Howard v. Gleason Corp., CIV-89-0129T.

• Decision Date: 19 July 1989
• Docket Number: No. CIV-89-0129T.,CIV-89-0129T.
• Citation: 716 F. Supp. 740
• Parties: Deborah C. HOWARD, Plaintiff, v. GLEASON CORPORATION and Alliance Tool Corporation, Defendants.
• Court: U.S. District Court — Western District of New York

716 F. Supp. 740

Deborah C. HOWARD, Plaintiff, v. GLEASON CORPORATION and Alliance Tool Corporation, Defendants.

No. CIV-89-0129T.

United States District Court, W.D. New York.

July 19, 1989.

Woods, Oviatt, Gilman, Sturman, and Clarke, Rochester, N.Y., for plaintiff.

Nixon, Hargrave, Devans & Doyle (Eugene Ulterino, of counsel), Rochester, N.Y., for defendants.

DECISION AND ORDER

TELESCA, Chief Judge.

INTRODUCTION

The plaintiff, Deborah Howard, is the widow of a former Alliance Tool Corporation ("ATC") employee. She is the beneficiary of two life insurance policies issued on her husband's life while he was employed by ATC. Subsequent to his death, her claims for the proceeds of both life insurance policies were denied because the policies had lapsed after her husband failed to convert them from group policies to individual policies upon his termination from ATC. Subsequently she commenced an action in New York Supreme Court, Livingston County, against ATC and its parent corporation, Gleason Corporation ("Gleason") claiming that the defendants breached their duty to timely notify her husband of his option to convert the group life insurance policies to individual policies as required by New York Insurance Law § 4216(d).

The defendants removed the matter to this Court on the basis of Federal question jurisdiction, 28 U.S.C. § 1331, contending that this case is governed by the Employee Retirement Income Security Act of 1974 ("ERISA"). Plaintiff now moves to remand the action to State court on the basis that this Court lacks jurisdiction of the matter inasmuch as the ERISA does not preempt the State law claims set forth in the complaint. Defendant maintains that this action is governed by Federal law and cross-moves for summary judgment pursuant to Fed.R.Civ.P. 56(b).

FACTS

In 1976 plaintiff's husband, Daniel Howard, began working for ATC, a wholly owned subsidiary of Gleason. As of January 1, 1985, Gleason entered into an agreement with the Prudential Insurance Company ("Prudential") to provide group life and long term disability insurance benefits for employees of both Gleason and its subsidiaries which included ATC.

In November 1984 a summary of that insurance plan outlining the various available options was distributed to all ATC employees. In September 1985 a 39-page plan description was given to all employees and later in March 1986 all ATC employees were given a booklet entitled "Your Employment and Benefits" which, again, outlined the various provisions of the insurance coverage offered. Mr. Howard enrolled in the ATC group insurance plan on December 3, 1984 and obtained two life insurance policies from Prudential through Gleason's group plan. One policy was a term life insurance policy and the other was a policy for supplemental life insurance coverage with face values of $48,000 and $62,000, respectively.

On December 16, 1986, ATC sold its division (known as Alliance Tool and Die, Inc.) to J.S. Tool and Die Co., Inc. Although Howard's employment with ATC terminated at that time, he continued to work in the same capacity at the same location, without a break in service. He continued in that position for approximately one month as an employee of a temporary agency and later, as of January 15, 1987, he formally became an employee of J.S. Tool and Die Co., Inc.

In April 1987 Mr. Howard was diagnosed as having cancer and shortly thereafter died on July 11, 1987, survived by his wife and their four children.

Mrs. Howard thereafter sought to collect on the two life insurance policies but her claims were denied. The insurer based the denial on the fact that coverage had lapsed because her husband had failed to exercise his option to convert the group policies to individual policies upon his termination from ATC. Moreover, she was denied the benefit of any life insurance coverage through J.S. Tool and Die Co., Inc.¹

Simply stated, plaintiff claims that the defendants did not properly notify her husband of his option to convert the group life insurance policies to individual policies in accordance with New York Insurance Law § 4216(d).² She claims that the defendants breached an affirmative duty to inform her husband of his conversion privilege and that she is, therefore, entitled to the face value of the policies, $110,000, plus interest from July 11, 1987.

DISCUSSION

Defendants removed this action to Federal Court on the grounds that the insurance plan is an employee benefit plan governed by the ERISA, 29 U.S.C. § 1001 et seq. The ERISA's preemption provision, 29 U.S.C. § 1144(a), provides that, unless expressly excepted, "the provisions of the ERISA ... shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ..." Plaintiff contends that the insurance plan at issue in this case was not an employee benefit plan within the meaning of the ERISA, and therefore, defendants improvidently removed this action to this Court and her State law claims remain valid.

In Fort Halifax Packing, Inc. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), the Supreme Court distinguished between employee benefit plans and employee benefits; only the former being subject to the ERISA. The Court stated that an employee benefit plan is regulated by an ongoing administrative program in which the employer accepts responsibility for, inter alia, determining claimants' eligibility for benefits, computing amounts and paying benefits, and keeping records as required by law. 482 U.S. at 9, 107 S.Ct. at 2216.

The Court concluded in Fort Halifax that a State statute compelling employers to provide one-time severance payments to its employees in the event of a plant closing did not establish an employee benefit plan for purposes of the ERISA. Plaintiff argues that, similarly, the duty to inform her husband of his conversion option was a one-time obligation to which the ERISA does not apply. I disagree with plaintiff's argument in light of the recognized "expansive sweep of the pre-emption clause," Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39 (1987). The conversion option is but one small aspect of the overall insurance program offered to Gleason and Gleason's subsidiaries' employees. The group insurance plan as a whole requires ongoing oversight and administration. As such, I conclude that it is an employee benefit plan within the scope of the ERISA.

Alternatively plaintiff argues that her claim is exempted from the ERISA's provisions by virtue of the savings clause contained in 29 U.S.C. § 1144(b). That clause, in relevant part, provides that "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any state which regulates insurance, banking, or securities." 29 U.S.C. § 1144(b)(2)(A) (emphasis added).

The Supreme Court has held that the "common-sense view of the word `regulates' would lead to the conclusion that in order to regulate insurance, a law must not just have an impact on the insurance industry, but be specifically directed toward that industry." Pilot Life, supra, 481 U.S. at 50, 107 S.Ct. at 1554. Moreover, the Court must assess the effect of that particular law within the meaning of "the business of insurance" under the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. In making that determination, the Court must evaluate whether the law transfers or spreads a policy holder's risk, whether the law relates to an integral part of the relationship between the insured and the insurer and whether the law's scope is limited to only those entities within the insurance industry. Pilot Life, supra, 481 U.S. at 48-49, 107 S.Ct. at 1553-54 (quoting Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002, 3009, 73 L.Ed.2d 647).

Under the above-stated standard, New York Insurance Law § 4216(d) does not "regulate insurance" and, therefore, does not come within the ERISA's savings clause. Although the provision affects the insurance industry, however, its primary function is to define the employer's or insurer's responsibility to inform the insured of his option to convert his policy, if such an option exists. Furthermore, § 4216(d) is not within the McCarran-Ferguson Act's definition of the "business of insurance." Failure to timely notify a policyholder of the right to convert a group insurance policy to another type of policy certainly affects that policyholder's risk. However, that notification requirement does not constitute an integral part of the relationship between the insured and insurer as contemplated by the McCarran-Ferguson Act. Accordingly, I hold that New York Insurance Law § 4216(d) is not encompassed by the ERISA's savings clause.

Because the State law in this case is preempted by the ERISA and is not subject to exemption under the ERISA's savings clause, removal of this case to this Court was proper. Accordingly, plaintiff's motion to remand the action to State court is denied.

Defendants' Cross-Motion for Summary Judgment

Defendants contend that they adequately informed Mr. Howard of his option to convert the group life insurance policies to individual policies in accordance with the notice requirements of the ERISA, 29 U.S.C. § 1022. Because they have fully complied with the ERISA's notice requirements, defendants maintain that an award of summary judgment is appropriate in this case.

Fed.R.Civ.P. 56 allows for summary judgment where the movant demonstrates "that there is no genuine issue as to any material fact" and that he, as a result, "is entitled to a judgment as a matter of law." The moving party bears the initial burden of demonstrating the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). This is not to say that the movant must prove his opponent's case to be "wholly frivolous." Instead, the movant's burden "will be satisfied if he can point to...