Qualls By and Through Qualls v. Blue Cross of California, Inc., 92-56033

Citation22 F.3d 839
Decision Date26 April 1994
Docket NumberNo. 92-56033,92-56033
PartiesMichael QUALLS, By and Through Annie QUALLS, his Conservator; Annie Qualls, individually, Plaintiffs-Appellants, v. BLUE CROSS OF CALIFORNIA, INC.; Saddleback R.V. Sales, a California corporation, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Melissa J. Fassett, Morgan, Wenzel & McNicholas, Los Angeles, CA, for plaintiffs-appellants.

David A. Lingenbrink, Galton & Helm, Los Angeles, CA, for defendants-appellees.

Before: TANG, PREGERSON, and NOONAN, Circuit Judges.

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


The memorandum disposition filed February 9, 1994, is redesignated as an authored opinion by Judge Harry Pregerson.


PREGERSON, Circuit Judge:


Michael Qualls appeals the district court order of summary judgment in favor of defendant-respondent Blue Cross of California ("Blue Cross"). We have jurisdiction under 28 U.S.C. Sec. 1291. We AFFIRM.


Mr. Qualls was electrocuted by a faulty electric fan in June of 1988, causing him to lapse into a coma that lasted several weeks, and to suffer permanent brain damage. This and other injuries kept him hospitalized for six months, and Mr. Qualls continues to require home nursing care.

At the time of his accident, he was covered by a small group health insurance policy ("Policy") issued by Blue Cross to his employer, Saddleback RV Sales ("Saddleback"). The Policy was fully funded by Saddleback, and was provided automatically without cost to all full-time employees after 90 days of employment.

Blue Cross paid Mr. Qualls's medical bills until he and Blue Cross jointly reached a settlement agreement with the electric fan manufacturer in December of 1990. Under the settlement agreement, the manufacturer paid a total of $7.5 million in return for discharge and release from liability arising from the accident. Out of the $7.5 million, $3.8 million was allocated to an annuity for Mr. Qualls's "total care" for the next 30 years. Another $286,402 of the $7.5 million went to Blue Cross to extinguish the lien it had acquired on the settlement under Section Seven AA of the Policy. After the settlement agreement, Mr. Qualls continued to pay premiums due under the policy, but Blue Cross refused to pay any further benefits arising out of the electric fan injury. 1

To justify its decision not to pay further benefits resulting from the injury, Blue Cross relied on Section Seven AA of the policy which excluded coverage for

[a]ny illness, injury or other condition for which a third party may be liable or legally responsible by reason of negligence, an intentional act or breach of any legal obligation on the part of such third party. Nevertheless, Blue Cross will advance the benefits of this Agreement to the Member subject to the following: ... Blue Cross will automatically have a lien, to the extent of benefits advanced, upon any recovery, whether by settlement, judgment or otherwise, that the Member receives from the third party


Annie Qualls, as Michael Qualls's guardian ad litem, filed the instant action to enforce his rights under the Blue Cross policy. On his behalf, she pleaded causes of action based on tortious breach of the covenant of good faith and fair dealing, breach of contract, violation of various state codes, and equitable estoppel. Blue Cross moved for summary judgment and the court granted Blue Cross's motion. 2

In granting summary judgment, the district court found that Mr. Qualls's state law claims were preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001 et seq. It found further that the terms of the Policy unequivocally limit Blue Cross's contractual liability for injuries caused by third party negligence to advancements in anticipation of payments by the third party. Therefore, once Mr. Qualls received payments from the manufacturer, Blue Cross was relieved of further obligation for injury related costs. The district court order did not make any explicit findings on Mr. Qualls's final claim, that Blue Cross was equitably estopped from refusing to provide further benefits.


We review a grant of summary judgment de novo. Smith v. Noonan, 992 F.2d 987, 989 (9th Cir.1993). We must determine whether, viewing the evidence in the light most favorable to the non-moving party, there are any genuine issues of material fact, and whether the district court correctly applied the relevant substantive law. Botefur v. City of Eagle Point, 7 F.3d 152, 154 (9th Cir.1993).

Mr. Qualls makes three primary claims of error: (1) He disputes the district court's characterization of the Policy as an ERISA employee benefit plan subject to federal rather than state law; (2) He argues that the district court misread the terms of the Policy; and (3) He reasserts his claim based on collateral estoppel. None of these claims has merit.

A. Was evidence sufficient to find that Mr. Qualls's policy

was a "qualified retirement plan" under ERISA?

Both Mr. Qualls and Blue Cross agree that Mr. Qualls's state law claims are preempted if the Saddleback insurance policy was subject to ERISA. ERISA preempts claims based on state laws that "relate to any employee benefit plan." 3 29 U.S.C Sec. 1144(a). Mr. Qualls argues, first, that the Saddleback insurance policy was not an "employee benefit plan," and therefore was not subject to ERISA. Second, he argues that the court entered summary judgment against him before he had an opportunity to conduct adequate discovery to demonstrate that the policy was not within ERISA.


ERISA defines an "employee benefit plan" to include, among others, "any plan, fund, or program ... established or maintained by an employer ... for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance ... medical, surgical, or hospital care or benefits...." 29 U.S.C. Secs. 1002(1), (3). The parties do not dispute that the Blue Cross policy was established for the purpose of providing health insurance to its participants. But Mr. Qualls does argue that the policy was not a "plan," and that it was not "maintained by an employer." 4

(a) "Plan"

There is no doubt that the Blue Cross Group Benefit Agreement at issue here created a "plan." Mr. Qualls cites Port Halifax Packing Company v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987), to support his argument that the Blue Cross group insurance policy was a "benefit" but not an ERISA "plan." The distinction drawn in Halifax is between a mere benefit, such as the simple payment of a sum of money, and a plan, which requires some supervision or ongoing administration. But the Blue Cross agreement clearly falls within the bare requirements for an ERISA plan provided by Halifax. The agreement created a complex ongoing relationship between the insureds and the insurer which required constant administrative attention by the insurer. See Id. at 10-15, 107 S.Ct. at 2217-19 (discussing some of the elements distinguishing a plan from a mere benefit).

(b) "Maintained by an employer"

The Department of Labor has issued so-called "safe harbor" regulations distinguishing those plans "established or maintained by an employer" from those in which the employer's role is more limited. See 29 U.S.C. Sec. 1002(1); 29 CFR Sec. 2510.3-1(j). These regulations describe the circumstances under which a group insurance plan offered by an insurer to employees will not qualify as an ERISA employee benefit plan. 29 CFR Sec. 2510.3-1(j). Specifically, the regulations exclude those plans in which: (1) No contributions are made by the employer; (2) Employee participation is completely voluntary; (3) "The sole functions of the employer ... are, without endorsing the program, to permit the insurer to publicize the program to employees ... to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer;" and (4) The employer receives no consideration for its limited involvement in the plan. Id.

Unless all four of the above requirements are met, the employer's involvement in a group insurance plan is significant enough to constitute an "employee benefit plan" subject to ERISA. Kanne v. Connecticut General Life Insurance, 867 F.2d 489, 492 (9th Cir.1988) (state law claims against insurer preempted by ERISA where only one of the above mentioned conditions was not met; the failure of any one of the conditions "would prevent the exclusion of the insurance plan from ERISA coverage"), cert. denied, 492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989). In the case at bar, at least two of these regulatory requirements for exclusion from ERISA were not met by the Blue Cross policy. First, there were employer contributions. In fact, as Mr. Qualls concedes, the plan was fully funded by Saddleback's contributions. Second, because coverage was free and automatic for all full-time employees, it was not "completely voluntary." Therefore, the Blue Cross policy failed to satisfy the first two requirements for exclusion from ERISA. It follows that Saddleback's involvement in the Blue Cross plan was sufficient to create an "employee benefit plan" subject to ERISA, and the district court was correct to hold that Mr. Qualls's state law claims were preempted.


Mr. Qualls's attorney filed a Rule 56(f) declaration in district court prior to the summary judgment order requesting additional time for discovery. In the declaration, the attorney alleged that she needed additional discovery in order "to establish beyond question that the group health insurance policy purchased for Saddleback and its employees was not a 'qualified retirement plan' [meaning, we assume, an "employee benefit plan"] under ERISA, but was simply the purchase of an insurance policy and nothing more." ER at Exh. 7, p. 6. Specif...

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