Alloco v. Metropolitan Life Ins. Co.

• Decision Date: 31 March 2003
• Docket Number: No. CIV.01-2220-PHX-ROS.,CIV.01-2220-PHX-ROS.
• Citation: 256 F.Supp.2d 1023
• Parties: Cynthia ALLOCO and Ralph Alloco, wife and husband, Plaintiffs, v. METROPOLITAN LIFE INSURANCE COMPANY, a foreign corporation, Defendant.
• Court: U.S. District Court — District of Arizona

256 F.Supp.2d 1023

Cynthia ALLOCO and Ralph Alloco, wife and husband, Plaintiffs, v. METROPOLITAN LIFE INSURANCE COMPANY, a foreign corporation, Defendant.

No. CIV.01-2220-PHX-ROS.

United States District Court, D. Arizona.

March 31, 2003.

COPYRIGHT MATERIAL OMITTED

Stephen C Ryan, Esq, Stephen C Ryan PC, Scottsdale, for Cynthia Allocco, wife, Ralph Allocco, husband, plas.

Robert Clifford Hackett, Esq, Daniel Paul Beeks, Esq, Mohr Hackett Pederson Blakley & Randolph PC, Phoenix, for Metropolitan Life Insurance Company, a foreign corporation, dft.

ORDER

SILVER, District Judge.

Pending before the Court is Defendant's Motion for Partial Summary Judgment on All Claims Relating to Long Term Disability Benefits [Doc. # 19], filed March 15, 2002. Plaintiff submitted a Response [Doc. # 25] on April 22, 2002, and Defendant filed a Reply on May 17, 2002 [Doc. # 27]. For the following reasons, partial summary judgment will be granted for Defendant on Plaintiffs claims relating to long term disability benefits.¹

I. Facts

The following facts are not in dispute. At all relevant times, Plaintiff Cynthia Allocco was employed as a telephone service center representative at American Express Travel Related Services, Inc. ("AMEX"). Defendant's Statement of Facts ("SOF") ¶ 1. Plaintiff was eligible, as an employee, for benefits under AMEX's group insurance benefit program ("benefits plan"). SOF ¶ 2. Relevant parts of the plan are administered by Defendant, Metropolitan Life Insurance Company. SOF ¶ 3. The benefit plan provided life insurance and business travel accident insurance to employees at AMEX's expense. SOF ¶ 8. The benefit plan also allowed certain employees, including Plaintiff, to enroll in a plan for long-term disability benefits ("LTD") at their own expense. SOF ¶¶ 3-6. Plaintiff paid premiums on her LTD coverage under the benefit plan. SOF ¶ 7.

In 2000 and 2001, Plaintiff and Defendant engaged in a series of disputes related to Plaintiffs alleged development of fibromyalgia and her subsequent requests for benefits. On May 9, 2000, Plaintiff submitted a claim for salary continuation benefits to AMEX. SOF ¶ 12. Defendant denied this application for benefits on June 20, 2000. SOF ¶ 3. On July 24, 2000, Plaintiff filed an administrative appeal with Defendant in accordance with the provisions of the benefit plan, and the appeal was denied on July 24, 2000. SOF ¶ 14. On about January 29, 2001, Plaintiff contacted Defendant and applied for LTD benefits due to her fibromyalgia. SOF ¶ 17. Defendant denied Plaintiffs claim for LTD benefits in a letter dated September 12, 2001. SOF ¶ 19, Exh. G to SOF. That letter informed Plaintiff that she could appeal the denial of her claim for LTD benefits within 60 days of receiving the notice of denial. SOF ¶ 20, Exh. G to SOF.

Plaintiff, however, never filed an appeal of the denial of her LTD benefits. SOF ¶ 21. On October 16, 2001, Plaintiff filed suit in state court, alleging claims for breach of contract and bad faith under state law. SOF ¶ 22, Exh. B to Notice of Removal. The state law suit was then removed to federal court on Nov. 14, 2001 (Doc. # 1). Defendant contends that her failure to appeal the denial of LTD benefits is dispositive of any claim based on LTD benefits.

II. Discussion

As an initial matter, Defendant contends that Plaintiffs LTD benefit plan is covered by the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001-1461 (ERISA), and that Plaintiffs state law claims for LTD benefits are preempted by ERISA. Concomitantly, Defendant contends that Plaintiff failed to exhaust her administrative appeals pursuant to ERISA, requiring that her claim for LTD benefits be dismissed.

Three issues must be resolved: first, whether the LTD plan is covered by ERISA; second, whether ERISA preempts Plaintiffs state law causes of action; and third, if her claims are governed by ERISA, whether Plaintiff has failed to exhaust her remedies under ERISA.

A. Is the plan covered by ERISA?

Whether Plaintiffs LTD benefit plan is an "employee benefit plan" is defined by ERISA. "ERISA defines an 'employee benefit plan' to include, among others, ` 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 ... medical, surgical, or hospital care or benefits." Stuart v. UNUM Life Ins. Co. of America, 217 F.3d 1145, 1149 (9th Cir.2000) (quoting Quails ex rel. Quails v. Blue Cross of California, Inc., 22 F.3d 839, 843 (9th Cir.1994); 29 U.S.C. §§ 1002(1), (3)). Also, "[t]he existence of an ERISA plan is a question of fact, to be answered in light of all the surrounding circumstances from the point of view of a reasonable person." Stuart, 217 F.3d at 1149 (quoting Zavora v. Paul Revere Life Ins. Co., 145 F.3d 1118, 1120 (9th Cir.1998)).

A benefit plan can fall outside the coverage scope of ERISA if it meets the four requirements under the Department of Labor's "safe harbor" regulation, 29 C.F.R. § 2510.3-l(j). These four requirements are:

(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 of 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 due checkoffs.

Id.; Stuart, 217 F.3d at 1149. See also The Meadows v. Employers Health Ins., 826 F.Supp. 1225, 1228 (D.Ariz.1993). Moreover, "an employer's failure to satisfy just one requirement of the safe harbor regulation conclusively demonstrates that an otherwise qualified group insurance plan is an employee welfare benefit plan under ERISA." Stuart, 217 F.3d at 1151-2. See also The Meadows, 826 F.Supp. at 1228 ("behavior inconsistent with any one of the four criteria constitutes evidence of the establishment of an ERISA plan").

In this case, Plaintiff contends that her LTD benefit plan was not covered by ERISA. Plaintiff notes that she paid her own premiums on the LTD benefit plan, and participation was voluntary, which meets at least the first two prongs of the safe harbor requirement. Plaintiffs argument fails, however, for two reasons. First, the LTD benefit plan cannot be viewed in isolation from the overall benefit plan provided by AMEX, which clearly is an ERISA plan. Second, the LTD plan does not meet the requirements of the third prong of the safe harbor regulation.

First, other circuits have specifically held that particular components of an employee benefit plan cannot be "severed" for purposes of determining whether the plan meets the safe harbor requirements. In Gaylor v. John Hancock Mutual Life Ins. Co., 112 F.3d 460 (10th Cir.1997), the Tenth Circuit considered an analogous case where the plaintiff purchased optional disability coverage without contribution from her employer. However, because the plaintiff had enrolled in an accidental death and dismemberment plan where the employer did contribute, the Court evaluated the "employee welfare benefit plan" as a whole. The Court held that, "[f]or purposes of satisfying the safe harbor provision, [the plaintiff] attempts to sever her optional disability coverage from the rest of the benefits she received through her employer's plan. ` This cannot be done because the [optional] coverage was a feature of the Plan, notwithstanding the fact the cost of such coverage had to be contributed by the employee.'" Gaylor, 112 F.3d at 463 (quoting Smith v. Jefferson Pilot Life Ins. Co., 14 F.3d 562, 567 (11th Cir.1994)). The Seventh Circuit has also recently adopted this approach. See Postma v. Paul Revere Life Ins. Co., 223 F.3d 533, 538 (7th Cir.2000) ("For purposes of determining whether a benefit plan is subject to ERISA, its various aspects ought not be unbundled.").

Without addressing this precise situation, the Ninth Circuit has held that courts should look at an employer's benefit program as a whole to determine if the plan is covered by ERISA. In Peterson v. American Life & Health Ins. Co., 48 F.3d 404 (9th Cir.1995), the Court considered an employer plan where only one partner was the only employee covered by a particular policy. ERISA does not cover an employer plan where the only beneficiary is a partner in a partnership, but the Court evaluated the employer program, which also covered other employees under separate policies, in its entirety. The Court found the features of one component of the plan "not determinative," concluding that "the [partner's] policy was just one component of [the employer's] employee benefit program and that the program, taken as a whole, constitutes an ERISA plan." Peterson, 48 F.3d at 407. The Ninth Circuit's approach therefore is consistent with that of other circuits that evaluate the "employee benefit program ... as a whole." Significantly, Plaintiff does not dispute that AMEX's overall benefit plan is covered by ERISA and does not meet the safe harbor requirements.²

Moreover, even standing alone, Plaintiffs LTD benefit plan does not satisfy the third prong of the safe harbor requirements. The third prong narrowly limits the employer's involvement in an employee benefit plan to a few administrative functions, "without endorsing the plan." Stuart, 217 F.3d at 1149. Here, the undisputed facts show that AMEX participated in the administration of the LTD benefits to a material extent bringing the Plaintiffs plan outside the scope of the safe harbor.

First, AMEX designated the...