Opinion
1:18-cv-00090-RLY-MJD
2020-01-16
Michael MATHIOUDAKIS, Plaintiff, v. UNUM GROUP, Defendant.
Melissa A. Davidson, Charles D. Hankey Law Office, Indianapolis, IN, for Plaintiff. Eric P. Mathisen, Mark E. Schmidtke, Ogletree Deakins Nash Smoak & Stewart, P.C., Valparaiso, IN, for Defendant.
Melissa A. Davidson, Charles D. Hankey Law Office, Indianapolis, IN, for Plaintiff.
Eric P. Mathisen, Mark E. Schmidtke, Ogletree Deakins Nash Smoak & Stewart, P.C., Valparaiso, IN, for Defendant.
ENTRY ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
RICHARD L. YOUNG, JUDGE
Faced with mounting evidence of underfunded benefit plans and financial uncertainty for a large number of retirees, Congress enacted the Employee Retirement Income Security Act of 1974 ("ERISA"). ERISA federalized employee welfare benefit plans by establishing uniform standards and authorizing participants to sue directly in federal court. To that end, ERISA preempts all parallel state law claims relating to covered benefit plans. But not all plans fall under ERISA—some are exempt pursuant to a safe-harbor regulation promulgated by the Department of Labor.
The threshold question here is whether the safe-harbor regulation applies to a disability policy issued to Michael Mathioudakis. In 1991, Mathioudakis obtained a long-term disability policy from Provident Life and Accident Insurance Company—a subsidiary of Unum Group. Mathioudakis alleges Unum breached the policy and the covenant of good faith by terminating his benefits and then reinstating them one month later. Both parties have moved for summary judgment. As will be explained below, the safe-harbor regulation does not apply to Mathioudakis's policy. As a result, his claims under state law are preempted by ERISA.
I. Background
The facts are largely undisputed. In the late 1980s and early 1990s, Executive Financial Group, Inc. ("EFG") provided insurance services in Indianapolis, Indiana. (Filing No. 29-16, Deposition of Michael Mathioudakis ("Mathioudakis Dep.") at 15:25-16:1). Mathioudakis began working at EFG as a life insurance agent in 1988 and eventually became vice president. (Id. at 15:25-16:1; 42:17-19; see also Filing No. 29-5, Provident Policy and Application (the "Policy") at 32). Some time in 1990, Mathioudakis and Larry Doe, the owner of EFG, discussed purchasing disability insurance for Mathioudakis, Larry, and Lance—Larry's son who also worked at EFG. (Mathioudakis Dep at 63:8-12; 64:4-8). Mathioudakis researched different carriers, explored different policy options, and reported back to Larry. (Id. at 63:16-64:3; 73:8-15). Eventually, they agreed to obtain coverage from Provident based on cost. (Id. at 63:8-12; 64:1-3).
The parties omitted Larry and Lance's last name to protect their privacy.
Rather than purchase their own policies from Provident, however, they sought to purchase them as part of a group arrangement—through EFG—in order to receive a discounted premium rate. (Id. at 64:4-13). In these types of group arrangements, an insurer issues individual policies to a group of employees of a sponsoring employer. (Id. at 65:23-66:15; Declaration of Dawn Mugford ("Mugford Dec.") ¶ 4). The insurer assigns the employer a "risk group" number and issues individual policies to employees under this number. (Id. ). The individual policies contain discounted premium rates only available for those employer's employees. (Id. ).
EFG and Provident memorialized their arrangement by entering into a Salary Allotment Agreement on December 20, 1990. (Mugford Dec. ¶ 5; see also Filing No. 29-2, Salary Allotment Agreement). Under the agreement, Provident assigned EFG a risk number of 61935 and agreed to issue a single invoice to EFG for all three employees every billing period. (Mugford Dec. ¶¶ 5, 8, 10). Each policy Provident issued pursuant to the Salary Allotment Agreement received a fifteen to twenty percent discount on premium. (Id. ¶¶ 5, 8; Mathioudakis Dep. 65:9-12).
Mathioudakis asserts in his brief that the discount rate was actually ten percent. When deposed, however, he said the discount rate was fifteen to twenty percent.
Mathioudakis disputes that discount rates were not available to others but cites nothing in the record for that assertion. The court therefore accepts this fact as uncontradicted. See S.D. Ind. L.R. 56-1(e) and (f).
Even though Mathioudakis, Larry, and Lance obtained policies as a group, they still submitted individual applications and received individual policies. (Mugford Dec. ¶ 8). Mathioudakis applied for his policy on December 18, 1990. (Id. ¶ 6). On the application, he listed EFG as his employer and included EFG's risk number to ensure the policy would be eligible for a discount. (Id. ¶ 6). Provident issued the policy on January 8, 1991. (Policy at 11).
Mathioudakis left EFG on January 27, 1995, though he retained the policy which included the discount. (Mugford Dec. ¶ 12). In February of 2015, while working for his own company, Mathioudakis applied for disability benefits under the policy. (Filing No. 6, Answer ¶ 10). Unum initially found him disabled and began awarding him benefits. (Id. ). Later that year, in July, Unum determined that Mathioudakis was no longer disabled. (Id. ). Mathioudakis appealed that determination, but Unum upheld its prior decision. (Id. ¶ 11). One month after terminating benefits, it appears Unum found him disabled again in January of 2016 and continued benefits.
The court uses the word "appears" because Mathioudakis only seeks benefits for one month—December of 2015 (Filing No. 1-1, Complaint at 3, ¶ 14). That issue is not relevant now, however, since the parties’ motions for summary judgment address only whether the ERISA preempts Mathioudakis's claims—not the contours of Unum's denial.
II. Legal Standard
Summary judgment is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) ; Ashby v. Warrick County School Corporation , 908 F.3d 225, 230 (7th Cir. 2018). Although ordinarily a question of fact, whether a benefit plan is subject to ERISA is a proper question for the court at summary judgment when the underlying facts are not in dispute. See e.g. Cehovic-Dixneuf v. Wong , 895 F.3d 927, 928-30 (7th Cir. 2018) ; Postma v. Paul Revere Life Ins. Co. , 223 F.3d 533, 537-38 (7th Cir. 2000) ; McCann v. Unum Provident , 907 F.3d 130, 146-47 (3d Cir. 2018).
III. Discussion
Congress enacted ERISA to protect participants and ensure the proper administration of benefit plans. See generally Smith v. OSF HealthCare System , 933 F.3d 859, 862 (7th Cir. 2019) (discussing ERISA's purpose). Generally, a plan falls under ERISA when five elements are shown:
(1) a plan, fund, or program, (2) established or maintained, (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits, (5) to participants or their beneficiaries.
Cehovic-Dixneuf , 895 F.3d at 929 (quoting Postma , 223 F.3d at 537 ). All of those requirements are met here: Mathioudakis's policy was issued under the plan established and maintained by EFG for the purpose of providing disability benefits to Mathioudakis, Larry, and Lance. Mathioudakis does not challenge this conclusion.
Instead, he argues the safe harbor regulation exempts his policy from ERISA. Under the regulation, an employer benefit plan is excluded from ERISA when four elements are satisfied:
(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.
29 C.F.R. § 2510.3–1(j) (emphasis added). It is Mathioudakis's burden to show the safe harbor regulation applies. McCann , 907 F.3d at 143 (noting the party who asserts the safe harbor applies bears the burden of proof).
The court resolves this case on the third element: whether EFG endorsed the plan. An employer endorses a plan when it is significantly involved in creating or administering the plan. Id. ("[E]ndorsement exists where there is some showing of material employer involvement in the creation or administration of a plan."); Brundage-Peterson v. Compcare Health Services Ins. Corp. , 877 F.2d 509, 511 (7th Cir. 1989) ("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.").
Unum also insists that the participation in the policy was not voluntary and EFG made contributions. Since the court resolves the case on endorsement, the court need not reach these arguments.
Although a close call, the safe harbor regulation does not apply here because the undisputed facts show EFG endorsed Mathioudakis's policy. First, EFG specifically chose Provident to issue disability policies as part of a group arrangement to Mathioudakis, Larry, and Lance because Provident offered the best rates. (Mathioudakis Dep. 63:13-64:17). The employees were not "presented with a menu of options or free to select any insurer." McCann , 907 F.3d at 146. Second, EFG dictated the nature of the coverage and who was eligible participate in the program. Brundage-Peterson , 877 F.2d at 511 ; McCann , 907 F.3d at 146 ; see also Butero v. Royal Maccabees Life Ins. Co. , 174 F.3d 1207, 1213-14 (11th Cir. 1999) (finding employer endorsed benefit plan when it picked the sole insurer, decided key terms of coverage, deemed certain employees ineligible to participate, incorporated the policy terms into its summary plan; and retained the power to alter compensation reduction for tax purposes). Specifically, Mathioudakis requested coverage be placed "standard" and explained that the policies must be issued to all three employees or they would go with another carrier. (Filing No. 29-3, Letter from EFG to Provident on Dec. 19, 1990 ("If all three [applications for insurance by Larry, Lance, and Mathioudakis] are approved standard, all three policies will be placed. However, all three must be approved standard for this case to be placed. ")) (emphasis added); (Mathioudakis Dep. 91:8-16). When EFG chose the Provident and designated who was eligible for a particular type of coverage, EFG "strayed from the equilibrium of neutrality." McCann , 907 F.3d at 144. This is sufficient to show endorsement.
One of the three had a medical condition that would have required a higher premium. Mathioudakis explained in the letter to Provident that coverage must be standard for all three employees. Id.
The wrinkle in this case is that it was Mathioudakis who primarily corresponded with Provident, recommended obtaining coverage through Provident, and wrote to Provident dictating the terms of the policy. But he was doing so on behalf of EFG , not on behalf of himself. (Mathioudakis Dep. 91:17-19 (Q: But you were writing to Provident on behalf of the three of you as a group? A: That's correct.")).
Relying on Gooden v. Unum Life Ins. Co. of America , 181 F.Supp.3d 465 (E.D. Tenn. 2016), Mathioudakis argues that EFG did not endorse the program, because EFG was not substantially involved in administering the program. But the situation was considerably different in Gooden . There, the employer allowed an insurance agent to come into a physician clinic to meet with physicians regarding their insurance needs. Id. at 468. It did not "contract with [the agent] to sell individual Unum policies, did not advertise Unum policies, and did not include in brochures or employee handbooks any mention of individual Unum policies." Id. Here, by contrast, EFG specifically chose Provident, contracted with Provident under the Salary Allotment Agreement, and determined who would be eligible for Provident's coverage. Cf. id. (although the agent spoke with certain physicians, the employer did not determine who received coverage). Even more, EFG demanded a particular type of coverage, or else it would have chosen another carrier. (Mathioudakis Dep. 91:8-16). The rationale in Gooden is not persuasive here. Mathioudakis next argues even if his policy started as an ERISA policy, changed circumstances have converted it to a non-ERISA one. See Weichand v. Guardian Life Ins. Co. of America , No. 3:06-cv-435, 2007 WL 2212844, at *6-7 (M.D. Pa. July 31, 2007) (construing ERISA policy as individual policy). But ERISA applies so long as the employer established the plan, even if it no longer maintains it. See 29 U.S.C. § 1002(1) (noting the terms "employee welfare benefit plan" and "welfare plan" mean any program established or maintained by an employer). This is explained aptly by then-district Judge Tinder:
[T]he fact that the statute defines an "employee welfare benefit plan" as being "established or maintained" (rather than, "established and maintained") by an employer, allows for a situation that exists here, where an employer "establishes" a plan, goes defunct, and many years later, the plan is still subject to ERISA.
Reber v. Provident Life & Acc. Ins. Co. , 93 F.Supp.2d 995, 1007 (S.D. Ind. 2000) (Tinder, J.). That reasoning applies with full force here.
IV. Conclusion
Because EFG endorsed the disability benefits program with Provident, the safe harbor regulation does not apply, and Mathioudakis's policy falls under ERISA. That means his claims under state law are preempted. Unum's Motion for Summary Judgment (Filing No. 28) is therefore GRANTED , and Mathioudakis's Motion for Summary Judgment (Filing No. 30) is DENIED .
SO ORDERED this 16th day of January 2020.