Rizzi v. Blue Cross of So. California

• Decision Date: 02 December 1988
• Docket Number: No. D006848,D006848
• Citation: 253 Cal.Rptr. 541,206 Cal.App.3d 380
• Court: California Court of Appeals Court of Appeals
• Parties: Anthony M. RIZZI, Plaintiff and Appellant, v. BLUE CROSS OF SOUTHERN CALIFORNIA, et al., Defendants and Respondents.

Page 541

253 Cal.Rptr. 541

206 Cal.App.3d 380

Anthony M. RIZZI, Plaintiff and Appellant, v. BLUE CROSS OF SOUTHERN CALIFORNIA, et al., Defendants and Respondents.

No. D006848.

Court of Appeal, Fourth District, Division 1, California.

Dec. 2, 1988.

Review Denied Feb. 23, 1989.

Stephen M. Shaw, La Jolla, and Nicholas De Pento, San Diego, for plaintiff and appellant.

Gray, Cary, Ames & Frye, William S. Boggs, Charles L. Deem, San Diego, Munger, Tolles & Olson and Daniel P. Garcia, Los Angeles, for defendants and respondents.

WORK, Associate Justice.

Anthony Rizzi appeals a summary judgment against Blue Cross of Southern California (Blue Cross) after the trial court concluded Rizzi's complaint--alleging, inter alia, violations of California Insurance Code section 790.03 in the denial of his claim for medical benefits under his employer's group insurance policy--was preempted by the Employee Retirement Income Security Act (ERISA; see 29 U.S.C. § 1001¹ et seq.). We affirm the judgment because we conclude substantial evidence supports the trial court's finding the group insurance program was an employee welfare benefit plan established by Rizzi's employer under ERISA and the cause of action based on California Insurance Code section 790.03 is preempted by ERISA ( § 1144).

I

Rizzi's complaint alleges that in January 1975, Blue Cross issued an employees group health insurance policy to his employer, New Way Enterprises. After being notified by Blue Cross that he was insured, he incurred medical expenses, for which he filed a claim. However, Blue Cross allegedly failed and delayed to make medical benefit payments knowing he was entitled to them and with insufficient information to justify their action, misrepresented policy provisions, failed to promptly investigate and process his claims, did not attempt to settle his claims when liability was reasonably clear, and failed to provide a reasonable explanation for denying his claim. The complaint alleges Rizzi paid premiums for the insurance coverage.

II EXISTENCE OF AN ERISA PLAN

Rizzi argues there was an insufficient showing his Blue Cross insurance is an employee welfare benefit plan subject to ERISA.

Statutory definitions

ERISA protects "... participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts." ( § 1001, subd. (b); Pilot Life Ins. Co. v. Dedeaux (1987) 481 U.S. 41, 107 S.Ct. 1549, 1551, 95 L.Ed.2d 39.)

ERISA defines an "employee welfare benefit plan" as including "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...." ( § 1002, subd. (1).) ERISA applies to "any employee benefit plan if it is established or maintained--(1) by any employer engaged in commerce or in any industry or activity affecting commerce...." ( § 1003, subd. (a).) ²

The Department of Labor identifies group insurance programs offered by an insurer to employees which are not under ERISA, stating:

"... the terms 'employee welfare benefit plan' and 'welfare plan' shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which

"(1) No contributions are made by an employer or employee organization;

"(2) Participation [in] the program is completely voluntary for employees or members;

"(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and

"(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs." (29 C.F.R. § 2510.3-1(j).)

Case precedent

The issue is whether New Way "established or maintained" an "employee benefit plan" as required by sections 1002 and 1003.

Courts readily find the existence of an ERISA plan where an employer pays the premiums for its employees' insurance coverage and significantly administers the insurance program (i.e. processes claims). (See, e.g., opinion of this court in Drummond v. McDonald Corp. (1985) 167 Cal.App.3d 428, 432, 213 Cal.Rptr. 164.) As we discuss below, the evidence presented here does not show New Way processes claims or otherwise significantly administers the insurance policy. Thus, we examine federal precedent addressing what constitutes an ERISA plan in more borderline cases. These decisions state the existence of an ERISA plan is a question of fact to be resolved in light of all surrounding facts and circumstances from the point of view of a reasonable person. (Donovan v. Dillingham (11th Cir.1982) 688 F.2d 1367, 1373; Credit Managers Ass'n v. Kennesaw Life & Acc. Ins. (9th Cir.1987) 809 F.2d 617, 625; Kanne v. Connecticut General Life Ins. Co. (9th Cir.1988) 859 F.2d 96, 98.) ³

Federal decisions use the Department of Labor regulation (29 C.F.R. § 2510.3-1(j)), quoted above, as an analytic springboard. To summarize, the regulation indicates ERISA plans do not include those under which the employer makes no contributions; participation is completely voluntary; the employer plays a limited role (i.e. does not endorse the plan, but only collects and remits premiums, and allows the insurer to publicize); and the employer receives no consideration other than compensation for administrative services.

Some federal cases indicate an ERISA plan may exist where the employer contributes toward the premiums, even when not otherwise significantly administering the program. (Donovan v. Dillingham, supra, 688 F.2d at pp. 1372-1375 [employer purchased group insurance either pursuant to collective bargaining agreement or continuing practice of purchasing insurance for class of employees]; Local Union 2134, UMW of America v. Powhatan Fuel (N.D.Ala.1986) 640 F.Supp. 731, 734-735, vacated on other grounds in Local Union 2134 UMW of America v. Powhatan Fuel (11th Cir.1987) 828 F.2d 710; see dicta in Credit Managers Ass'n v. Kennesaw Life & Acc. Ins., supra, 809 F.2d at p. 625 ["Even if an employer does no more than arrange for a 'group-type insurance program,' it can establish an ERISA plan, unless it is a mere advertiser who makes no contributions on behalf of its employees."].)

In contrast, no ERISA plan was found where the employer made no contributions to the premiums, but entered into a "group unit purchase contract" with an insurance company, under which the employer permitted the insurance company to offer its annuity plans to the employees, and if the employee chose a plan, he directed the employer to contribute a portion of his salary to purchase the annuity. (Otto v. Variable Annuity Life Ins. (7th Cir.1986) 814 F.2d 1127, 1129.) The court held the employer's sole involvement of allowing the insurance company, along with other insurance companies, to advertise its program and, if chosen by the employee, to collect and remit premiums, constituted only minimal, ministerial activities which did not render the plan one established or maintained by the employer. (Id. at p. 1135.)

On the other hand, ERISA plans have been held to be established even when no employer contributions are made, but the circumstances show significant employer endorsement of the program through involvement. In Kanne v. Connecticut General Life Ins. Co., supra, 859 F.2d at pages 98-99, the court reviewed a plan administered by an employer group of which the litigating employee's employer was a member. Pursuant to ERISA's requirements, the plan was established as a trust and the trust "purchased" a group health insurance from Connecticut General Life Insurance Company. The court noted the record was ambiguous as to whether the employer had contributed payments toward the employee's insurance coverage, or whether the employee's participation in the plan was voluntary or automatic. Further, the employer's function with respect to the plan was minor and ministerial, and no evidence suggested the plan was administered by a profit-making concern. Notwithstanding the lack of evidence as to the employer's involvement, the court held an ERISA plan was established by the employer group's involvement, which group was considered an employer for purposes of ERISA under section 1002, subdivision (5). The court observed the employer group intended to create an ERISA plan, promoted it as an ERISA plan, and as administrator, endorsed it. Kanne concludes that because the employer group was more than a mere advertiser of group insurance, there need not be employer contributions or automatic employee coverage to bring the plan within ERISA. ⁴

Similarly, in Shiffler v. Equitable Life Assur. Soc. of U.S. (E.D.Pa.1986) 663 F.Supp. 155, 160-161, affirmed Shiffler v. Equitable Life Assur. Soc. of U.S. (3d Cir.1988) 838 F.2d 78, 82, footnote 4, the court found the existence of an ERISA plan, even though it was undisputed that criteria one, two, and four in the Department of Labor regulation were present, reasoning that a plan is excluded under ERISA only when all four criteria are met. The court held the plan did not meet the third criteria, since the...