Chamblin v. Reliance Standard Life Ins. Co.
| Decision Date | 05 October 2001 |
| Docket Number | No. C 99-2599 JL.,C 99-2599 JL. |
| Citation | 168 F.Supp.2d 1168 |
| Court | U.S. District Court — Northern District of California |
| Parties | Keith CHAMBLIN, Plaintiff, v. RELIANCE STANDARD LIFE INSURANCE COMPANY, et al. Defendants. |
Brian P. Evans, Brian P. Evans Law Offices, Walnut Creek, CA, for Keith Chamblin.
Bruce P. Loper, Lombardi, Loper & Conant, LLP, Oakland, CA, for Reliance Standard Life Ins. Co.
Defendant's Motion to Dismiss Plaintiff's second and fourth claims was heard on June 13, 2001. Brian P. Evans appeared on behalf of Plaintiff Keith Chamblin. Bruce P. Loper appeared on behalf of Defendant Reliance Standard Life Insurance Company.
Plaintiff's complaint alleges four causes of action: 1) Recovery of Policy Benefits, 2) Breach of Fiduciary Duty, 3) Declaratory Relief, and 4) Tortious Breach of Insurance Contract (bad faith).
IT IS HEREBY ORDERED that Defendant's Motion to Dismiss Plaintiff's second claim is denied. Defendant's motion to dismiss Plaintiff's fourth claim is granted.
The court finds that the Reliance Standard long-term disability policy was an insurance plan covered by the Employee Retirement Income Security Act (ERISA). 29 U.S.C. §§ 1001 et seq. ERISA includes a statutory provision for breach of fiduciary duty; therefore, Defendant's motion to dismiss Plaintiff's second cause of action is denied.
State common law causes of action arising from the improper processing of a claim made by a beneficiary of an ERISA benefit plan are preempted by federal law. Plaintiff's claims arising from delay in payment of his claim for disability benefits are claims for improper processing and therefore are preempted. Accordingly, Defendant's motion to dismiss Plaintiff's claim for tortious breach of an insurance contract is granted.
Plaintiff was employed by California Electric Service, which made available to its managerial employees a long-term group disability insurance policy from Defendant Reliance Standard Life Insurance ("Reliance"). In September 1997, while Plaintiff was on leave of absence for the birth of his child, he saw a doctor for a preexisting knee condition. Upon medical recommendation, he did not return to work at the end of his parental leave because his knee condition prevented him from performing his duties. Plaintiff filed a claim with Reliance for long-term disability benefits, and Reliance rejected his claim.
Plaintiff filed a Complaint on June 2, 1999 alleging four causes of action: 1) Recovery of Policy Benefits, 2) Breach of Fiduciary Duty, 3) Declaratory Relief, and 4) Tortious Breach of Insurance Contract (bad faith). On July 30, 1999, Defendant filed a Motion to Dismiss, claiming that all of Plaintiff's causes of action were preempted by ERISA. On September 9, 1999, Plaintiff filed a First Amended Complaint including the first and third of the above claims because he believed, based on facts he then knew, that the two state law claims were preempted by ERISA. After discovering more facts, on March 1, 2001, Plaintiff filed a Motion to Permit Filing of a Second Amended Complaint, incorporating all four of his original causes of action.
On April 16, 2001, the court granted Plaintiff's Motion to Permit Filing of the Second Amended Complaint, and on April 25, 2001, Plaintiff filed the Second Amended Complaint with all four causes of action. On May 7, 2001, Defendant Reliance filed its Motion to Dismiss Plaintiff's second and fourth claims as well as his claims for compensatory and punitive damages. Defendant's motion was heard on June 13, 2001.
Defendant argues that the Reliance long-term disability plan is governed exclusively by ERISA. Section 502 of ERISA authorizes a plan beneficiary to file an action to recover benefits. Defendant argues that Plaintiff's first and third claims, for Recovery of Benefits and Declaratory Relief, were not specifically pled under ERISA but were similar enough to claims allowable under § 502 of ERISA to be permitted. Defendant argues that Plaintiff's second and fourth claims, for Breach of Fiduciary Duty and Tortious Breach of an Insurance Contract, are state law claims preempted by § 514(a) of ERISA and that those two claims should be dismissed along with Plaintiff's accompanying claims for compensatory and punitive damages.
Plaintiff disputes Defendant's characterization of the Reliance policy and argues that the plan, in general, qualifies for the "safe harbor" exemption from ERISA. Plaintiff also argues that ERISA does not preempt his second and fourth claims because Congress intended to limit the reach of ERISA's preemption clause and that both federal and California law permit a cause of action for bad faith breach of an insurance contract.
Congress enacted ERISA in 1974 with the intent to "protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries." 29 U.S.C. § 1001(b). ERISA was Congress' response to the wide-scale expansion of private employer pension plans in the post-World War II era. Lawmakers sought to curb abuses in the administration and investment of the large volume of assets accumulated in the pension plans of their constituents. While the title of the Act conveys ERISA's original purpose, which was to regulate pension plans, ERISA applies as well to other employee benefits, including disability insurance provided by employers. 29 U.S.C. § 1002(1).
"For an employee welfare benefit plan or program to come within ERISA's sphere of influence, it must, among other things, be `established or maintained' by an employer, an employee organization, or both." Johnson v. Watts Regulator Co., 63 F.3d 1129, 1133 (1st Cir.1995).
To address the requirement that an ERISA plan be "established or maintained" by an employer, the Department of Labor created a four-pronged regulation to describe when a plan falls within the "safe harbor" exemption from ERISA coverage.
(1) The employer cannot contribute to the program.
(2) Employee participation must be completely voluntary.
(3) The employer may not endorse the program.
(4) The employer may not receive any consideration for its limited administrative involvement. See 29 C.F.R. § 2510.3-1(j).
To be exempt from ERISA, a plan must satisfy all four of the above prongs of the safe harbor provision. Stuart v. UNUM Life Ins. Co., 217 F.3d 1145, 1153 (9th Cir.2000).
The Reliance long-term disability plan meets only two of the four prongs of the safe harbor exemption. The employer, California Electric Service, did not contribute to the plan; nor did it receive compensation for its limited administrative role, satisfying two of the prongs. However, the plan was not completely voluntary because the employer guaranteed Reliance a minimum participation rate of 75 percent of the company's managers at the time of contracting for the policy, and the company met that level of participation. The employer also endorsed the Reliance plan by sending memos to encourage managerial employees to apply for and maintain coverage with Reliance; by negotiating the terms of the coverage with Reliance; and by identifying managers who were entitled to receive the coverage.
Because the Reliance plan was not completely voluntary, and because it was endorsed by the employer, the plan is not exempt from ERISA.
Defendant moved to dismiss Plaintiff's second claim for Breach of Fiduciary Duty, on grounds that ERISA preempts state law causes of action that are "related to" an ERISA-regulated employee benefit plan. In fact, breach of fiduciary duty is a cause of action provided by ERISA. Preemption is not at issue for this cause of action.
Under 29 U.S.C. § 1104(a), ERISA requires a fiduciary to discharge its duties "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use."
Because the Reliance long-term disability plan is covered by ERISA and because breach of fiduciary duty is a statutory provision of ERISA, Plaintiff's cause of action for breach of fiduciary duty is permissible. Defendant's Motion to Dismiss Plaintiff's second claim is denied.
Plaintiff's fourth cause of action is for Tortious Breach of Insurance Contract, a state law claim known as bad faith. ERISA preempts state law causes of action that are "related to" an ERISA-regulated employee benefit plan. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). There is, however, an exception to ERISA preemption of state law claims. Section 514 of ERISA includes a "savings" clause which exempts from the scope of preemption state laws that "regulate insurance."
ERISA's § 514(a) is a broad preemption provision intended to displace all state law claims that "relate to" an employee benefit plan. Metropolitan Life v. Massachusetts, 471 U.S. at 739, 105 S.Ct. 2380. The preemption clause itself was intended to be limited by ERISA's savings clause at § 514(b)(2). A portion of the savings clause preserves any state law "which regulates insurance, banking, or securities." Id.
[W]hile the general preemption clause broadly preempts state law, the savings clause appears broadly to preserve the States' lawmaking power over much of the same regulation. While Congress occasionally decides to return to the States what it has previously taken away, it does not normally do both at the same time.
Metropolitan Life, 471 U.S. at 740, 105 S.Ct. 2380.
The original intent of ERISA was to provide for federal regulation of pension plans; the Act...
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