Harvey v. Life Ins. Co. of North America

• Decision Date: 13 December 2005
• Docket Number: No. 5:05-CV-84-JMH.,5:05-CV-84-JMH.
• Citation: 404 F.Supp.2d 969
• Parties: William HARVEY, Plaintiff, v. LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

404 F.Supp.2d 969

William HARVEY, Plaintiff, v. LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant.

No. 5:05-CV-84-JMH.

United States District Court, E.D. Kentucky, At Lexington.

December 13, 2005.

COPYRIGHT MATERIAL OMITTED

M. Austin Mehr, Timothy Elijah Geertz, Austin Mehr Law Offices, P.S.C., Lexington, KY, for Plaintiff.

Jill Maria Fraley, Lindsey W. Ingram, III, Stoll, Keenon & Park, LLP, Lexington, KY, for Defendant.

MEMORANDUM OPINION AND ORDER

HOOD, District Judge.

Before the Court is the plaintiff's motion to remand [Record No. 13]. The defendant responded and the plaintiff replied. The matter is now ripe for review.

Factual Background

Plaintiff, a former equipment design manager at Osram Sylvania, Inc. ("Sylvania"), filed a complaint in Scott Circuit Court against the defendant, Life Insurance Company of North America ("LINA"), for nonpayment of long-term disability insurance. Sylvania made available to its employees long-term group disability insurance, policy number LK-30043, that was paid for by the employees. Sylvania also offered short-term disability insurance, policy number LK-30044, that was paid by Sylvania. Sylvania's insurance carrier for both policies was LINA. Plaintiff voluntarily purchased the long-term disability insurance offered by Sylvania.

Plaintiff's complaint states that he applied for and received short-term disability benefits after removal of a herniated disc. Plaintiff then applied for long-term benefits, but LINA denied his application. During the administrative appeal process, LINA asserted that the plaintiff was denied benefits because the submitted medical information supported that the plaintiff was able to continue in his occupation through the applicable waiting period.

Plaintiff's complaint states claims against LINA for 1) wrongful denial of benefits pursuant to the insurance policy, 2) bad faith denial, and 3) breach of fiduciary duty. The complaint states, "The policy at issue does not meet the qualifications of an Employee Retirement Income Security Act ["ERISA"] plan." (Pl.'s Compl. at ¶ 17.) It also states, "In the alternative to allegation number 17, the actions of the [d]efendant violate [ERISA] and the provisions set forth in the summary plan description provided to Plaintiff, with said violations constituting a breach of fiduciary duty." (Id. at ¶ 18.)

On March 4, 2005, LINA removed the action to this Court arguing that "the Complaint attempts to state a claim for the recovery of benefits under ERISA or to enforce alleged rights under an employee benefits plan." (Def.'s Notice of Removal at ¶ 9.) LINA argues that ERISA provides United States district courts with exclusive jurisdiction over violations of ERISA and that although not stated specifically, Plaintiff's complaint essentially sets forth a violation of section 1132(a)(1)(B) for wrongful denial of ERISA-governed employee welfare benefits. Thus, the defendant argues, the action is removable pursuant to §§ 1441(a), 1331, and 1337(a), because it arises under the laws of the United States.

Plaintiff's motion to remand argues that the defendant has failed to show that the policy at issue is part of an ERISA plan and, therefore, the complaint does not state any claims that arise under ERISA.

Standard of Review

Removal to federal court from state court is proper for "[a]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction[.]" 28 U.S.C. § 1441(a). The defendants argue that the Court has original jurisdiction pursuant to 28 U.S.C. § 1331 because the complaint states claims that arise under federal law.

According to the well-pleaded complaint rule, the face of Plaintiff's complaint must state claims that arise under federal law in order for federal courts to have jurisdiction pursuant to section 1331. Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 10, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). Plaintiff's cause of action arises under federal law if "federal law creates the cause of action", Id. at 27-28, 103 S.Ct. 2841, or, if the action is a state claim, "when Congress expressly so provides, ... or when a federal statute wholly displaces the state-law cause of action through complete pre-emption."¹ Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 8, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003). For purposes of removal, if there is complete pre-emption, then the state law complaint is converted to one arising under federal law and satisfying the well-pleaded complaint rule. Caterpillar, Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987).

The fact that there is a pre-emption defense, by itself, does not transform a state action to a federal action for purposes of subject matter jurisdiction. Id. at 393, 107 S.Ct. 2425. In fact, "preemption and complete preemption are distinguishable concepts." Wright v. GMC, 262 F.3d 610, 614 (6th Cir.2001). Under ERISA's traditional pre-emption provision, section 1144, a state law claim is pre-empted by ERISA and, thus, foreclosed in either federal or state court, if the claim relates to matters governed by ERISA. Id.

A claim is completely pre-empted by ERISA, on the other hand, if the state law claim could be brought pursuant to ERISA's enforcement provision, section 1132(a)(1)(B). Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 65-67, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987) (holding that section 1132(a)(1)(B) of ERISA completely preempts state claims for improper processing of benefits under an ERISA plan). Section 1132 of ERISA provides,

(a) A civil action may be brought —

(1) by a participant or beneficiary —

(A) for the relief provided for in subsection

(c) of this section, or

(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;

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(c) Administrator's refusal to supply requested information; penalty for failure to provide annual report in complete form....

29 U.S.C. § 1132. Thus, in order to be completely pre-empted, the state law claim must be one to recover benefits due to the plaintiff under the policy, to enforce his rights under the policy, or to clarify rights to future benefits under the policy. Wright, 262 F.3d at 614. Complete pre-emption provides removal jurisdiction because the state law claims are re-characterized as claims arising under ERISA. Metro. Life, 481 U.S. at 64, 107 S.Ct. 1542.

Analysis

A. Wrongful Denial of Benefits and Breach of Fiduciary Duty Claims

The plaintiff argues that the long-term disability policy is not enforceable under section 1132 of ERISA and, thus, not completely pre-empted, because the policy at issue is not an ERISA welfare benefit plan. Pursuant to ERISA, "welfare benefit plans" are defined as follows:

1) The terms "employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such 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, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 186 of this title (other than pensions on retirement or death, and insurance to provide such pensions).

29 U.S.C. § 1002(c).

Plaintiff's state law claim for wrongful denial of benefits squarely falls within section 1132(a)(1)(B) of ERISA as a claim seeking to enforce rights under the terms of the plan and is completely preempted pursuant to Metropolitan Life if the long-term disability policy is an ERISA "employee welfare benefit plan." See Metro. Life, 481 U.S. at 65-67, 107 S.Ct. 1542 (holding that claim for wrongful denial of benefits fell was enforceable under section 1132(a)(1)(B) and was thus completely pre-empted by ERISA). The Sixth Circuit has extended the principle of Metropolitan Life to state law claims for breach of fiduciary duty, finding that these claims are also completely pre-empted. Smith v. Provident Bank, 170 F.3d 609, 613-14 (6th Cir.1999) (converting state law fiduciary duty claim into an ERISA claim under section 1132(a)(2)).

The Sixth Circuit developed a three-part test to determine whether a plan is considered an ERISA welfare benefit plan.

First, the court must apply the so-called safe harbor regulations established by the Department of Labor ["DOL"] to determine whether the program was exempt from ERISA. Second, the court must look to see if there was a plan 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. Finally, the court must ask whether the employer established or maintained the plan with the intent of providing benefits to its employees.

Thompson v. Am. Home Assurance Co., 95 F.3d 429, 434-35 (6th Cir.1996) (internal citations and quotations omitted). The DOL safe harbor exemptions that must be analyzed for the first prong of the Thompson test provide that an employee insurance policy is excluded from ERISA if:

(1) No contributions are made by an employer ...

(2) Participation in the program is completely voluntary for employees ...

(3) The sole functions of the employer ... with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees ..., to collect premiums through payroll deductions ... [,] and to remit them to the insurer; and

(4) The employer ... receives no consideration in the form of cash or...