Madonia v. Blue Cross & Blue Shield of Virginia

• Decision Date: 24 November 1993
• Docket Number: No. 93-1057,93-1057
• Citation: 11 F.3d 444
• Parties: , 17 Employee Benefits Cas. 1769 Virginia MADONIA, Plaintiff-Appellant, v. BLUE CROSS & BLUE SHIELD OF VIRGINIA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 444

11 F.3d 444

62 USLW 2372, 17 Employee Benefits Cas. 1769

Virginia MADONIA, Plaintiff-Appellant, v. BLUE CROSS & BLUE SHIELD OF VIRGINIA, Defendant-Appellee.

No. 93-1057.

United States Court of Appeals, Fourth Circuit.

Argued Sept. 29, 1993.

Decided Nov. 24, 1993.

James Warren Haskins, Young, Haskins, Mann & Gregory, P.C., Martinsville, VA, argued (G. Carter Greer, on brief), for plaintiff-appellant.

James P. McElligott, Jr., McGuire, Woods, Battle & Boothe, Richmond, VA, argued (Gilbert E. Schill, Jr., Catherine Currin Hammond, David F. Dabbs, McGuire, Woods, Battle & Boothe, Jeanette D. Rogers, Blue Cross and Blue Shield of Virginia, on brief), for defendant-appellee.

Before WILKINSON, LUTTIG, and WILLIAMS, Circuit Judges.

OPINION

WILKINSON, Circuit Judge:

The question before us is whether a closely held corporation that subsidized health insurance policies for several of its employees has established an "employee welfare benefit plan" under the Employee Retirement Income Security Act, 29 U.S.C. Sec. 1001, et seq. Here we find that it has. In addition, we hold that a sole shareholder employed by the corporation and insured under the health policy provided by the corporation is a "participant" in the company's ERISA plan. Accordingly, we affirm the judgment of the district court.

I.

In 1981, Dr. Eugene Madonia founded Martinsville Neurological Associates, Inc. ("MNA"), a Virginia corporation. Since MNA's founding, Dr. Madonia has served as its director, president, and sole shareholder. In addition to Dr. Madonia, MNA has four other full-time employees: Teresa Anglin, Cynthia Deal, Sheila Martin, and Teresa Smith. Dr. Madonia is the only physician employed by MNA.

On November 7, 1988, Dr. Madonia applied for health insurance under the "Virginia Physicians and Their Staffs" group plan offered by Blue Cross & Blue Shield of Virginia ("BC/BS"). BC/BS issued a group policy naming Dr. Madonia as the policy holder and listing his family members as the beneficiaries. Since that time, MNA has paid all premiums for the Madonias' health insurance and deducted the payments on its corporate tax returns as employee fringe benefits.

MNA's purchase of the "Virginia Physicians and Their Staffs" policy for Dr. Madonia made the remaining MNA employees eligible for coverage under the same group plan by virtue of their employment affiliation with Dr. Madonia. Sheila Martin took advantage of this opportunity by applying for the BC/BS group plan on November 8, 1988. BC/BS accepted her application and provided coverage until November 1991, when Ms. Martin voluntarily discontinued the policy. During that time, MNA made direct payments to BC/BS for Ms. Martin's monthly premiums. The premiums varied in amount but reached $136.89 in 1991. MNA deducted $50.00 from Ms. Martin's monthly paycheck for partial reimbursement.

In August 1992, Teresa Anglin, another MNA employee, obtained a health insurance policy from another company, Virginia Farm Bureau. MNA gave Ms. Anglin an interest-free loan for her first monthly premium and increased her salary so that she could afford subsequent monthly premiums. MNA did not pay for or contribute to the other two employees' health insurance policies.

In 1984, plaintiff-appellant Virginia Madonia, Dr. Madonia's wife, was diagnosed with breast cancer. When the cancer recurred in March 1992, Mrs. Madonia's physician recommended high dose chemotherapy with an autologous bone marrow transplant ("HDCT-ABMT"). In May 1992, BC/BS informed Mrs. Madonia that HDCT-ABMT was an "experimental" treatment not covered under her policy. Mrs. Madonia sued BC/BS in state court for breach of contract, bad faith breach of contract, intentional infliction of emotional distress, and unfair trade practices. BC/BS removed the case to federal district court on the ground that Madonia's suit was governed by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001, et seq. In response, Mrs. Madonia filed a motion to remand.

The district court denied Madonia's motion for remand. The court found that MNA had established an ERISA "employee welfare benefit plan" by paying for and contributing to three of its employees' health insurance plans. The court further found that Mrs. Madonia had standing to sue under ERISA as a plan "beneficiary" because Dr. Madonia was an "employee" of MNA and thus a "participant" in MNA's ERISA plan. Based on these two findings, the court held that remand would be improper because Madonia's state claims were pre-empted by ERISA under 29 U.S.C. Sec. 1144(a).

This interlocutory appeal followed. See 28 U.S.C. Sec. 1292(b).

II.

ERISA preempts all state claims that "relate to any employee benefit plan." 29 U.S.C. Sec. 1144(a). In order for Madonia's state law claims to be preempted by ERISA, two criteria must be met: first, an "employee benefit plan" must exist; second, Madonia must have standing to sue as a "participant" or "beneficiary" of that employee benefit plan. We address each criterion in turn.

A.

Madonia contends that her state law claims are not preempted by ERISA because an "employee benefit plan" did not exist. Our inquiry into the existence of an "employee benefit plan" must begin, as always, with the language of the statute. ERISA defines "employee benefit plan" as either an "employee pension benefit plan" or an "employee welfare benefit plan." 29 U.S.C. Sec. 1002(3). ERISA further defines "employee welfare benefit plan" as:

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....

29 U.S.C. Sec. 1002(1). This statutory definition can be broken down into five elements: "(1) a 'plan, fund, or program' (2) established or maintained (3) by an employer ... (4) for the purpose of providing medical, surgical, hospital care, [or] sickness ... benefits (5) to participants or their beneficiaries." Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir.1982) (en banc).

Madonia argues that the second and fifth elements of the above definition have not been met. We think, however, that the evidence shows that MNA established a plan to help its employees obtain health insurance. In our view, this plan meets all five prongs of the Donovan test and therefore constitutes an ERISA "employee welfare benefit plan."

We note as a threshold matter that a "plan, fund, or program" is in existence. See 29 U.S.C. Sec. 1002(1). MNA's plan can be defined as a program to assist MNA employees in obtaining and financing health insurance from insurance carriers of their choice. The fact that MNA's plan respects an employee's choice of carrier does not render the plan too ill-defined under ERISA. To the contrary, the parameters of MNA's plan are readily ascertainable: the intended benefit is health insurance coverage; the beneficiaries include MNA's employees who seek help with their health insurance payments; the source of financing is MNA and its employees; and the procedure for receiving benefits is submission of claims to the employees' own insurance companies. We therefore conclude that a sufficiently defined "plan" exists. See Donovan, 688 F.2d at 1373 (holding that an ERISA "plan" exists "if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits").

Madonia asserts, however, that even if a "plan" exists, MNA's actions are insufficient to satisfy the second prong of the Donovan test--establishment or maintenance of the plan. She claims that MNA did no more than purchase insurance for Dr. Madonia, and that, under Taggart Corp. v. Life & Health Benefits Admin., Inc., 617 F.2d 1208 (5th Cir.1980), the bare purchase of health insurance in and of itself does not constitute the "establishment" of an ERISA plan. See id. at 1211. The flaw in Madonia's argument is that "[t]he ERISA definition of 'employee welfare benefit plan' specifically allows that ERISA plans may be established 'through the purchase of insurance or otherwise.' 29 U.S.C. Sec. 1002(1)." International Resources, Inc. v. New York Life Ins. Co., 950 F.2d 294, 297 (6th Cir.1991); see also Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 240 (5th Cir.1990). Under this statutory definition, employers may easily establish ERISA plans by purchasing insurance for their employees. See Libbey-Owens-Ford v. Blue Cross & Blue Shield Mutual of Ohio, 982 F.2d 1031, 1034 (6th Cir.1993); see also Fugarino v. Hartford Life & Accident Ins. Co., 969 F.2d 178, 184 (6th Cir.1992) (stating that "the bare purchase of insurance ... may be evidence of the existence of an ERISA plan"); Brundage-Peterson v. Compcare Health Servs. Ins. Corp., 877 F.2d 509, 511 (7th Cir.1989) (noting that a "barebones plan" under which the employer merely arranges and pays for insurance plans invokes ERISA protection); Credit Managers Assoc. v. Kennesaw Life & Accident Ins. Co., 809 F.2d 617, 625 (9th Cir.1987) (same).

In recognition of this statutory language, the Fifth and Eleventh Circuits have retreated from Taggart and, instead, adopted the well-established rule that "payment of premiums on behalf of ... employees is 'substantial evidence that a plan, fund or program (was) established.' " Kidder v. H & B Marine, Inc., 932 F.2d 347, 353 (5th Cir.1991) (quoting Donovan, 688 F.2d at 1373). Under that standard, MNA's actions are more than sufficient to show the "establishment" of a plan. MNA paid all of Dr. Madonia's premiums. MNA also made direct payments to BC/BS for Ms. Martin's premiums and then deducted only one-third of the insurance...