Opinion
No. 4:02-CV-0405-A
June 28, 2002
MEMORANDUM OPINION and ORDER
Came on for consideration the motion of plaintiffs, Harry W. White, Jr., ("Mr. White") and Kathleen White ("Mrs. White"), to remand and the motion of defendant Provident American Insurance Company ("PAIC") for summary judgment. The court, having considered the motions, the responses, the record, and applicable authorities, finds that plaintiffs' motion should be granted and that PAIC's motion should be denied.
I. Plaintiffs' Claims
On March 27, 2001, plaintiffs filed their original petition in the 271st Judicial District Court of Wise County, Texas. On April 26, 2002, PAIC filed its notice of removal along with the consent of defendants 2000 Insurance Concepts Agency, Inc., ("Insurance Concepts") and Diana Ruth Perkins ("Perkins"). There is no contention that the action was not timely removed. Removal was based on the alleged existence of an ERISA plan and the preemption of plaintiffs' claims in the underlying action.
In their second amended petition, plaintiffs allege that on or about July 1, 1998, Perkins, an insurance agent working for Insurance Concepts, sold Mr. White an insurance policy issued by PAIC for major medical health insurance effective July 1, 1998, and that Mr. White incurred charges for medical services and testing through June 1999 for which PAIC denied payment. Plaintiffs sue for breach of contract, violation of Article 21.21 of the Texas Insurance Code, violation of the Texas Deceptive Trade Practices — Consumer Protection Act, negligent misrepresentation, and common-law fraud.
Plaintiffs twice amended their petition while it was pending in the state court.
II. Grounds of the Motions
Plaintiffs contend that the court lacks subject matter jurisdiction because neither diversity nor federal question jurisdiction exists. Specifically, they contend that ERISA does not apply to their claims arising from the individual policy sold by defendants because plaintiffs are sole proprietors.
PAIC, on the other hand, contends that the summary judgment evidence establishes as a matter of law that the insurance plan at issue is an ERISA plan and that, consequently, plaintiffs' claims are preempted.
Because this action was removed, PAIC bears the burden of establishing original federal court jurisdiction. B., Inc. v. Miller Brewing Co. , 663 F.2d 545, 549 (5th Cir. 1981).
III. Underlying Facts
The facts pertinent to the motions are undisputed: Mr. White is a certified electrician and is married to Mrs. White. They live in Bridgeport, Texas, and are the owners of a sole proprietorship known as K W Electric. Since 1998, K W Electric has employed between seven and eleven employees. K W Electric provides health insurance benefits to its full-time employees. Mr. White makes all decisions with regard to the type of insurance benefits to be provided. From 1996 to 1998, American Medical provided health insurance coverage under a group insurance policy. From 1998 to 1999, PAIC provided health insurance by the issuance of individual policies issued to plaintiffs and their employees. K W paid all insurance premiums. Since 1999, health insurance has been provided to K W Electric's full-time employees under a group insurance policy.
IV. Law Applied to the Facts
The sole issue is whether ERISA applies to preempt the claims asserted by plaintiffs in this action. ERISA preempts state law claims that "relate to any employee benefit plan." 29 U.S.C. § 1144(a). At issue here is the "employee welfare benefit plan," which is defined to include:
Any plan, fund, or program . . . established or maintained by an employer . . . to the extent that such a 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, (A) medical, surgical, or hospital care or benefits . . . .29 U.S.C. § 1002(1) To satisfy the definition, the plan must (1) exist, (2) fall outside the safe harbor provisions established by the Department of Labor, and (3) satisfy the primary elements of an ERISA employee benefit plan — establishment or maintenance by an employer intending to benefit employees. Meredith v. Time Ins., Inc., 980 F.2d 352, 355 (5th Cir. 1993). A plan exists if a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits. Id. To fall within the safe harbor provision, the employer must not pay any of the premiums, participation by employees must be voluntary, the employer's role must be limited to collecting premiums and remitting them to the insurance company, and the employer must receive no profit from the plan. Id. And, to satisfy the primary elements of an ERISA benefit plan, a plan need only be established or maintained by an employer to benefit employees. Id.
The question of whether an employee benefit plan exists in this case is not a difficult one. Mr. White's deposition testimony establishes all the necessary elements of a plan. Although he and Mrs. White are sole proprietors, they established the plan to benefit their employees in addition to themselves. Id. at 358. Their argument that the policy at issue cannot be governed by ERISA because it contains an employer insurance disclaimer stating among other things that the policy "is an individual policy and not a group, blanket, franchise or Small Employer type coverage," that PAIC "assumes no responsibility for compliance with the Employee Retirement Income Security Act of 1974 and amendments thereto, nor does it maintain that the policy is designed or marketed to comply with the requirements contained therein," and that "this is an individual policy," Pls.' App. at 4, is not persuasive. See MDPhysicians Assocs., Inc. v. State Bd. of Ins. , 957 F.2d 178, 183 n. 7 (5th Cir. 1992) (ERISA coverage depends on whether a plan meets the statutory definition and not on the intent of the parties).
However, for the court to have jurisdiction, plaintiffs must have standing to sue as participants or beneficiaries of the ERISA plan. Vega v. Nat'l Life Ins. Servs., Inc. , 188 F.3d 287, 291 (5th Cir. 1999). The Fifth Circuit has held that the owner of a business cannot, for purposes of ERISA, simultaneously be an employer and employee. Id. at 292 (citing Meredith, 980 F.2d at 358). And, prevailing authority seems to be that they cannot be plan participants. Harris v. TMG Life Ins. Co., 915 F. Supp. 869, 871 (S.D. Tex. 1996) (citing cases). Nor can they be beneficiaries of the plan. Fugarino v. Hartford Life Acc. Ins. Co. , 969 F.2d 178, 185-86 (6th Cir. 1992); Harris v. TMG Life Ins. Co. , 915 F. Supp. 869, 871-73 (S.D. Tex. 1996). Thus, the court lacks jurisdiction of this action.
The court recognizes that ERISA did not have as a goal the protection of business owners and that as a result of the court's ruling in this case plaintiffs may be entitled to receive much more than they would have had ERISA applied to their claims. But, there is no indication that Congress intended to prohibit such a result.
V. ORDER
For the reasons discussed herein,
The court ORDERS that plaintiffs' motion to remand be, and is hereby, granted; that PAIC's motion for summary judgment be, and is hereby, denied; and that the above-captioned action be, and is hereby, remanded to the 271st Judicial District Court of Wise County, Texas, from which it was removed.
FINAL JUDGMENT
In accordance with the court's memorandum opinion and order of even date herewith,
The court ORDERS, ADJUDGES, and DECREES that the above-captioned action be, and is hereby, remanded to the 271st Judicial District Court of Wise County, Texas, from which it was removed. The court directs the Clerk to mail certified copies of this final judgment and of the memorandum opinion and order to the Clerk of the state court.