Gahn v. Allstate Life Ins. Co.

• Decision Date: 26 March 1991
• Docket Number: No. 90-4308,90-4308
• Citation: 926 F.2d 1449
• Parties: 13 Employee Benefits Ca 1789 Sally GAHN, Plaintiff-Appellant, v. ALLSTATE LIFE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1449

926 F.2d 1449

13 Employee Benefits Ca 1789

Sally GAHN, Plaintiff-Appellant, v. ALLSTATE LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 90-4308.

United States Court of Appeals Fifth Circuit.

March 26, 1991.

Joseph T. Dalrymple, Rivers, Beck & Dalrymple, Alexandria, La., for plaintiff-appellant.

Robert G. Nida, Gold, Simon, Weems, Bruser, Sharp, Sues & Rundell, Alexandria, La., for defendant-appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before THORNBERRY, JOHNSON, and DAVIS, Circuit Judges.

THORNBERRY, Circuit Judge:

The appellant, Sally Gahn, was an employee in her husband's business and was covered by a group health insurance policy purchased from the appellee, Allstate Life Insurance Company (Allstate). After she was diagnosed with liver cancer, Allstate increased the premiums and ultimately cancelled the policy. Mrs. Gahn sued Allstate, arguing that the cancellation violated Louisiana law. The district court granted summary judgment in favor of Allstate. Because we find no evidence in the record to support the court's conclusion that the policy was an employee benefit plan, as defined by the Employee Retirement Income Security Act of 1974, or that the insurance contract gave Allstate the right to discontinue Mrs. Gahn's coverage, we REVERSE and REMAND.

I. FACTS AND PROCEDURAL HISTORY

On October 1, 1986, Homer Gahn, owner of Homer Gahn's Trophies & Gifts, purchased a group health insurance policy from Allstate to cover himself and his employees, who consisted only of his wife, Sally, and their two sons. Allstate provided the insurance through a multiple employer trust, the First Insurance Trust. By naming the multiple employer trust as the policyholder, Allstate was able to provide a group insurance rate for employers like Mr. Gahn with too few employees to qualify for group rates on their own.

Homer Gahn's initial premium under the 1986 policy was $287.57 per month, and the policy provided unlimited coverage for major medical expenses. In October 1987, Sally Gahn was diagnosed with liver cancer. Previously she had suffered from breast cancer, but it was in remission when her husband purchased the policy from Allstate. One year later, October 1, 1988 Allstate increased the Gahns' premiums to $1,189.50 per month and set a ceiling on major medical coverage at $1 million. Homer Gahn paid the higher premiums.

The provisions of the group policy allowed Allstate to terminate coverage "on any premium due date after the first policy anniversary," provided that the policyholder was notified of the cancellation in writing at least sixty days in advance. See Allstate Group Insurance Benefit Booklet (the "Insurance Plan"), Plaintiff's Exhibit 6, at 6. On March 15, 1989, Allstate notified Mr. Gahn that it was cancelling the policy effective October 1, 1989. The cancellation left Mrs. Gahn without any insurance for medical expenses she incurred for treatment of her liver cancer after that date.

On July 11, 1989, Sally Gahn sued Allstate in Louisiana state court to enforce her rights under the policy. She based her right to recover on two theories: first, that the Louisiana Insurance Code prohibited Allstate from discontinuing her coverage after she was diagnosed with a terminal illness; and second, that even if the Insurance Code allowed Allstate to terminate coverage, Louisiana's "abuse of rights doctrine," a civil law concept, prohibited Allstate from exploiting this right. Allstate argued that the group policy was an "employee benefit plan" covered by the Employee Retirement Income Security Act of 1974 (ERISA), codified in 29 U.S.C.A. Secs. 1001-1461 (West 1985 & Supp.1990), and removed the case to federal court on the basis of federal question and diversity jurisdiction. There, it maintained that Louisiana law permitted it to terminate Mrs. Gahn's coverage and that her "abuse of rights" theory was preempted by ERISA. Both sides moved for summary judgment.

The district court granted Allstate's motion for summary judgment and dismissed the case. First, the court determined that the group policy was an employee benefit plan and, therefore, that Mrs. Gahn's "abuse of rights" theory was preempted by ERISA. Second, the court held that, under the Louisiana Insurance Code, Allstate was free to cancel Mrs. Gahn's coverage. Although it cited the relevant statute, see La.Rev.Stat.Ann. Sec. 22:213(B)(7) note (West Supp.1990) (amended 1989), the court gave no reasons for its interpretation of that law, see District Court Ruling at 7, reprinted in Record on Appeal at 72, 78. Mrs. Gahn argues that both determinations by the district court were erroneous.

II. DISCUSSION

A. Standard of Review

We use the same standard that the district court applied to determine whether the evidence supports a summary judgment in Allstate's favor. See Fed.R.Civ.P. 56(c); Morales v. Pan Am. Life Ins. Co., 914 F.2d 83, 85 (5th Cir.1990). We can affirm the judgment only if there is no genuine issue of material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

B. ERISA Preemption

Our first task is to determine whether the district court properly concluded that Mr. Gahn's policy with Allstate was an ERISA plan. Whether an ERISA plan exists is a question of fact. See Wickman v. Northwestern Nat'l Ins. Co., 908 F.2d 1077, 1082 (1st Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 581, 112 L.Ed.2d 586 (1990).

An ERISA plan is any employee welfare benefit plan that is "established or maintained by an employer" engaged in commerce, which "provid[es] 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...." See ERISA, Secs. 3(1), 4(a)(1), 29 U.S.C.A. Secs. 1002(1), 1003(a)(1) (West 1985 & Supp.1990). Although the benefits of her husband's policy are consistent with the definition of an employee benefit plan, Mrs. Gahn contends that her husband did not "establish" or "maintain" the plan.

Mr. Gahn purchased his group insurance policy from Allstate, which named the First Insurance Trust as the policyholder. In explaining why the policy issued to Homer Gahn's trophy shop was an employee welfare benefit plan, the district court focussed on the relationship between Allstate and the First Insurance Trust:

[T]he First Insurance Trust engages in no business except that of being policy holder for a group policy issued to it by Allstate to provide coverage to small employers. Neither the First Insurance Trust nor the trustee can choose an insurer or purchase insurance for any participating employer or employee. All applications for coverage under the policy issued to the trust are made by the employer directly to Allstate. All premiums are billed by Allstate and remitted by the employer directly to Allstate and not to the trustee of the First Insurance Trust. Furthermore, the policy itself indicates the group insurance was purchased to cover employees of the company; the fact that the employees are family members does not change the analysis.

District Court Ruling at 6. The judge relied on Davis v. Time Ins. Co., 698 F.Supp. 1317, 1320 (S.D.Miss.1988), as the model for the findings he needed to make.

But the district court misdirected its analysis. Even though the First Insurance Trust was the policyholder, the trust itself was not established or maintained by an employer, and, therefore, is not an employee welfare benefit plan. See Taggart Corp. v. Life and Health Benefits Admin., Inc., 617 F.2d 1208, 1210 (5th Cir.1980), cert. denied, 450 U.S. 1030, 101 S.Ct. 1739, 68 L.Ed.2d 225 (1981); Donovan v. Dillingham, 688 F.2d 1367, 1372 (11th Cir.1982). Thus, the nexus between Allstate and the trust is only marginally relevant to determining whether Mr. Gahn "established or maintained" an employee benefit plan when he purchased the policy from Allstate. To make that determination, the court should have focussed on the employer, Mr. Gahn, and his involvement with the administration of the plan. See Memorial Hosp. System v. Northbrook Life Ins. Co., 904 F.2d 236, 243 (5th Cir.1990) (analyzing the "employer-employee-plan relationship" to decide whether a corporation had established an ERISA welfare benefit plan); Taggart, 617 F.2d at 1211 (noting that ERISA does not regulate the purchase of health insurance if "the purchasing employer neither directly nor indirectly owns, controls, administers or assumes responsibility for the policy or its benefits"); Foxworth v. Durham Life Ins. Co., 745 F.Supp. 1227, 1230 (S.D.Miss.1990).

To decide whether an employer has "established or maintained" an employee benefit plan, covered by ERISA, a court in this circuit must conduct two inquiries. First, it must apply the safe-harbor provision that has been prescribed by the Secretary of Labor. See 29 C.F.R. Sec. 2510.3-1(j) (1990); see also ERISA, Sec. 505, 29 U.S.C.A. Sec. 1135 (West 1985) (authorizing the Secretary to promulgate regulations interpreting ERISA). Under that provision, Mr. Gahn's policy was not a statutory employee welfare benefit plan if (1) Mr. Gahn, as an employer, did not contribute to the plan; (2) participation by his family in the plan was voluntary; (3) Mr. Gahn's involvement in the plan was limited to collecting premiums and remitting them to Allstate, and to permitting Allstate to advertise the plan; and (4) Mr. Gahn received no profit from administering the plan. See 29 C.F.R. Secs. 2510.3-1(j)(1)-(4). The group insurance plan must meet all four criteria in order to be exempt from ERISA. See Memorial Hosp., 904 F.2d at 241 n. 6.

If a plan does not qualify for exemption from ERISA coverage under the safe-harbor provision of section 2510.3-1(j), the court must decide whether, " 'from the surrounding circumstances[,] a reasonable person can ascertain the...