Opinion
CIVIL ACTION No. 02-1342, SECTION "N".
June 19, 2003.
ORDER AND REASONS
Before the Court is the Motion for Partial Summary Judgment on the Issues of Benefits, Penalties, and Attorneys' Fees filed by the plaintiff, Walter Richard House, Jr., on December 20, 2002 (Rec. Doc. No. 26), and the Cross Motion for Partial Summary Judgment on Issue of Benefits filed by the defendant, American United Life Insurance Company ("AUL"), on January 14, 2003 (Rec. Doc. No. 32). Both motions are GRANTED IN PART and DENIED IN PART. As set forth herein, the Court requires additional submissions regarding the question of whether the Employee Retirement Income Security Act of 1974,29 U.S.C. § 1001 et seq. ("ERISA"), applies.
BACKGROUND
Plaintiff filed suit against Defendant on May 6, 2002, seeking payment of disability insurance benefits and a penalty and attorney's fees award under applicable law. The parties submitted cross motions for summary judgment in October 2002. (Rec. Doc. Nos. 7 9). On December 3, 2002, this Court granted Plaintiff's motion and denied Defendant's motion. In its Order and Reasons, the Court disagreed with Defendant's determination that Plaintiff was not "totally disabled" as defined by the disability insurance policy issued by Defendant to Plaintiff that became effective on May 1,2000 (hereinafter, the "House Policy"). The Court further held that it could not determine, as a matter of law, that the House Firm "established or maintained" an employee welfare benefit plan with the intent to provide disability benefits to Plaintiff, or that the policy issued to Plaintiff was a component of a comprehensive employee benefit plan.
For a more comprehensive discussion of the factual and procedural background of this matter, see the Court's December 3, 2002 Order and Reasons (Rec. Doc. No. 21).
December 3, 2002 Order and Reasons at 24-25.
Id. at 38.
On December 20, 2002, and January 14, 2003, respectively, Plaintiff and Defendant filed the cross motions for summary judgment now before the Court. In light of the Court's December 3, 2002 Order and Reasons, Plaintiff seeks an award of past and future disability benefits of $10,000 per month, interest, and costs, as well as a penalty and attorney's fees award under La. R.S. 22:657. In opposition to Plaintiff's motion, and in support of its own motion, Defendant argues that the maximum monthly benefit payable to Plaintiff under the House Policy must be reduced by other income Plaintiff receives each month. Defendant further urges that Plaintiff's claim for a penalty and attorney's fees award under La. R.S. 22:657 is preempted by ERISA.
Although Defendant protests the Court's December 3, 2002 determination that Plaintiff is totally disabled under the House Policy, it nonetheless maintains that the issues raised in Plaintiffs motion are ripe for decision and may be decided through cross motions for summary judgment.
LAW AND ARGUMENT
I. Disability Benefits
Based on the Court's December 3, 2002 ruling that Plaintiff is "totally disabled" under the House Policy, Plaintiff asks the Court to award him past due monthly benefits of $10,000 from October 1, 2001 through the date a final judgment is signed, and future benefits of $10,000 per month until March 2, 2016 (the date of Plaintiff's 66th birthday). Objecting to Plaintiff's construction of the House Policy, Defendant argues that, if any disability benefits are owed, the maximum monthly benefit, $10,000, must be reduced by the monthly salary Plaintiff began receiving from the Louisiana Department of Economic Development in October 2001. This monthly amount increased from $8,333 per month to $8,667 per month as of October 15, 2002. Thus, if Defendant is correct, Plaintiff's past due monthly benefits are $1,667 before October 15, 2002 and $1,333 thereafter, rather than the $10,000 per month that Plaintiff seeks.
Contending that he will have "won the battle" over whether his condition satisfies the definition of "totally disabled" under the House Policy, but "lost the war" if his monthly disability benefits are reduced by the amount of his monthly earnings from his position with the Louisiana Department of Economic Development, Plaintiff offers several reasons why the Court should reject Defendant's position. First, Plaintiff argues that the reduction is contrary to the restrictions imposed by Louisiana law on the definition an insurer may give "totally disabled" or "total disability" in its policy. Second, Plaintiff argues that the reduction leads to absurd and unfair consequences. Specifically, Plaintiff can choose to sit at home and do nothing, rather than work, and collect $10,000 tax-free. If he chooses to work, however, he is penalized by a dollar-for-dollar reduction of his reduction of his disability benefits. In addition, in Plaintiff's case, allowing "total disability" benefits to be offset by earnings from other employment results in higher net benefits for "partial disability" than for "total disability." In any event, the offset results in what Plaintiff views to be "very little protection for his premium dollar," particularly as Defendant's premiums increase as its insured's earnings increase, and because Plaintiff's tax-free benefits are to be reduced by pre-tax earnings. Third, Plaintiff argues that the reduction should not be allowed because the relevant House Policy provisions are ambiguous and misleading. Finally, Plaintiff contends that Defendant's failure to advise him of the reduction during the claims process, as well as its failure to reduce the benefits paid to him in September and October 2001, prevent it from now requiring the offset.
Despite its appreciation of Plaintiffs obvious frustration with the situation in which he finds himself, the Court must reject each of Plaintiff's arguments and find that Plaintiff's "total disability" benefits are subject to offset by the amount of the earnings he received from the Louisiana Department of Economic Development. Although the House Policy, like most insurance policies, is not "light reading," the Court does not find the relevant provisions to be ambiguous or misleading. To the contrary, the Court finds that a reasonable reader certainly is informed that total disability benefits will be reduced by the amount of any earnings that the insured receives from any employment other than his regular employment. Specifically, the Schedule of Benefits of the House Policy plainly states that the Monthly Benefit is a maximum amount of $10,000 "then reduced by Other Income Benefits." The definition of "Other Income Benefits," which is found in the definitional section of the policy, expressly includes "any earnings the Person receives from any other occupation or employment while the Person is Disabled and receiving a Monthly Benefit under the policy." The policy further states, moreover, that the Monthly Benefit will terminate if the amount of "earnings received from any occupation or employment equal or exceed 80% of the Indexed Pre-disability Earnings." Indexed Pre-disability Earnings are Pre-Disability Earnings increased by the Consumer Price Index. In sum, though fully understanding each and every provision of the House Policy requires careful reading and much page turning, that disability benefits payable under the policy are subject to reduction by earnings from other employment is readily ascertainable by the reasonable reader.
See House Policy, Section 1, p. 3 (emphasis added).
See House Policy, Section 2, pp. 8-9. References to possible reductions to benefits payable under the House Policy actually are found throughout the policy. See House Policy, Section 2, p. 7 and Section 8, pp. 22, 24, and 27. These references provide additional notice to an insured that disability benefits may be subject to diminution under certain circumstances.
See House Policy, Section 8, p. 25.
See House Policy, Section 2, p. 7.
Nor does the Court find that reducing Plaintiff's disability benefits by the amount of his present earnings is unlawful. Reductions of disability benefits to reflect receipt of other income have been allowed by other courts. See, e.g., Levinson v. Reliance Standard Life Ins. Co., 2000 WL 193623 (S.D. Fla), aff'd, 245 F.3d 1321 (11th Cir. 2001) (applying an "other income benefits" offset provision that included wages and other compensation benefits); Nesom v. Brown and Root, USA, Inc., 987 F.2d 1188, 1193 (5th Cir. 1993) (allowing offset of workers compensation benefits and explaining setoff provision integrates benefits from several sources to achieve guaranteed monthly income amount); Godwin v. Sun Life Assur. Co., 980 F.2d 323, 327-29 (5th Cir. 1992) (recognizing validity of offsets for Social Security income and workers' compensation benefits); see also Hyde v. Hyde, 697 So.2d 1061, 1065 (La.App. 1 Cir. 1997) (recognizing offset for Social Security benefits); Houston Fishing Tools v. Windham, 619 So.2d 1224, 1228-29 (La.App. 3d Cir. 1993) (applying offset for workers' compensation and Social Security benefits).
The Louisiana authorities cited by Plaintiff, moreover, do not require a different result. See La. R.S. 22:230; Johnson v. State Farm Mut. Auto. Ins. Co., 342 So.2d 664 (La. 1977); Johnson v. Trustmark Ins. Co., 771 So.2d 307, 309 (La.App. 2d Cir. 2000); Bowers v. Sun Life Assur. Co. of Canada, 768 So.2d 37 (La.App. 3 Cir. 2000). Rather, those authorities simply restrict the way in which an insurer can define "total disability" or "totally disabled" in its policy. As stated by Plaintiff, an insurer cannot require "a state of absolute helplessness. . . ." See Johnson, 771 So.2d at 309. As construed by this Court in its December 3, 2002 Order and Reasons, the House Policy's definition of "total disability" does not impermissibly condition receipt of benefits in that manner. Although other provisions of the House Policy result in a totally disabled insured actually being paid less benefits under the policy if he achieves a certain level of earnings from alternative employment, Plaintiff has cited no case or statute mandating the amount of benefits that must be paid under a disability policy if someone is totally disabled.
If an insured is earning 20% or less than his Covered Monthly Earnings in his regular or another occupation, Defendant will not reduce the Monthly Benefit by those earnings. See House Policy, Section 8, p. 27.
The Court likewise does not find the offset provision to be unenforceable simply because, in some cases, "partial disability" benefits may be higher than "total disability" benefits. Defendant has offered a reasonable explanation as to why this may occur and the rationale for structuring benefits in this way. Further, the Court notes that the definitions of "totally disabled" and "partially disabled" are not mutually exclusive. As defined, it appears possible for an insured, under certain circumstances, to satisfy both (or either) statuses.
See House Policy, Section 2, p. 11.
Finally, absent stronger evidence of waiver, the Court does not find that Defendant's failure to apply the offset provision to the "good faith" benefits paid to Plaintiff in September and October 2001 — while it still was adjusting Plaintiff's claim for benefits — to preclude forever its assertion of that provision. This is particularly so given that the time periods for which these payments were made (July 2001 and September 2001) occurred prior to the time Plaintiff began receiving a regular monthly salary from the Louisiana Department of Economic Development. In addition, the Court notes that Defendant advised Plaintiff in December 2000 that any disability benefits to which he is entitled may be reduced by other income benefits, including wages from a return to work.
See December 18, 2000 Correspondence (AUL000171).
In sum, the Court does not find the offset provision of the House Policy to be unenforceable. Although Plaintiff argues that the House Policy, in a sense, penalizes a person who is totally disabled with respect to his regular occupation for working in alternative employment for which he is qualified and capable, the Court will not re-write a contract to remedy perceived shortcomings of the insurance carrier and/or policy. By its terms, the House Policy insures only that a disabled insured receives a monthly income of a particular amount. Here, that amount is $10,000. The House Policy, however, does not mandate payment of $10,000 in disability benefits each month under any and all circumstances. In other words, the House Policy simply does not entitle Plaintiff to receive $10,000 per month in disability benefits regardless of the amount of monthly income that he receives from other sources. To the contrary, the House Policy plainly requires that the maximum amount of disability benefits payable under the policy by reduced by income from alternative employment. Accordingly, Plaintiff's past due monthly benefits from October 1, 2001, should be reduced in accordance with the House Policy by the amount of his monthly earnings from his position with the Louisiana Department of Economic Development. Assuming Plaintiff's future monthly benefits do not otherwise require modification, or are not validly terminated, they will be $10,000 minus Plaintiff's monthly salary.
The Court notes that, when Defendant notified Plaintiff of its denial of his claim for disability benefits, it also informed Plaintiff that "[i]t is not necessary to refund 'good faith' payments" made prior to the determination of his claim. See November 20, 2001 Correspondence (AUL000016-19). Based on this representation, Defendant is not entitled to seek a refund of any portion of the benefit payments made to Plaintiff prior to November 20, 2001.
II. Penalties and Attorney's Fees Under La. R.S. 22:657
Having decided the amount of benefits to which Plaintiff is entitled based on his "totally disabled" status, the Court now turns to Plaintiff's request for a penalty and attorney's fees award under La. R.S. 22:657. That statute provides for an award of a penalty and attorney's fees if an insurer arbitrarily fails to pay benefits under a health or accident insurance contract within thirty days. See La. R.S. 22:657; Cramer v. Association Life Ins. Co., 569 So.2d 533, 538 (La. 1990). Plaintiff contends that Defendant's denial of benefits was arbitrary and capricious.
Before evaluating the egregiousness of Defendant's behavior, however, the Court must determine, as a threshold matter, whether ERISA applies to Plaintiff's claim. If governed by ERISA, Plaintiff's state law claims under La. R.S. 22:657 are preempted. See Hicks v. CNA Ins. Co., 4 F. Supp.2d 576, 579 (E.D. La. 1998); Coles v. Metropolitan Life Ins. Co., 837 F. Supp. 764, 768 (M.D. La. 1993); see also Cramer, 569 So.2d at 538.
ERISA's application turns on whether Plaintiff has sought benefits under an "employee welfare benefit plan" as that term is defined by ERISA. See Meredith v. Time Ins. Co., 980 F.2d 352, 353 (5th Cir. 1993) (summary calendar). This is a question of fact. Id.
Citing MDPhysicians Associates, Inc. v. State Board of Insurance, 957 F.2d 178 (5th Cir. 1992), Plaintiff argues that ERISA does not govern his claims because the AUL insurance application and the House Policy "both prominently designate a trust for the 'business and professional' industry." See Plaintiffs January 28, 2003 Memorandum in Opposition at 23. Accordingly, Plaintiff contends that, even if a multiple employer welfare arrangement ("MEWA") was created, ERISA would not apply because the trust would be made up of employers and employees from innumerable disparate and unrelated industries. Id. The Court disagrees that the provision of insurance through such a trust is determinative of ERISA's application to this case. As the Fifth Circuit explained in McDonald v. Provident Indemnity Life Ins. Co., 60 F.3d 234, 236 (5th Cir. 1995), the dispositive issue here is not the status of the AUL trust. Rather, the controlling issue is whether a subscribing employer created or maintained an ERISA employee welfare benefit plan. Id. Significantly, MD Physicians addressed only the status of the MEWA to decide whether it was subject to state regulation. Indeed, the Fifth Circuit specifically emphasized there that it was not determining whether any of the subscribing employers to the MEWA had established its own ERISA employee welfare benefit plan. MDPhysicians, 957 F.2d at 182 n. 4.
An employee welfare benefit plan is defined by ERISA as:
any plan, fund, or program which was . . . established or maintained by an employer . . . for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits in the event of sickness, accident, [or] disability. . . .29 U.S.C. § 1002(1). Under the Fifth Circuit's jurisprudence, a particular insurance arrangement qualifies as an employee welfare benefit plan under ERISA if: (1) it is a "plan"; (2) it does not fall within the safe-harbor provision established by the Department of Labor; and (3) it was established or maintained by an employer with the intent to benefit employees. See Lain v. UNUM Life Ins. Co., 27 F. Supp.2d 926,930 (S.D. Tex. 1998) (citing Meredith, 980 F.2d at 355), aff'd, 279 F.3d 337 (5th Cir. 2002).
A "plan" exists if "a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits." Meredith, 980 F.2d at 355.
If the relevant plan satisfies all of the requirements of the safe-harbor provision, it is exempt from ERISA's coverage. See Meredith, 980 F.2d at 355. The safe-harbor provision, 29 C.F.R. § 2510.3-1(j), applies to "a group or group-type insurance program offered by an insurer to employees . . ." that meets the following criteria:
(1) No contributions are made by an employer;
(2) Participation in the program is completely voluntary for employees;
(3) The sole functions of the employer with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees, to collect premiums through payroll deduction, and to remit them to the insurer; and
(4) The employer 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 with payroll deductions.
Here, the parties do not agree on what the alleged "plan" is. Specifically, the parties dispute whether the House Policy itself is "the plan," or instead is simply one component of a larger "disability insurance plan" maintained by the House Firm for the benefit of the firm's employees, non-partner attorneys, and partners. Apparently relying on Robertson v. Alexander Grant Co., 798 F.2d 868 (5th Cir. 1986), Plaintiff argues that the relevant "plan" is the House Policy because it covered only House (a partner) and does not cover any House Firm employees. Thus, as in Robertson, the House policy does not pay any benefits to employees, and the policies covering the House Firm non-partner attorneys and employees do not pay benefits to partners. Plaintiff further argues that he, not the House Firm, bore the cost of the AUL disability policy issued to him.
Citing Slamen v. Paul Revere Life Ins. Co., 166 F.3d 1102, 1105-06 (11th Cir. 1999), Defendant argues that ERISA does apply to the House Policy because that policy is "related" to the AUL disability insurance policies issued to the House Firm employees and non-partner attorneys. In essence, Defendant contends that the House Policy was part of the same large disability insurance "package" obtained from Defendant by the House Firm, and that ERISA's application should not turn simply on whether the insurance was offered to three classes of insureds in one policy or through three separate policies. To support this assertion, Defendant maintains that the House Firm negotiated, applied for, and obtained disability insurance for its partners, employees, and non-partner attorneys all at the same time. Further, all three policies were obtained from one company and with a single application form covering all three classes of insureds. Finally, Defendant contends that all administrative tasks undertaken by the House Firm with respect to the AUL disability insurance were done for the three policies together and contemplated a single plan.
Resolution of this dispute is essential to the Court's determination of the ERISA preemption issue. Cf. Page v. UNUM Life Ins. Co., 2000 WL 748154, *2 (N.D. Tex.) (concluding preemption determination turned on whether single policy or group of policies should be evaluated together or separately). If the House Policy is the relevant "plan," the Court's inquiry ends. ERISA will not apply because the House Policy covers only a former partner of the House Firm. See Meredith, 980 F.2d at 356-58 (a plan without employees is not regulated by ERISA). On the other hand, if the relevant plan is all of the disability insurance coverage provided by Defendant to the House Firm employees, non-partner attorneys, and partners, and the plan falls outside of the safe-harbor provision, ERISA appears to apply.
Although the Court's December 3, 2002 Order and Reasons contains language suggesting that the relevant plan for purposes of the ERISA preemption inquiry is the House Policy only, the Court had not been presented at that time with all of the documents cited in the memorandum supporting Defendant's present motion for partial summary judgment. Consideration of the materials presently before the Court, the parties' previous submissions, and applicable jurisprudence persuade the Court that it should consider the issue further at this juncture.
Except for Plaintiffs argument regarding the general ambiguity of the policy discussed above, and the parties' disagreement as to whether the relevant plan is the House Policy only, or instead all of the AUL disability insurance policies issued to the House Firm employees, non-partner attorneys, and partners with effective dates on or around May 1, 2000, neither of the parties otherwise appears to contend that a reasonable person could not ascertain intended benefits, beneficiaries, source(s) of financing, and procedures for receiving benefits. Accordingly, a "plan" appears to exist for purposes of the first prong of the Fifth Circuit's test for determining whether a particular insurance arrangement qualifies as an employee welfare benefit plan under ERISA.
Based on the submissions presently before it, however, the Court does not find that the motions of either party should be granted on this point. Instead, the Court requires additional submissions addressing: (1) the nature of the "relationship" contemplated by Slamen; (2) the relationship of the House Policy to the other AUL disability insurance policies issued to the House Firm employees and non-partner attorneys with effective dates on or around May 1, 2000; (3) whether the AUL disability insurance benefits offered to the House Firm employees and non-partner attorneys qualify a an employee welfare benefit plan under ERISA; (4) by whom the premiums for the House Policy, and the other AUL policies issued to the House Firm employees and non-partner attorneys, were paid; and (5)if the House Firm did not pay some or all of the premiums for the AUL policies issued to House Firm employees and/or non-partner attorneys, the nature and extent of the House Firm's role in the administration of the AUL disability insurance policies issued to the House Firm employees, non-partner attorneys, and partners.
As part of these submissions, the Court asks that the parties first submit joint stipulations and then brief any issues of fact or law on which they do not agree. The following schedule is to be used:
(1) Stipulations confected by the parties, signed by both counsel, will be submitted on or before June 10, 2003;
(2) Briefs on disputed issues, as well as appropriate evidentiary support, must be submitted on or before June 16, 2003; and
(3) Responsive briefs must be submitted on or before June 23, 2003. In providing these supplemental submissions, any party wishing to refer the Court to documents previously provided to the Court, rather than submitting an additional copy of those documents, are encouraged to do so. The Court, however, requires appropriate citations, including Bates numbers where applicable, to those documents, as well as any additional documents filed. Citations to memoranda previously filed with the Court should include the date of the document date. Any affidavits cited must include the date of the affidavit.
III. Judicial Interest and Costs
Plaintiff also seeks an award of judicial interest on all benefits and penalties from the date that they were or will be due until they are paid and for all other costs of these proceedings. The Court will address this request when it rules on Plaintiff's request for a penalty and attorney's fees award.
CONCLUSION
Although the Court agrees with Plaintiff that he is entitled to payment of benefits pursuant to the disability insurance policy issued to him by Defendant, the Court agrees with Defendant that these benefits are to be offset in accordance with the policy by Plaintiff's earnings from the Louisiana Department of Economic Development. Because the Court requires additional submissions from the parties relative to the issue of ERISA application to this dispute, the Court does not at this time determine whether Plaintiff is entitled to receive a penalty and attorney's fees award under Louisiana Revised Statute 22:657. Plaintiff's entitlement to judicial interest and costs shall be addressed when the Court rules on Plaintiff's request for a penalty and attorney's fee award under Louisiana law.