund, or program, (2) established or maintained, (3) by an employer . . ., (4) for the purpose of providing . . . disability benefits, (5) to participants or their beneficiaries." Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th Cir. 1986) (citing Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982)).
Elements (3), (4), and (5) are clearly satisfied and essentially undisputed in this case. Winona satisfies the definition of "employer" under ERISA, see 29 U.S.C.A. § 1002(5) (West 1999), cf. Brundage-Peterson, 877 F.2d at 510 ("It makes no difference that the defendant is the insurer rather than the employer."); the Policy provided disability benefits to Ms. Creel; and Ms. Creel satisfies the definition of "participant" under ERISA, see 29 U.S.C.A. § 1002(7) (West 1999).
The heart of the current dispute is whether "a plan, fund, or program" was "established or maintained." To address the requirement that a plan be "established or maintained", "the Secretary of Labor . . . promulgated a safe harbor regulation describing when (and to what extent) an employer or a trade union may be involved with an employee welfare benefit program without being deemed to have `established or maintained' it."
Johnson v. Watts Regulator Co., 63 F.3d 1129, 1133 (1st Cir. 1995) (citing 40 Fed. Reg. 34,527 (1975) (explaining the rationale underlying the safe harbor regulation)). "A program that satisfies the regulation's standards will be deemed not to have been `established or maintained' by the employer." Id. But, "a program that fails to satisfy the regulation's standards is not automatically deemed to have been `established or maintained' by the employer, but, rather, is subject to further evaluation under the conventional tests." Id. (citation omitted). It is therefore appropriate to take a detour in this analysis to consider the safe harbor regulation before continuing on with the analysis of the conventional tests, as such further analysis may not be necessary.
B. Safe Harbor Regulation
There exists a safe harbor regulation promulgated by the Department of Labor that excludes employee insurance policies from ERISA if certain conditions are satisfied. See 29 C.F.R. § 2510.3-1(j) (1999). The regulation provides in part:
[The term] `employee welfare benefit plan' . . . shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which:
(1) No contributions are made by an employer or employee organization;
(2) Participation [in] the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.
Id. For the safe harbor provision to be applicable, all four elements must be satisfied. See O'Reilly v. Hartford Life and Accident Ins. Co., No. 97 C 7958, 1999 WL 156351, at *3 (N.D.Ill. Mar. 3, 1999) ("Failure to fulfill any one of the four criteria listed in the regulation `closes the safe harbor and exposes a group insurance program, if it otherwise qualifies as an ERISA program, to the strictures of the Act.'") (quoting Johnson, 63 F.3d at 1133).
Moreover, because this regulation provides an exemption from ERISA, it should be narrowly construed. See id. at *2 ("The Seventh Circuit has held that coverage under ERISA should be liberally construed, while exemptions from ERISA should be applied narrowly.") (quoting Bass v. Mid-America Co., Inc., No. 95 C 1167, 1995 WL 622397, at *2 (N.D.Ill. Oct. 20, 1995); citing Brundage-Peterson, 877 F.2d at 511)).
Elements (1) and (4) are not in dispute, and both satisfy the safe harbor regulation. There is no evidence that an employer or employee organization made contributions to Ms. Creel's Policy premiums. (See Def.'s Resp. Pls.' Req. Admis. ¶¶ 39, 40). And, Fortis has admitted that Winona "did not receive any financial consideration for the collection of the premiums paid by Mrs. Creel for the long-term disability insurance policy at issue in this cause, with the exception of the administrative costs associated with the collection of the premiums from Mrs. Creel's paycheck." (Id. ¶ 45). The dispute lies in the satisfaction of elements (2) and (3).
Satisfaction of element (3) turns on employer neutrality. See Johnson, 63 F.3d at 1133-34 (recognizing that the third facet of the safe harbor regulation evokes employer neutrality). If an employer exercises control over the plan such that the ideal of employer neutrality is offended, the plan will fail to satisfy element (3) of the regulation. See id. at 1135 ("We rule . . . that an employer will be said to have endorsed a program within the purview of the Secretary's safe harbor regulation if, in light of all the surrounding facts and circumstances, an objectively reasonable employee would conclude on the basis of the employer's actions that the employer had not merely facilitated the program's availability but had exercised control over it[.]"). In Johnson, the court found actions by an employer such as "merely advis[ing] employees of the availability of group insurance, accept[ing] payroll deductions, pass[ing] them on to the insurer, and perform[ing] other ministerial tasks that assist the insurer in publicizing the program," to not offend the notion of employer neutrality. Id. at 1134. Rather, the court held, "It is only when an employer purposes to do more, and takes substantial steps in that direction, that it offends the ideal of employer neutrality and brings ERISA into the picture." Id. (citing, e.g., Brundage-Peterson, 877 F.2d at 510-11 (finding that an employer who determined eligibility, contributed premiums, and collected and remitted premiums paid for dependents did not qualify for the safe harbor exception)).
The evidence discloses that Winona exercised substantial control and design over the Policy. Winona did not merely endorse the Policy. Rather, Winona controlled the amount of time a new employee would have to wait before becoming eligible to participate in the Policy, and changed the qualifying period on at least one occasion (see Policy at 8; Def.'s Ex. M, X, Y), see Brundage-Peterson, 877 F.2d at 511 ("An employer who creates by contract with an insurance company a group insurance plan and designates which employees are eligible to enroll in it is outside the safe harbor created by the Department of Labor regulation."); Winona had the authority to establish which employees were considered to be employed full time for purposes of the Policy, and on at least one occasion changed the hourly eligibility requirements (see Policy at 1; Def.'s Ex. K, Y); it had the authority to establish the minimum monthly benefits to be paid under the Policy, and increased the minimum monthly benefit payable at least once (see Policy at 11; Def.'s Ex. G, H, X, Y); it established the percentage of monthly pay that a disabled employee could receive under the Policy as well as the maximum monthly benefits (see Policy at 10, 11; Def.'s Ex. M, Y); and it possessed the ability to end a covered person's insurance by terminating its participation under the Trust (see Policy at 9, 19). Winona, therefore, exercised far too much control over the Policy to achieve the neutrality that the third aspect of the safe harbor provision requires.
Absent employer neutrality, there is no safe harbor exclusion available for the Policy in question. See O'Reilly, 1999 WL 156351, at *3. Therefore, it is not necessary to address whether the second aspect of the regulation is satisfied, that is, voluntary participation.
Ms. Creel places much emphasis on the fact that she paid the entire premium on the Policy, while Winona contributed nothing. Although that is a factor to consider, the absence of a contribution by Winona to Ms. Creel's insurance cost is not enough in this case to bring the Policy within the safe harbor regulation. In Brundage-Peterson, 877 F.2d at 511, the court considered that the employer contributed to the employee's share of the insurance premiums, but placed little weight on that factor, opining, "[F]rom an economic standpoint there is little difference between payment nominally by the employer — which the employer will treat as a cost of employment, causing him to pay a lower wage than otherwise — and payment nominally by the employee." Rather, the court found that the employer's contribution merely added weight to it's conclusion that, "An employer who creates by contract with an insurance company a group insurance plan and designates which employees are eligible to enroll in it is outside the safe harbor created by the Department of Labor regulation." Id. Therefore, the existence of an ERISA plan is not dependent on an employer's contribution to an employee's insurance cost, especially when an employer exercises control over the plan, a dominate factor in determining whether the safe harbor provision applies, see Johnson, 63 F.3d at 1134 ("[T]he Department of Labor has called the employer neutrality that the third facet evokes `the key to the rationale for not treating such a program as an employee benefit plan. . . .'") (quoting 40 Fed. Reg. 34, 526). In this case, despite the fact that Winona did not contribute to Ms. Creel's insurance cost, it is clear that Winona exercised sufficient control over the Policy to breach the third element of the regulation.
As stated above, the safe harbor analysis does not end the inquiry. Rather, as a result of the regulation's failure, it is necessary to turn back to the conventional tests.
C. Employee Welfare Benefit Plan Continued
The only issues remaining open are whether a "plan" was "established or maintained." Note that by using the word or rather than the word and, Congress intended a plan to qualify as an "employee welfare benefit plan" under ERISA if either a plan was established or a plan was maintained.
In Ed Miniat, 805 F.2d at 739, the Seventh Circuit opined that a plan is "established" when "the decision to extend benefits has become a reality." See also Brundage-Peterson, 877 F.2d at 511 (finding that contracts entered into between an employer and an insurance company whereby the insurance company agreed to insure the employer's employees "`established' a plan") (citation omitted). It is clear in this case that Winona's decision to furnish disability insurance to its employees is a reality. However, "it is the reality of a plan, fund or program and the not the decision to extend certain benefits that is determinative" of whether an employer has "established" a plan. See Donovan, 688 F.2d at 1374 (holding that an employer established an employee welfare benefit plan by subscribing to a group insurance trust to furnish health insurance for employees).
In Diak v. Dwyer, Costello Knox, P.C., 33 F.3d 809, 811-12 (7th Cir. 1994), the Seventh Circuit shed light on what is required for a plan to become a reality. The court held, "[T]he prevailing test for determining whether a `plan' has been established within the meaning of ERISA [is]: `In determining whether a plan, fund, or program . . . is a reality a court must determine whether from the surrounding circumstances a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits." Id. (quoting Donovan, 688 F.2d at 1373). "The contingent feature of a true welfare benefits plan . . . is unaffected by the delegation of administration of the plan to an insurance company — a delegation in fact contemplated by the statute."
Brundage-Peterson, 877 F.2d at 511; see also Randol v. Mid-West Nat'l Life Ins. Co., 987 F.2d 1547, 1550-51 n. 5 (11th Cir. 1993) ("[A] commercially purchased insurance policy under which the procedures for receiving benefits are all dictated by the insurance carrier can constitute a plan for ERISA purposes."); Donovan, 688 F.2d at 1373 ("Some essentials of a plan . . . can be adopted . . . from sources outside the plan . . . — e.g., an insurance company's procedure for processing claims[.]") (citing 29 C.F.R. s 2520-102-5).
The Policy is a "plan" within the meaning of ERISA. From an examination of the Policy, a reasonable person could discern: (1) that the intended benefits are long term disability insurance (see Policy at coverpage, 5); (2) that the intended beneficiaries are the employees of participating employers that satisfy the Policy's eligibility and participation requirements (see id. at 6); (3) that the source of financing is the premiums (see id. at 20); and (4) "the procedure for receiving the benefits" as they are set forth in detail in the Policy (see id. at 10-15, 17). See also Randol, 987 F.2d at 1550 (finding that a plan was established when the intended benefits were medical care provided under the insurance policy, the beneficiaries were workers who chose to participate in the group health insurance, the source of financing was the employee — paid premiums supplemented by an employer contribution and the procedures for receiving benefits were set forth in the policy); Donovan, 688 F.2d at 1374 (finding that a plan was established when the intended benefits were health insurance, the beneficiaries and the source of financing were employees of employers who subscribed to the group insurance trust, and the group health insurance policy contained the procedure for receiving benefits). Therefore, the test for determining whether an ERISA plan has been established is satisfied in this case.
Although there is no testimony whether Ms. Creel did in fact discern these items, the test is an objective one — "whether from the surrounding circumstances a reasonable person could ascertain. . . ." See, e.g., Diak, 33 F.3d at 812 (quotation omitted). Since all of these items could easily be ascertained by looking to the Policy, the objective standard is satisfied.
Although it is likely that the Policy was also maintained by Winona (see above discussion), it is not necessary to engage in a separate analysis because it is clear that the Policy was established by Winona. See Donovan, 688 F.2d at 1374 n. 14 (finding it unnecessary to address whether a plan had been maintained after having found that a plan was established).
III. Conclusion
Because Ms. Creel seeks benefits under an ERISA "employee welfare benefit plan," federal subject matter jurisdiction exists in this case.In light of the foregoing, Plaintiffs' motion to remand is DENIED.
ALL OF WHICH IS ORDERED this 21st day of August 2000.