Peterson v. American Life & Health Ins. Co.

• Decision Date: 15 February 1995
• Docket Number: No. 93-55973,93-55973
• Citation: 48 F.3d 404
• Parties: 19 Employee Benefits Cas. 1326, Pens. Plan Guide P 23907B George PETERSON, Plaintiff-Appellant, v. AMERICAN LIFE & HEALTH INSURANCE COMPANY; Creative Health Programs; Pacific Southwest Association of Small Employer Firms; Richard Reynolds, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 404

48 F.3d 404

19 Employee Benefits Cas. 1326, Pens. Plan Guide P 23907B

George PETERSON, Plaintiff-Appellant, v. AMERICAN LIFE & HEALTH INSURANCE COMPANY; Creative Health Programs; Pacific Southwest Association of Small Employer Firms; Richard Reynolds Defendants-Appellees.

No. 93-55973.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 8, 1994.

Decided Feb. 15, 1995.

Robert S. Gianelli, Sherril Nell Babcock, Gianelli & Morris, Los Angeles, CA, for plaintiff-appellant.

Joseph D. McNeil, Edward A. Stumpp, McNeil and Susson, Santa Ana, CA, for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before: FLETCHER, THOMPSON, and RYMER, Circuit Judges.

FLETCHER, Circuit Judge:

George Peterson appeals the district court's grant of summary judgment in favor of the defendants in his suit for benefits under a health insurance policy. We have jurisdiction and affirm.

I. BACKGROUND

Peterson is a partner in Quivira Marine Service Center ("Quivira"). Quivira applied to American Life and Health Insurance Co. ("American") for a short-term group policy through the Pacific Southwest Association of Small Employer Firms ("PSA") to provide health insurance for three persons: Peterson, his partner, and their employee. The American policy was intended to provide coverage while Quivira secured a long-term policy with another insurer. Quivira moved coverage for Peterson's partner and the employee to another insurer as intended; Peterson, however, remained on the American policy because he failed a physical examination required by the new insurer.

After Peterson's partner and employee were removed from the American policy, Peterson underwent emergency quintuple coronary bypass surgery. American denied Peterson's claims for expenses associated with the surgery on the basis of an exclusion in the policy stating that no benefits are payable for "[a]ny condition of the tonsils or adenoids, laminectomy, discectomy, spinal fusion, disease or disorder of the reproductive system, gall bladder, rectum, varicose veins, or conditions requiring bypass surgery " (emphasis added).

Peterson filed a complaint in California state court against American, ¹ alleging various state common law claims. American removed the suit to the district court under the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1001, et seq., then moved to dismiss all of Petersons' claims on the ground that ERISA preempted them. In response, Peterson moved to remand the action to state court, alleging that the American policy was not part of an ERISA plan and, therefore, the district court lacked subject matter jurisdiction. The district court determined that ERISA governed the American policy and preempted Peterson's state law claims. Consequently, the court denied Peterson's motion to remand and granted American's motion to dismiss, with leave to amend.

Peterson filed a First Amended Complaint pleading a claim for benefits under ERISA. Peterson retained in the amended complaint his state common law claims to preserve them for appeal, and, pursuant to the defendants' motion, the court dismissed the common law causes of action without leave to amend. Peterson also argued that Cal.Ins.Code Sec. 10291.5(b)(7) required American to cover coronary bypass surgery and that this requirement was not preempted by ERISA. The district court granted summary judgment in favor of American, finding that ERISA preempted Peterson's state statutory claim and that the policy's exclusion of bypass surgery was unambiguous and enforceable.

II. SUBJECT MATTER JURISDICTION OVER AN ERISA PLAN

The district court held that the American policy was part of an "employee welfare benefit plan" as defined in 29 U.S.C. Sec. 1002(1) and that, as a "beneficiary" of the policy, Peterson had standing to bring a civil suit to enforce ERISA. Accordingly, the district court determined that ERISA governed Peterson's claim and that the court had subject matter jurisdiction. We agree.

A. Existence of an ERISA Plan

An "employee welfare benefit plan" governed by ERISA is:

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 ...

29 U.S.C. Sec. 1002(1) (emphasis added).

The regulations implementing this section provide that a plan "under which no employees are participants" does not constitute an ERISA employee benefit plan. 29 C.F.R. Sec. 2510.3-3(b). Neither an owner of a business nor a partner in a partnership can constitute an "employee" for purposes of determining the existence of an ERISA plan. 29 C.F.R. Sec. 2510.3-3(c)(1), (2); see also Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 264 (9th Cir.1991) (ERISA does not govern a plan whose only fully vested beneficiaries are a company's owners).

Peterson maintains that the American policy does not constitute an ERISA employee benefit plan because, at the time of his bypass surgery, it covered only him, a partner in the Quivira partnership. However, the fact that the American policy covered only a Quivira partner at the time of Peterson's surgery is not determinative. ² We conclude that the American policy was just one component of Quivira's employee benefit program and that the program, taken as a whole, constitutes an ERISA plan.

At all times relevant to this action, Quivira continued to provide insurance to at least one non-partner employee, albeit not under the American policy. See Kennedy, 952 F.2d at 264 (coverage of even one non-owner employee is sufficient to bring a policy within ERISA's scope); Madonia v. Blue Cross & Blue Shield of Virginia, 11 F.3d 444, 448 (4th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1401, 128 L.Ed.2d 74 (1994) (coverage of non-owner employees rendered policy an ERISA plan). Quivira not only paid its partners' and employees' insurance premiums but also played an active role in the administration of the coverage, including choosing the insurance, adding and deleting employees and partners from various policies, contacting insurance companies for employees and partners, and distributing information relevant to the coverage.

Moreover, the American policy originally covered a non-partner employee in addition to Peterson and his partner. A policy is governed by ERISA if it is "established or maintained by an employer ... for the purpose of providing [medical insurance] for its participants or their beneficiaries." 29 U.S.C. Sec. 1002(1) (emphasis added). That the American policy is governed by ERISA finds further support in our cases addressing "conversion" policies, where an employee converts his group policy to an individual policy when he leaves his employment. We have held repeatedly that, because these policies are derived from ERISA plans, they continue to be governed by ERISA even after conversion. Qualls v. Blue Cross of California, Inc., 22 F.3d 839, 843 n. 4 (9th Cir.1994); Greany v. Western Farm Bureau Life Ins. Co., 973 F.2d 812, 817 (9th Cir.1992); Tingey v. Pixley-Richards West, Inc., 953 F.2d 1124, 1132-33 (9th Cir.1992).

Because the American policy was purchased by Quivira for the purpose of fulfilling its plan to provide benefits to its employees as well as its partners, the policy is part of an ERISA plan and is governed by ERISA.

B. Standing to Bring an ERISA Claim

Peterson maintains that his claim for benefits nevertheless is governed by state law because, as a partner, he does not have standing to bring an action for benefits under ERISA. A civil action under ERISA may be brought by "a participant or beneficiary." 29 U.S.C. Sec. 1132(a)(1). A "participant" is "any employee or former employee of an employer." Id. Sec. 1002(7). A "beneficiary" is "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." Id. Sec. 1002(8).

This court already has addressed, in Harper v. American Chambers Life Ins. Co., 898 F.2d 1432 (9th Cir.1990), whether a partner insured by a policy that is part of an ERISA plan has standing to bring a civil suit to enforce ERISA. In Harper, we held that a partner could not bring a suit as a "participant" because only employees are participants, but that a partner could enjoy standing as a "beneficiary:"

First, we note that the broad statutory definition of a "person" for ERISA purposes certainly encompasses [the partners]: "the term 'person' means an individual, partnership, joint venture, corporation, mutual company, joint-stock company, trust, estate, unincorporated organization, association, or employee organization." See 29 U.S.C. Sec. 1002(9). Second, [the partners] are "person[s] designated ... by the terms of an employee benefit plan" if the [insurance] policy is an ERISA plan. 29 U.S.C. Sec. 1002(8).... By the plain terms of the statutes defining "person" and "beneficiary," then, [the partners] are ERISA beneficiaries of the [insurance] policy.

898 F.2d at 1434.

Despite Peterson's arguments to the contrary, neither our decision in Kennedy nor the Supreme Court's in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992), requires us to depart from our holding in Harper. Kennedy involved an attempt by two business owners to enforce an insurance policy under ERISA. To determine whether the policy was part of an ERISA plan, we remanded to the district court to determine whether the policy covered any non-owner employees. 952 F.2d at 267. Necessarily underlying our remand was the assumption that, if other employees were covered, the plan was governed by ERISA and the owners' ...