Taggert Corp. v. Efros, Civ. A. No. H-77-1588.

• Decision Date: 21 August 1979
• Docket Number: Civ. A. No. H-77-1588.
• Citation: 475 F. Supp. 124
• Parties: The TAGGERT CORPORATION, Stanley M. Kansas and Claire J. Kansas, Plaintiffs, v. E. Robert EFROS, James A. Markle, William K. Robinson, Old Security Life Insurance Company, Durham Life Insurance Company, Security Insurance Services, and Life and Health Benefits Administration, Inc., Defendants.
• Court: U.S. District Court — Southern District of Texas

475 F. Supp. 124

The TAGGERT CORPORATION, Stanley M. Kansas and Claire J. Kansas, Plaintiffs, v. E. Robert EFROS, James A. Markle, William K. Robinson, Old Security Life Insurance Company, Durham Life Insurance Company, Security Insurance Services, and Life and Health Benefits Administration, Inc., Defendants.

Civ. A. No. H-77-1588.

United States District Court, S. D. Texas, Houston Division.

August 21, 1979.

Cary S. Watson, Houston, Tex., for plaintiffs.

Dale Wootton, Dallas, Tex., for E. Robert Efros and James A. Markle.

Gregory Neill Jones, Houston, Tex., for Security Insurance Services.

MEMORANDUM AND ORDER

CIRE, District Judge.

Plaintiffs instituted this action claiming unjustified termination of insurance benefits alleged to be covered by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq. The Defendants have filed a Motion to Dismiss and a Motion for Summary Judgment contending that this Court lacks jurisdiction.

Subject matter jurisdiction exists if the insurance plan in question, the Security Multiple Employers Trust is an "employee benefit plan" described in 29 U.S.C. § 1003(a). Defendants argue in their motion to dismiss that the Trust is "insurance" which is subject only to state regulation.

ERISA is the result of a congressional endeavor to curb the funding and disclosure abuses of employee pension and welfare benefit plans by establishing minimum federal standards. Wadsworth v. Whaland, 562 F.2d 70 (1st Cir. 1977), cert. denied, 435 U.S. 980, 98 S.Ct. 1630, 56 L.Ed.2d 72 (1978). While ERISA supersedes state law regulation of employee benefit plans, the Act allows the States to continue to regulate the sale of insurance. Bell v. Employee Security Benefit Ass'n, 437 F.Supp. 382 (D.Kan.1977); Kerbow v. Kerbow, 421 F.Supp. 1253 (N.D.Tex.1976); 29 U.S.C. § 1144(b)(2)(A).

The term "employee benefit plan" is defined in 29 U.S.C. § 1002(3) as "an employee welfare benefit plan or an employee pension benefit plan or a plan which is both . . .." Thus, if the Trust in question is to constitute a plan covered by ERISA, it must meet the definition of an "employee welfare benefit plan" which is found in 29 U.S.C. § 1002(1):

". . . 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, . . . for the purpose of providing . . ., through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, . . ."

It is not disputed that the Trust meets the second portion of this definition dealing with the purpose of such a plan. The question for determination, therefore, is whether the Trust is an ERISA "employee benefit plan" that has been established or maintained by an employer as defined in 29 U.S.C. § 1002(1).

This issue has been previously addressed in the cases of Hamberlin v. VIP Ins. Trust, 434 F.Supp. 1196 (D.Ariz.1977), and Bell v. Employee Security Benefit Ass'n, supra. Both of these cases held that the employee benefit plans under consideration contained certain characteristics which placed them within the definition of insurance and outside the traditional concept of an ERISA employee benefit plan. Following is a summary of such characteristics:

(1) The establishment of the plan by third party insurance brokers or "entrepreneurs" acting for their own interests and not on behalf of an employer individually or as a group or association;

(2) The lack of voice in the management or operation of the plan on behalf of subscribing employers;

(3) Subscription to the plan by employees without the knowledge of their employers;

(4) The existence of a profit-making enterprise or a plan intended to be "actuarially sound."

An additional aspect of a plan held not to be within the scope of ERISA is found in Wayne Chemical, Inc. v. Columbus Agency Service Corp., 567 F.2d 692 (7th Cir. 1977):

"An employer does not become a participant in, or establish or maintain a plan by applying for insurance and paying premiums for what it understands to be insurance without any knowledge that the plan exists. Establishing, maintaining, or participating in a plan requires an intent, which presupposes an awareness of the existence of the plan."

The Security Multiple Employers Trust was first established by Defendants, E. Robert Efros and William K. Robinson, in the State of Arizona. The Trust which is the subject of this lawsuit was established by Defendants Efros, Robinson, and James A. Markle in Dallas, Texas. These three Defendants are the Trustees and they appointed Defendant, Life and Health Benefits Administration, Inc., as the administrator of the Trust for the State of Texas.

The Trust Agreement declares that it is made between the Trustees and the subscribing employers. An employer becomes a party to the Trust either by executing a full counterpart of the Agreement itself, or by submitting a separate subscription agreement. The Trust requires all premiums to be paid by the subscribing employers and gives the Trustees the authority to apply for a group insurance policy and the "discretion to determine . . . which benefits shall be provided for and the character and amount of each benefit as the trust fund may afford." The Trust further provides that any group insurance policy issued shall be in the name of the Trustees, and the Trustees shall be the owners of such policy and they shall determine the terms and conditions of eligibility of employees for the purposes of the Trust.

The affidavit of Linda Markle, President of Life and Health Benefits Administration, Inc., states that the Trust was established as a profit-making enterprise by the Trustees and it is intended to be actuarially sound. James A. Markle, Trustee, is also the organizer of Life and Health Benefits Administration, the Trust administrator. Ms. Markle's affidavit also notes...