Opinion
Case No. 97-C-7958
March 2, 1999
MEMORANDUM OPINION AND ORDER
Plaintiff Patrick O'Reilly ("O'Reilly") brought suit in state court against Defendant Hartford Life and Accident Insurance Company ("Hartford") for failure to provide him disability benefits. Defendant removed the case to this court, claiming that the case arose under the Employee Retirement Income Security Act of 1974, ("ERISA"), 29 U.S.C. § 1001, et seq. O'Reilly then filed a motion to remand this suit to the Circuit Court of Cook County on the basis that the court lacks subject matter jurisdiction over the matter. For the reasons set forth below, the court denies plaintiff's motion.
Background
O'Reilly was an employee of Montgomery Ward Company, Inc. ("Ward"). Defendant Hartford underwrites and insures some of the disability benefits offered under the Montgomery Ward Company, Inc. Long Term Disability Plan ("Plan"). To participate in the program, employees elect coverage and pay the applicable premium. (Pl. Mot. to Remand, Ex. 1.) Employees receive benefits under the Plan from funds that are held in trust accounts. Funding of the trust accounts comes from three different sources: (1) employee contributions Ward deducts from employee paychecks; (2) a loan made to the account by Ward; and (3) investment income from investments of the trust account funds. (Def. Mem. at 10.) However, the Long-Term Disability Plan states that employees pay the cost of coverage. (Pl. Motion to Remand, Ex. 1.)
According to plaintiff, Hartford drafted the group insurance policy, which was then issued to Ward under a contractual agreement. (Pl. Motion to Remand at 10.) Hartford also makes all judgments regarding employee claims under the Plan, prepares claim forms, premium statements, and plan enrollment cards and pays benefits to employees. Plaintiff also states that any insurance claims must be submitted to Hartford, not Ward and that Hartford conducts any appeal of a decision to deny coverage or benefits. (Pl. Motion to Remand at 12.)
Defendant points out that Wards named the Plan after itself (Montgomery Ward Co., Inc. Long-Term Disability Plan), drafted the summary plan description at its own expense and distributed it to employees. Wards also contracted with Hartford, set up a trust account to fund the Plan, designated a "committee" the Plan administrator, and essentially obtained the group insurance policy for employees. (Def. Mem. at 10-11.) Ward employs a Benefits Department with thirteen full-time employees, retains an accountant to perform audits of the Plan and prepare financial statements, and files all necessary returns and schedules with the IRS. Defendant also notes that to receive coverage under the Plan, one must be a full-time, active Ward employee. (Def. Mem. at 10.) Compliance with ERISA is mentioned throughout the Plan.
Plaintiff O'Reilly was denied coverage by defendant, and he then brought suit against Hartford in state court raising state law claims. Defendant removed the suit to federal court on the grounds that the Plan in which O'Reilly was enrolled was an employee benefit plan within the meaning of ERISA. O'Reilly then petitioned the court to remand the case to state court on the ground that the group insurance was not an ERISA plan, but was exempt under the safe harbor provision and governed by state law.
Analysis
The issue before the court is whether defendant has established the requisite subject matter jurisdiction for the court to hear this case. As the party seeking to remove the case, Hartford carries the burden to establish that removal to federal court is proper and that the district court has jurisdiction. Wellness Community-National v. Wellness House, 70 F.3d 46, 49 (7th Cir. 1995). As there is no diversity of citizenship between the parties, the court need only examine whether the dispute falls within the original "federal question" jurisdiction of the federal courts. Federal question jurisdiction exists if the actions "arise under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331.
Generally, the court will look only to the well-pleaded complaint to ascertain whether the dispute arises under federal law.Caterpillar Inc. v. Williams, 482 U.S. 386, 392; 107 S.Ct. 2425, 2429 (1987). However, the court will also find federal question jurisdiction, where "`some substantial disputed question of federal law is a necessary element . . . of the well-pleaded state law claim' or the `claim is `really' one of federal law.'" Id. at 413.
In this case, to determine whether federal question jurisdiction exists, the court must determine whether the disputed insurance policy is governed under ERISA, or, as plaintiff claims, it is a "garden variety insurance policy" and is governed by state common law. Generally, "a suit for benefits allegedly due under an ERISA plan arises under ERISA, and therefore is removable to federal district court." Brundage-Peterson v. Compcare Health Services Ins. Corp., 877 F.2d 509, 510 (7th Cir. 1989) (citations omitted). Therefore, if the court finds that Ward's group insurance policy is an ERISA regulated welfare benefit plan, removal of claims directed against Hartford is proper and plaintiff's motion to remand must be denied.
In support of its motion to remand, plaintiff argues that the insurance policy at issue falls within a class of policies subject to the safe harbor exemption under ERISA. "The Seventh Circuit has held that coverage under ERISA should be liberally construed, while exemptions from ERISA should be applied narrowly." Bass v. Mid-America Co., Inc. , No. 95 C 1167, 1995 WL 622397 (N.D. Ill. Oct. 20, 1995) (citing Brundage-Peterson, 877 F.2d at 511). This exemption reads, in pertinent part,
In the alternative, plaintiff argues that the policy at issue is a "garden variety insurance policy." The court sees no discernable difference between this argument and plaintiff's contention that the policy falls within the ERISA safe harbor provision. As such, the court will consider its ruling as to the safe harbor provision dispositive of both arguments.
The terms `employee welfare benefit plan' and `welfare 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." 29 C.F.R. § 2510.3-1.
Defendant argues that because of the arrangement between Ward and Hartford, the resulting insurance plan fails to satisfy each of the safe harbor provision requirements. 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."Johnson v. Watts Regulator Co., 63 F.3d 1129, 1133 (1st Cir. 1995). A direct application of Section 2510 suggests that Hartford is correct. Just as in Brundage-Peterson, this is an intermediate case, making the court's determination a close call. However, contrary to plaintiff's assertions, the court finds that this Plan does not differ in any significant way from the plans at issue in other cases where the court found ERISA to govern the policy.
In Brundage-Peterson, the insurance plan at issue had: (1) a contractual agreement between the employer and insurance companies whereby the latter agreed to insure the former's employees; (2) a 30 day employee eligibility requirement; and (3) an employer contribution of a share of the employee's insurance premiums. The court held that this was an "intermediate case." Brundage-Peterson, 877 F.2d at 510.
Defendant first argues that although Ward did not pay employee premiums directly, it did make contributions toward payment of the premiums. When an employer "creates a contract with an insurer and pays its employees premiums" it has established an insurance plan under ERISA that falls outside the scope of the safe harbor provision. Postma v. Paul Revere Life Insurance Co., No. 95 C 6575, 1998 WL 641335, *4 (N.D. Ill. Sept. 10, 1998). Hartford posits that since the trust account that funded payment of the premiums was funded partially by a loan from Ward, the court should consider this loan an employer contribution. The court disagrees. Ward contracted with Hartford to offer insurance to its employees on the terms specified in the contract, but did not ultimately pay for the worker's share of insurance premiums. Ward did, however, by its loan, enable employees to enjoy a reduced premium. Ward also paid various administrative costs associated with publicizing the Plan. Still, these facts alone do not make Ward a contributor to the program under § 2510.
A closer question is whether the fact that the Plan itself "is intended to constitute a voluntary employees' beneficiary association" means that an employee organization has made a contribution under § 2510. A strict reading of the safe harbor provision suggests that as an association organized for the sole purpose of funding and administering an employee benefits plan, Ward's Plan would fall outside the scope of the provision. However, the court need not resolve this issue since other aspects of the Plan make it clear that it does need meet the requirements set forth in § 2510.
Defendant next contends that employee subscription to the policy was not voluntary. Hartford suggests that because the Plan at issue was the only insurance option Ward offered its employees and because employees received a significant economic benefit from electing for coverage under the Plan, the court should find that participation in the Plan was involuntary. The court believes Hartford stretches the notion of involuntariness a bit too far.
The fact that the Plan itself states that it is voluntary provides support for this conclusion. And while Ward did not offer employees a choice of plans, the court strains to see how any economic benefit the Ward Plan offered its employees (if indeed it was cheaper to enroll in the Ward Plan than any other outside program) renders participation in the insurance program involuntary under the safe harbor provision. Unlike the plans at issue in Brundage-Peterson, Collins, and Policandriotes v. Country Life Ins. Co. , it has not been established that the employer paid any portion of its employees' premiums. Brundage-Peterson, 877 F.2d at 510 (noting that "employer paid for worker's (but not dependants') share of the insurance premium); Collins, 1992 WL 92099 at *2 (holding that requiring employees to obtain coverage from particular insurer in order to have employer pay for it did not "leave the procuring of insurance entirely to each employee as Section 2510 contemplates); and Policandriotes v. Country Life Ins. Co., No. 91 C 5718, 1992 WL 97665, *3 (N.D. Ill. May 1, 1992) (finding that the employer paid the premium on behalf of employees and thus the plan fell outside the safe harbor).
Yet, while the Plan may appear to reside within the safe harbor of § 2510 upon review of the first two requirements, it fails to satisfy the third. To fall within the safe harbor exemption, the employer must play a minimal role in administration of the insurance plan. "If an employer plays an active role in the administration of an insurance package, the arrangement will be covered by ERISA. However, if an employer merely allows an insurer to offer a plan to its employees, the arrangement may avoid ERISA regulations." Lopez v. Guardian Life Insurance Co. of America, 834 F. Supp. 251, 253 (N.D. Ill. 1993). Defendant contends that Ward expressly endorsed the Plan and engaged in activities well outside the bounds of the administrative role prescribed in the safe harbor provision.
The Brundage court held that while the strongest case for safe harbor lies where "an employer offers no welfare benefit plan to its employees but leaves each employee free to shop around for his or her own . . . insurance. . . . [T]he employer could take a few steps beyond this and still remain outside the scope of the Act-such steps as distributing advertising brochures from insurance providers, or answering questions of its employees concerning insurance, or even deducting the insurance premiums from its employees' paychecks and remitting them to the insurers."Brundage-Peterson, 877 F.2d at 510.
The various steps Ward took to administer the Plan bring it well within the purview of ERISA regulations. Ward contracted with Hartford and designated only certain employees as eligible to participate in the plan. (Def. Mem., Ex. 2 3.) "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." Brundage-Peterson, 877 F.2d at 511. Ward also facilitated creation of the trust account. Kanne v. Connecticut General Life Insurance Co., 867 F.2d 489, 493 (9th Cir. 1988) (holding that where employer established plan as a trust entity, it was "more than a mere advertiser of group insurance"). It facilitated payment of the premiums and drafted the summary Plan description and distributed it to employees. In addition, Ward provided employees with newsletters and pamphlets on the Plan, embossed with the Ward logo. See Postma, 1998 WL 641335 at *4 (finding ERISA welfare benefit plan existed where employer distributed a company wide memorandum to describe insurance plan and offered orientation sessions to explain benefits). Further, a review of the Plan itself suggests that the employer expressed an intent to establish an ERISA plan and to comply with the provisions of ERISA. See Sofa v. Pan-American Life Insurance Co., 13 F.3d 239, 241 (7th Cir. 1994); Hollister v. Molander, 744 F. Supp. 846, 847 (N.D. Ill. 1990).
Taken as a whole, Ward's activities placed the Plan outside the bounds of a permissible administrative role and sailed it right out of the safe harbor. As such the court finds that ERISA applies to the Ward plan and concludes that O'Reilly's claims do arise under federal law. Therefore, removal is proper and plaintiff's motion to remand must be denied.
Conclusion
Thus, for the reasons set forth above, the court finds removal to this court is proper and denies plaintiff's motion to remand.