Reber v. Provident Life & Acc. Ins. Co.

Decision Date29 March 2000
Docket NumberNo. IP99-0099-C-T/G.,IP99-0099-C-T/G.
Citation93 F.Supp.2d 995
PartiesDeborah J. REBER, Plaintiff, v. PROVIDENT LIFE & ACCIDENT INSURANCE COMPANY, Defendant.
CourtU.S. District Court — Southern District of Indiana

James R. Fisher, Ice Miller Donadio & Ryan, Indianapolis, IN, for Plaintiff.

Mark E. Schmidtke, Hoeppner Wagner & Evans, Valparaiso, IN, for Defendant.

ENTRY DISCUSSING PENDING MOTIONS

TINDER, District Judge.

This matter comes before the court on the following motions: Defendant Provident Life & Accident Insurance Company's ("Provident") Motion to Dismiss and Motion to Strike, seeking dismissal of the Complaint, or alternatively, seeking to strike the demand for extracontractual damages and a jury trial, on the grounds that the state law theories in the Complaint are preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001, et seq.; and, Plaintiff Deborah J. Reber's Petition to Remand and alternative Motion for Leave to Amend Complaint, seeking a remand of this action on the grounds that the disability insurance contract at issue is not governed by ERISA and this court lacks federal question jurisdiction. After considering the motions and the submissions of the parties, the court finds as follows.

I. Facts1

In 1986, Ms. Reber was employed by the California law firm or Haasis, Pope & Correll ("Law Firm").2 The Law Firm provided her with disability coverage under a group insurance policy ("Group Policy"), issued by Paul Revere Insurance Company ("Paul Revere"). On April 1, 1986, Ms. Reber also became covered by the policy at issue in this case, an individual policy of disability insurance from Provident ("Provident Policy" or "Policy").

The Policy contains a "Salary Allotment Premium Payment" rider which provides:

In consideration of the Salary Allotment Agreement between your employer and us, we agree to accept Policy Premiums as billed to your employer.

The conditions of this rider are:

1. The policy will not continue in force beyond the time for which the premium is paid, subject to the grace period.

2. If your employer fails to pay the premiums when due because of clerical error or negligence, your insurance under the policy will not be prejudiced.

3. This rider will be void if:

a. your employment with your employer ends;

b. the Salary Allotment Agreement is terminated; or

c. for any reason, your employer fails to pay premiums.

4. If this rider is voided, premiums will be due and payable as required in the policy.

(Compl., Ex. A at 14.) The "Salary Allotment Agreement" between the Law Firm and Provident provides that:

"[t]he Employer agrees as respects policies issued by the Insurance Company to certain individuals ... [t]o pay a portion of the required premiums and to make salary deductions of the remainder of the required premiums for such policies, and to remit such premiums to the Insurance Company when due...."

(Thompson Aff., Ex. A.) As a part of the agreement between the Law Firm and Provident, Provident discounted the premiums on the Policy by ten percent. (Thompson Aff. ¶ 3.) This discount was only available to eligible employees of the Law Firm by virtue of their employment. (Id. ¶¶ 2-3.) Also, because the Law Firm agreed to pay at least a portion of the premiums, Ms. Reber was provided with a higher level of coverage than would have been available absent her employment with the Law Firm. (Id.)

Between 1984 and 1989, Provident covered as few as four and as many as twenty of the employees of the Law Firm with various disability policies (including Ms. Reber). (Supplemental Aff. of Terry Thompson ¶ 2.) The premiums of each policy were billed to the Law Firm on a group billing statement. (Id.) When an individual's coverage was canceled, any premium refund was issued to the Law Firm. (Id.)

A Provident agent met with Ms. Reber, explained the Policy, took her application, and handled the entire application process. (Reber Aff. ¶¶ 2-4.) On her application, Ms. Reber stated that her employer would "pay for all disability coverage to be carried by [me] with no portion of the premium to be included in [my] taxable income." (Notice of Removal, Ex. A.) Ms. Reber never received a summary plan description, annual reports, or any other such documentation in connection with the Policy. (Reber Aff. ¶ 5.)

Later in 1986, Ms. Reber experienced the onset of a severe bladder dysfunction. Provident investigated her claim on the Policy and determined that she was totally disabled. Paul Revere also determined that she was totally disabled pursuant to the Group Policy. Likewise, Ms. Reber applied for, and received, Social Security disability benefits.

At that point, Ms. Reber had no further involvement with the Law Firm, and Provident paid disability benefits on the Policy directly to her. Pursuant to the Policy terms, Provident waived any premiums on the Policy while Ms. Reber was disabled.

In 1989, the Law Firm terminated its Salary Allotment Agreement with Provident. The Law Firm instructed Provident to cancel every policy listed on Provident's billing statement, including Ms. Reber's Policy (which had continued to be listed on the Law Firm's billing statement with a premium amount of "$0", pursuant to the waiver of premium provision contained in the Policy). The Law Firm went defunct in 1989, and had no further involvement with Provident or Ms. Reber.

Despite the termination of the Salary Allotment Agreement between the Law Firm and Provident, Provident continued to pay Ms. Reber benefits and continued to waive the Policy premiums.

Provident reviewed Ms. Reber's claim on a periodic basis. In June 1998, Provident terminated Ms. Reber's disability benefits.

On January 8, 1999, Ms. Reber filed the Complaint in Hamilton (Indiana) Superior Court, seeking damages for Provident's alleged breach of contract and bad faith termination of benefits. Provident removed the case to this court, alleging federal question jurisdiction under ERISA, on the grounds that the Policy is an ERISA employee welfare benefit plan. Provident then filed its Motion to Dismiss and Motion to Strike on the basis of ERISA preemption. Ms. Reber filed her Petition to Remand on the grounds that the Policy is not an ERISA plan. Ms. Reber also filed a Motion for Leave to Amend Complaint, in the event the court finds that the Policy is governed by ERISA.

II. Discussion

The burden of showing that removal was appropriate rests upon Provident, as the party seeking the removal. See Jones v. General Tire & Rubber Co., 541 F.2d 660, 664 (7th Cir.1976). The central issue in determining whether removal was appropriate is whether the Policy is part of an employee benefit plan that is subject to ERISA. ERISA generally applies only to employee benefit plans. See 29 U.S.C. § 1003(a). Provident contends that the Policy is part of an "employee welfare benefit plan," one of the two types of employee benefit plans covered by ERISA.3

ERISA defines an "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, ... benefits in the event of ... disability ....

29 U.S.C. § 1002(1). Case law has interpreted this definition as requiring five elements:

(1) a plan, fund or program, (2) established or maintained, (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing ... disability ... benefits, (5) to participants or their beneficiaries.

Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th Cir.1986) (citing

Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir.1982)).

"ERISA is clearly a statute of general application, one that envisions inclusion within its ambit as the norm." Cvelbar v. CBI Ill. Inc., 106 F.3d 1368, 1376 (7th Cir.1997) (quoting Smart v. State Farm Ins. Co., 868 F.2d 929, 933 (7th Cir.1989)), overruled on other grounds by International Union of Operating Engineers, Local 150, AFL-CIO v. Rabine, 161 F.3d 427 (7th Cir.1998); Fiene v. V. & J Foods, Inc., 962 F.Supp. 1172, 1178 (E.D.Wis.1997) ("It is well-established that `[c]ourts must construe the definition of `welfare benefit plan' broadly.'") (quoting Gupta v. Freixenet, USA, Inc., 908 F.Supp. 557, 562 (N.D.Ill. 1995)) (citing Brundage-Peterson v. Compcare Health Servs. Ins. Corp., 877 F.2d 509, 511 (7th Cir.1989)). "The question of whether a plan exists is one of fact which must be answered while considering all surrounding circumstances from the perspective of a reasonable person." Gupta, 908 F.Supp. at 562 (citing James v. National Business Systems, Inc., 924 F.2d 718, 720 (7th Cir.1991)).

There is no dispute that with respect to the Provident Policy, the latter three elements of an "employee welfare benefit plan" are satisfied — i.e., the Law Firm satisfied ERISA's definition of an "employer",4 and the Policy provided disability benefits to Ms. Reber, a "participant".5 Provident argues that, in addition, the Policy is part of a "plan, fund, or program" and that the Law Firm "established or maintained" it.

In fleshing-out the meaning of a "plan" for ERISA purposes, the Seventh Circuit has stated:

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.

Diak v. Dwyer, Costello & Knox, P.C., 33 F.3d 809, 812 (7th Cir.1994) (quoting Donovan, 688 F.2d at 1373; citing Ed Miniat, Inc., 805 F.2d at 738-39; other citations omitted). In applying this standard, the Seventh Circuit has noted that "[t]he [p]lan may adopt some of...

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