Shyman v. Unum Life Ins. Co.

• Decision Date: 21 October 2005
• Docket Number: No. 04-2741.,04-2741.
• Citation: 427 F.3d 452
• Parties: Ira SHYMAN, Plaintiff-Appellant, v. UNUM LIFE INSURANCE CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

427 F.3d 452

Ira SHYMAN, Plaintiff-Appellant, v. UNUM LIFE INSURANCE CO., Defendant-Appellee.

No. 04-2741.

United States Court of Appeals, Seventh Circuit.

Argued September 22, 2005.

Decided October 21, 2005.

Mark D. Debofsky (argued), Daley, Debofsky & Bryant, Chicago, IL, for Plaintiff-Appellant.

Michael J. Smith (argued), Smith & Associates, Chicago, IL, for Defendant-Appellee.

Before EASTERBROOK, EVANS, and SYKES, Circuit Judges.

EASTERBROOK, Circuit Judge.

Shatkin, Arbor, Karlov & Co., a commodities-trading firm, arranged disability benefits for its employees and affiliated traders. Ira Shyman trades soybean contracts on the Chicago Board of Trade and clears his transactions through Shatkin Arbor. Shyman has suffered from headaches much of his life, and in 1999 he applied for disability benefits, telling Unum Life Insurance, the plan's insurer (and administrator) that the condition had worsened and prevented him from working as much as he used to. The plan provides benefits when trading income falls below 80% of a three-month rolling average, and Unum concluded that this condition had been satisfied for some months in 1999 but not others. When Shyman filed a new application in 2000, however, Unum denied it outright, stating that Shyman lacked credible medical evidence of a disabling condition. Invoking Illinois insurance and tort law, Shyman sued in federal court; the judge held, however, that ERISA (the Employee Retirement Income Security Act) preempts state law and that Unum's decision with respect to the 2000 application is neither arbitrary nor capricious. 2004 WL 609280, 2004 U.S. Dist. LEXIS 4964 (N.D.Ill. Mar. 25, 2004).

Shyman's principal argument in the district court, and his lead contention on appeal, had been that ERISA never applies to independent contractors. According to Shyman it deals only with employees ("participants" in the statutory argot) and people whose interests derive from them ("beneficiaries"). While Shyman's appeal was pending, however, we held in Ruttenberg v. United States Life Insurance Co., 413 F.3d 652 (7th Cir.2005), that independent contractors can be "beneficiaries" of ERISA plans. In Ruttenberg the beneficiary was a floor trader who cleared trades through a commodities dealer that sponsored a welfare plan, in which the trader enrolled; Shyman's situation is indistinguishable.

This brings to the fore Shyman's fallback position that the disability coverage that Shatkin Arbor arranged for its staff and affiliated traders is not an ERISA welfare-benefit plan in the first place. Although the statute defines covered welfare plans to include all employer-sponsored disability-benefit programs, see 29 U.S.C. §§ 1002(1)(A), 1003(a), there is a regulatory exception for pure insurance products from third parties:

For purposes of title I of the Act and this chapter, 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 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). Shyman maintains that his disability coverage fits this exception: he paid all premiums, his decision to enroll was voluntary, and Shatkin Arbor did no more than permit Unum to publicize the program, neither endorsing it nor accepting consideration for its assistance.

This argument fails at the first step, so we need not consider the others. Shatkin Arbor paid part of the program's cost for its employees. Shyman concedes this but observes, yet again, that he was not an employee; he paid full freight even if those on the firm's payroll did not. He maintains, in other words, that a given package of benefits is in or out of ERISA's scope person by person, rather than plan by plan. That's just a variant of the argument rejected in Ruttenberg, and it has no footing in either the statute or the regulation. ERISA speaks of welfare-benefit plans; the statute imposes duties on plan fiduciaries and plan administrators. Likewise the regulation speaks of a "plan" or "program" that is outside the statutory definition of a welfare-benefit plan. Unum offered and Shatkin Arbor sponsored a group plan, which would come into force only if 75% or more of eligible persons enrolled; there was no individual insurance policy. If a "plan" is covered, then every participant and beneficiary receives ERISA'S benefits (or detriments, which is how Shyman sees the absence of remedies such as punitive damages in tort).

The district judge concluded that the appropriate standard of review is deferential: she asked whether Unum's decision was arbitrary and capricious given the evidence in the administrative record. See Perlman v. Swiss Bank Corp., 195 F.3d 975 (7th Cir.1999). Unum and Shatkin Arbor agreed that "[w]hen making a benefit determination under the Policy, UNUM has discretionary authority to determine your eligibility for benefits and to interpret the terms and conditions of this Policy." No more is needed to give the plan administrator discretion and limit the scope of judicial review. See Diaz v. Prudential Insurance Co., ...