Agrawal v. Paul Revere Life Ins.

• Decision Date: 02 November 1999
• Docket Number: No. 98-4260,98-4260
• Citation: 205 F.3d 297
• Parties: (6th Cir. 2000) Satendra K. Agrawal; Satendra K. Agrawal, M.D., Inc., Plaintiffs-Appellants, v. Paul Revere Life Insurance Company, Defendant-Appellee. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 297

205 F.3d 297 (6th Cir. 2000)

Satendra K. Agrawal; Satendra K. Agrawal, M.D., Inc., Plaintiffs-Appellants, v. Paul Revere Life Insurance Company, Defendant-Appellee.

No. 98-4260

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: November 2, 1999

Decided and Filed: February 18, 2000

Appeal from the United States District Court for the Northern District of Ohio at Toledo; No. 97-07575--James G. Carr, District Judge.

William H. Bartle, Margaret M. Murray, W. Patrick Murray, MURRAY & MURRAY, Sandusky, Ohio, for Appellants.

William R. Ellis, Carl J. Schmidt, William C. Price, WOOD & LAMPING, Cincinnati, Ohio, for Appellee.

Before: MARTIN, Chief Judge; DAUGHTREY, Circuit Judge; HILLMAN, District Judge.^*

OPINION

BOYCE F. MARTIN, JR., Chief Judge.

Dr. Satendra K. Agrawal and Satendra K. Agrawal, M.D., Inc. appeal the district court's grant of summary judgment in favor of Paul Revere Life Insurance Company. The district court held that the plaintiffs' state law claims arising from multiple disability insurance contracts were preempted by the Employee Retirement Income Security Act and that the plaintiffs had standing to pursue civil remedies under ERISA. For the following reasons, we reverse.

I.

On September 16, 1991, Dr. Satendra K. Agrawal and Satendra K. Agrawal, M.D., Inc. acquired three long-term disability insurance policies from Paul Revere Life Insurance Company. Dr. Agrawal is the sole shareholder of Agrawal, Inc. Dr. Agrawal's occupation is that of a cardiovascular and thoracic surgeon. At the time of coverage, Agrawal, Inc. had at least two employees other than Dr. Agrawal.

Of the three policies purchased, two were individual policies. The first policy was an individual disability policy that listed Dr. Agrawal as both the insured and the owner. It also stated that all coverage would be paid for by Dr. Agrawal's employer. The second individual policy was a disability income policy for business overhead expenses. This policy insured Dr. Agrawal, but was owned and paid for by Agrawal, Inc.

The third policy purchased by Agrawal, Inc. was a group disability policy that covered Dr. Agrawal and other employees. Paul Revere canceled this group policy in 1995 because the policy required a minimum of two covered employees and no employees other than Dr. Agrawal were eligible for coverage.

On February 15, 1992, Dr. Agrawal sustained a knee injury while skiing and had to undergo medical treatment. Dr. Agrawal's activities as a surgeon were limited because he was unable to stand through prolonged surgeries. From August 1992 until January 1993, Dr. Agrawal and Agrawal, Inc. received total disability benefits from Paul Revere. Plaintiffs then informed Paul Revere that Dr. Agrawal would return to work on a part-time basis. Paul Revere began to limit payments to residual disability benefits. Paul Revere paid residual disability benefits for a period of more than two years. In January 1996, Paul Revere determined that Dr. Agrawal was no longer residually disabled and discontinued payments under the insurance policies.

On July 14, 1997, Dr. Agrawal and Agrawal, Inc. filed a complaint in Ohio state court based on the two individual policies. Paul Revere properly removed the case to federal court, filed a counterclaim based on the group policy, and later moved for summary judgment. The district court granted Paul Revere's motion for summary judgment on the basis that plaintiffs' state law claims relate to an employee benefit plan and, therefore, are preempted by the Employee Retirement Income Security Act.

II.

We review the district court's grant of summary judgment de novo. See Smith v. Wal-Mart Stores, Inc., 167 F.3d 286, 289 (6th Cir. 1999). Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).

ERISA Preemption

The Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq., is the comprehensive federal law governing employee benefits. If an insurance policy is part of an employee welfare benefit plan governed by ERISA, then a plaintiff's state law claims relating to that policy are preempted and federal law applies to determine recovery. See Thompson v. American Home Assurance Co., 95 F.3d 429, 434 (6th Cir. 1996) (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56-57 (1987)).

In the present case, we must decide whether the three policies sold by Paul Revere to the plaintiffs satisfy the definition of an ERISA plan. The parties agree that the group disability policy was an employee welfare benefit plan under ERISA. The parties, however, dispute whether the business overhead expense policy and Dr. Agrawal's individual policy were ERISA plans.

An "employee welfare benefit plan" is defined as "any plan, fund, or program . . . 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, or benefits in the event of sickness, accident, disability, death or unemployment . . . ." 29 U.S.C. § 1002(1). In Thompson v. American Home Assurance Co., 95 F.3d 429 (6th Cir. 1996), we set out a three-step factual analysis for determining whether a benefit plan satisfies the statutory definition. First, we apply the Department of Labor "safe harbor" regulations to determine whether the program is exempt from ERISA. See id. at 434. Second, we determine if a "plan" existed by inquiring whether "'from the surrounding circumstances a reasonable person [could] ascertain the intended benefits, the class of beneficiaries, the source of financing, and procedures for receiving benefits.'" Id. at 435 (quoting International Resources, Inc. v. New York Life Ins. Co., 950 F.2d 294, 297 (6th Cir. 1991)). Third, we ask whether the employer established or maintained the plan with the intent of providing benefits to its employees. See id.

In the present case, the first factor is satisfied. The parties agree that the policies are not exempt from ERISA via the "safe harbor." Two of the policies satisfy the second factor, because the delivery of disability benefits to Agrawal, Inc. employees, as funded by Agrawal, Inc., is evident from the group policy and Dr. Agrawal's individual policy.

The final policy, the business overhead expense policy, fails this second requirement. The policy does not fit neatly into a plan for providing disability benefits to employees. The purpose of the overhead policy was to provide the corporation with monthly operating expenses (i.e. rent, wages, fixed costs) in the event that Dr. Agrawal was disabled. This differs from the goal of the other policies and the nature of the benefits provided through them. In Stanton v. Paul Revere Life Insurance Co., 37 F. Supp. 2d 1159 (S.D. Cal. 1999), the district court examined the exact same business overhead expense policy in a factual setting very similar to the present case. That court concluded that the overhead policy was not an ERISA plan because the policy did not provide employee welfare benefits, 37 F. Supp. 2d at 1161-62:

Plaintiff asserts that he purchased the [business overhead expense] policy because his ability to conduct a profitable business turned on his ability to perform surgery. Should he suffer a disability grave enough to prevent him from performing surgery, [plaintiff] knew certain expenses -- leases, medical malpractice insurance, medical supplies, salaries, and office equipment -- would be ongoing. Two undisputed facts support these assertions. First, [plaintiff] has other personal disability insurance through another insurance company. Second, the [business overhead expense] policy was only for a two-year period. Common experience adds credibility to these factual assertions. Such an insurance arrangement is not uncommon for a corporation to have for key employees. Finally, on its face, a "business income overhead policy" has very little to do with employee welfare.

The overhead policy did not provide employees or their beneficiaries with welfare benefits; rather, it provided operating expenses to the corporation. Providing the corporation with funds to pay wages differs from providing income directly to an employee who is unable to work. Accordingly, we hold that the business overhead policy was not part of an ERISA plan.

To determine whether Dr. Agrawal's individual policy is an ERISA plan, we must examine the final Thompson factor. In Thompson, we did not explain or apply this requirement that the employer established or maintained the plan with the intent of providing benefits to its employees. This factor closely tracks the statutory language of 29 U.S.C. § 1002(1). It requires an initial showing that the employer established a plan meeting the definition of an "employee benefit plan" and a showing that the employer established the plan with the intent of providing welfare benefits to the employees.

An employee benefit plan exists only when employees other than the sole owner of a business are covered under the plan. See 29 C.F.R. § 2510.3-3(b)-(c)(1). See also Fugarino v. Hartford Life & Accident Ins. Co., 969 F.2d 178, 185 (6th Cir. 1992). As stated above, the parties do not dispute that the group policy is an employee benefit plan; they do dispute, however, whether Dr. Agrawal's individual policy is an employee benefit plan. Because Dr. Agrawal's individual policy covers only Dr. Agrawal, the sole owner of Agrawal, Inc., this policy, standing alone, cannot be an ERISA plan. To counter this position, Paul Revere asserts that the plan at issue is broader than the individual disability policy; Paul Revere defines the ERISA plan as an umbrella of disability coverage consisting of all three policies purchased by the plaintiffs.

We must determine what constitutes the "plan" at issue. Because we have eliminated the business overhead expense...