Meredith v. Time Ins. Co.

Decision Date06 January 1993
Docket NumberNo. 92-2300,92-2300
Citation980 F.2d 352
Parties16 Employee Benefits Cas. 1296 JeNeal MEREDITH, Plaintiff-Appellant, v. TIME INSURANCE COMPANY, Defendant-Appellee. Summary Calendar.
CourtU.S. Court of Appeals — Fifth Circuit

Karen A. Lerner, Michael B. Charlton, Houston, Tex., for plaintiff-appellant.

Regina Giovannini, Brown, Parker & Leahy, Houston, Tex., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, JOLLY and EMILIO M. GARZA, Circuit Judges.

POLITZ, Chief Judge:

JeNeal Meredith appeals the summary judgment dismissal of her Texas common-law and statutory claims against her insurance carrier, Time Insurance Company. Finding her claims to be beyond the preemptive scope of the Employee Retirement Income Security Act ("ERISA"), we vacate and remand.

Background

Meredith is the owner of a business known as the "Strawberry Fruit Basket Co.," a small flower and fruit basket company in Pasadena, Texas which she organized as a sole proprietorship, employing herself and, ostensibly, her husband. In April of 1987 she applied for participation in the Multiple Employer Trust Signature II, an insurance benefit program offered by the Time Insurance Company. She submitted the application in her capacity as owner. The application requested life, accidental death and dismemberment, and medical coverage for herself and her husband and, although the policy allowed coverage for any new employee who so chose after 90 days of employment, there were then none, and none were hired thereafter.

In response to a question on the application form, Meredith reported that she had never experienced "any indication, diagnosis, or treatment for heart disorder, stroke, or hypertension." When Meredith incurred medical bills totaling approximately $7,000 as a result of an operation to remove kidney stones, Time requested and was given access to her medical records. According to Time, those records disclose a series of heart and hypertension-related complaints dating back to 1983. Meredith argued without avail that Time had no basis for denying coverage.

Meredith responded to Time's rejection by filing suit in Texas state court, advancing common-law contract and tort theories as well as statutory claims under the Texas Insurance Code and the Deceptive Trade Practices--Consumer Protection Act, seeking compensatory and punitive damages. Time removed the case to federal court and sought summary judgment on an ERISA preemption theory. The district court granted the motion and entered a summary judgment. Meredith timely appealed.

Analysis

The issue presented by this appeal is whether an insurance plan purchased by a sole proprietor, covering only herself and her spouse, constitutes an "employee welfare benefit plan" as that term is defined in ERISA. If it is, the parties agree that state common-law, DTPA and bad-faith-insurance-practice claims would fall within the broad preemptive scope of ERISA. 1 The inquiry requires our review of the definition of "employee welfare benefit" plans. Whether a particular plan falls within the statutory definition is a question of fact. 2 We therefore scour the summary judgment record to determine whether a genuine issue of material fact exists with respect to the nature of the plan.

Time offers insurance through what has come to be known as a Multiple Employer Trust or, in ERISA terms, a Multiple Employer Welfare Arrangement ("MEWA"); the MEWA allows smaller employers to receive insurance benefits at group rates. 3 Time argues that the MET Signature II is itself an ERISA plan, regardless of the Strawberry Fruit Basket's role, because it existed before Meredith's application and because it would otherwise have qualified as an ERISA plan. 4 While the definition of MEWA includes arrangements whereby self-employed persons are participants, the existence of a MEWA, or of other participants, is not dispositive of preemptive status.

Time's argument is flawed because it brushes aside the essence of ERISA preemption and focuses instead on the existence of a MEWA. The preemptive force of ERISA flows from 29 U.S.C. § 1144(a) which provides that "the provisions of this title ... shall supersede any and all state laws insofar as they relate to employee benefit plans." As this and other courts have underscored, not all MEWAs are employee benefit plans. 5

Time seizes on the definition of MEWA, giving scant weight to the fact that ERISA preemption is based on the existence vel non of an employee benefit plan, and that an employee benefit plan necessarily must center on the existence of an employer and an employee. 6 In so doing, Time overlooks the fact that a MEWA is not the entity to which ERISA directs its primary preemptive attention. 7 Indeed, ERISA only applies to plans "established or maintained by an employer or employee organization" engaged in interstate commerce. 8 The question simply is not whether the Signature II Multiple Employer Trust is a MEWA, but whether Meredith's purchase of insurance from it constituted the establishment or maintenance of an employee benefit plan.

We are not here concerned with whether the "entity that established and maintained the plan intended ERISA to govern the MEWA." For our guidon we note that "ERISA protection and coverage turns on whether the [plan] satisfies the statutory definition." 9

The ERISA definition of an employee benefit plan seems clear enough; "The term 'employee benefit plan' or 'plan' means an employee welfare benefit plan or an employee pension benefit plan or a plan which is both ...;" 10 the more narrow term "employee welfare benefit plan" is, in turn,

any plan, fund, or program ... 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 or disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship, or prepaid legal services.... 11

The plan in question deals with a subject matter--life and health insurance--which fits comfortably within the customary meaning of employee welfare benefit plan. But whether the plan is an ERISA plan requires a more probing inquiry.

We have devised a comprehensive test for determining whether a particular plan qualifies as an "employee welfare benefit plan"; we ask whether a plan: (1) exists; (2) falls within the safe-harbor provision established by the Department of Labor; and (3) satisfies the primary elements of an ERISA "employee benefit plan"--establishment or maintenance by an employer intending to benefit employees. If any part of the inquiry is answered in the negative, the submission is not an ERISA plan. Our analysis is informed by reference to ERISA itself, including germane indications of congressional intent; and, to the extent Congress has failed to state its intention on the precise issue in question, we refer to permissible interpretations by the agency charged with administering the statute--the Department of Labor.

At the outset, any court confronted with the question "whether a particular arrangement constitutes an employee welfare benefit plan under ERISA 'must first satisfy itself that there is in fact a plan at all.' " 12 To measure the materiality of a purported plan we turn to a test devised by our Eleventh Circuit colleagues:

In determining whether a plan, fund, or program (pursuant to a writing or not) is a reality a court must determine whether from the surrounding circumstances a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits. 13

In the instant case, a reasonable person could determine readily the intended benefits and that the beneficiaries were Meredith and her family. Due to the coincidence between employer and employee, however, the reasonable person might encounter greater difficulty discerning the payor of the premiums, Meredith the employee or, her alter ego, Meredith the business operation as employer.

Putting aside her husband's role, under some legal fiction perhaps Meredith might be regarded as an employee of herself and, simultaneously, an employer of herself. This conundrum seems inevitable in the context of such a small-scale and informal enterprise. It may be resolved only by assigning a definition to employer and employee, as those terms are used in ERISA. We assume for present purposes the existence of a plan.

The second prong of our analysis asks whether the plan falls within the safe-harbor provision promulgated by the Department of Labor. 14 Meredith vigorously contends that she falls within the exemption which provides that a plan is not an ERISA plan if (1) the employer does not contribute to the plan; (2) participation is voluntary; (3) the employer's role is limited to collecting premiums and remitting them to the insurer; and (4) the employer received no profit from the plan. 15 The plan must meet all four criteria to be exempt. Again our analysis is hampered by the elusive definitions of "employee" and "employer" in the context of an employee benefit plan.

We therefore turn to step three in our analysis to determine whether the assumed plan falls within the broad parameters of ERISA. We look to the two "primary elements of an ERISA 'employee welfare benefit plan' as defined by the statute: (1) whether an employer established or maintained the plan; and (2) whether the employer intended to provide benefits to its employees." 16 We cannot answer either question without first considering the bounds of the terms "employer" and "employee." 17 We have thus come full circle and perforce must...

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