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Individual Policy Not Governed by ERISA – D. Mn.

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  • Individual Policy Not Governed by ERISA – D. Mn.

    Individual Policy Not Governed by ERISA – D. Mn.
    Attached is a case out of the District of Minnesota, Christoff v. The Paul Revere Life Insurance Company. The case is before the court on the defendant’s objection to the magistrate’s report and recommendation. In the case, plaintiff seeks long term disability benefits under an individual policy. Plaintiff’s employer decided to add a supplemental individual disability policy for its employees. Enrollment in the policy was voluntary. Defendant provided a 35% premium discount to employees who enrolled. The employer paid the premiums to defendant, and employees reimbursed the employer for the premium via payroll after tax deductions.

    Plaintiff enrolled in the plan and drew benefits for a period of time. Defendant denied plaintiff’s claim, and plaintiff filed a complaint for breach of contract. Defendant alleged that plaintiff’s claim was preempted by ERISA. The magistrate found that the claim was not governed by ERISA as it was an individual policy. The district court agreed.

    Paul Revere makes five specific objections to the Magistrate Judge’s construction of the facts. Each will be discussed in turn below.

    First, Paul Revere objects to the Magistrate Judge’s finding that “‘Paul Revere has not pointed to any evidence in the record that the 35% discount was specifically negotiated by Spencer Stuart for the benefit of its employees’ and that the ‘reason for the discount’ is unknown.” (Objs. at 5) (quoting R. & R. at 11-12.) Viewing the facts in the light most favorable to Christoff, Paul Revere fails to show that the 35% discount was specifically negotiated for by Spencer Stuart. Paul Revere points to several documents showing that the 35% discount was “linked to the ‘ESP’ assigned to Spencer Stuart.” (Objs. at 8.) Evidence shows that Christoff’s “policy was issued as part of an employer sponsored or security plan (“ESP”) referred to as Risk Group No. 083242” that “[p]olicies issued in connection with Risk Group No. 083242 received a 35% discount on premiums,” and that, “Christoff continues to receive a 35% discount because his individual policy was issued in connection with Risk group No. 083242.” (Id. ¶¶ 5-6; see also Connolly Aff. ¶ 2, Ex. A-3 (“Admin. Record Part 2”) at 763, Dec. 29, 2017, Docket No. 16.) While these documents may demonstrate that Christoff received the 35% discount because of his association with the ESP and Risk Group No. 083242, they do not show that Spencer Stuart specifically negotiated this discount. A dispute of fact remains as to the reason for the discount.

    Second, Paul Revere objects to the Magistrate Judge’s findings that “Paul Revere has not pointed to any evidence in the records to support the assertion that ‘Spencer Stuart secured a 35% premium discount because it agreed to be 100% responsible for the premiums.’” (Objs. at 5) (quoting R. & R. at 11.) Viewing the facts in the light most favorable to Christoff, Paul Revere fails to show that the 35% discount was a result of the billing method agreed to by Spencer Stuart, namely that Spencer Stuart would pay 100% of premiums. While the evidence offered by Paul Revere demonstrates that Spencer Stuart paid 100% of premiums, which was then reimbursed by the employees, none of the referenced evidence connects this billing method to the discount or to negotiations of any kind. Again, a dispute of fact remains as to the reason for the discount.

    Third, Paul Revere objects to the Magistrate Judge’s findings that “‘Christoff correctly points out that ‘Paul Revere has offered no evidence that Spencer Stuart. . .touted [Christoff’s policy] as part of Spencer Stuart’s ‘plan.’ There is no contention that Spencer Stuart promoted the Policy.’” (Objs. at 6) (quoting R. & R. at 17.) Viewing the facts in the light most favorable to Christoff, Paul Revere fails to show that Spencer Stuart promoted the supplemental disability policies to its employees. Indeed, Paul Revere fails to make any factual allegations that Spencer Stuart conducted activities to promote the Paul Revere policies.

    Fourth, Paul Revere objects to the Magistrate Judge’s findings that “[t]here was no evidence, other than that which the Magistrate Judge declined to consider, supporting that Spencer Stuart determined which employees were eligible to apply for the Paul Revere policies.” (Objs. at 6.) The facts cited by Paul Revere, however, do not support this assertion. Paul Revere asserts that because the application asks for occupation and income information that can only be verified by Spencer Stuart, Spencer Stuart necessarily set eligibility requirements related to those. This inference does not follow, especially when viewed in the light most favorable to Christoff. Further, Paul Revere asserts that because Spencer Stuart would pay for all of the premium then it “necessarily implicates the employer’s involvement in confirming that the specific employee met the job and income eligibility requirements.” (Objs. at 7.) Again, this inference does not follow from the cited facts. Furthermore, any associations of Risk Group or ESP to Spencer Stuart does not necessitate an inference that Spencer Stuart set eligibility criteria for obtaining the associated plans. It merely shows that there was such an association. Lastly, the name of the policy, “Business Executive Disability Income Policy,” does not show that Spencer Stuart set eligibility criteria for the policies with that name. So, considering all the evidence outside of the Mugford Exhibit, Paul Revere fails to establish that Spencer Stuart set any eligibility criteria for the plans. Furthermore, the application for insurance provided by Paul Revere states “the information obtained with this Form will be used by Paul Revere to determine my eligibility for insurance.” (Admin. Record Part 1 at 833-34.) Thus, Paul Revere fails in this objection.

    And fifth, Paul Revere objects to the Magistrate Judge’s findings that “[t]here was ‘no evidence in the record that Spencer Stuart played an active role in the application process or in processing paper work in conjunction with the Policy.’” (Objs. at 6) (quoting R. & R. at 23-24.) Viewing the facts in the light most favorable to Christoff, Paul Revere fails to show “that Spencer Stuart played an active role in the application process or in processing paper work in conjunction with the Policy.” (Objs. at 5-6.) While Paul Revere alleges that Christoff’s “application, and the payment of premiums related thereto, was specifically tied to an ‘ESP’ associated with [Spencer Stuart,]” (Def.’s Supp. Mem. at 7), Paul Revere does not allege that Spencer Stuart processed the applications or paperwork. In fact, the application Christoff completed to obtain the Policy was on Paul Revere forms and stated, “the information obtained with this Form will be used by Paul Revere to determine my eligibility for insurance.” (Admin. Record Part 1 at 833-34.) Furthermore, the form appears to have been processed by Paul Revere, which assigned the Policy an ESP number of 083240, a billing date of October 21, 1998, and a due date of November 1, 1998. At the very least, a dispute of material fact remains as to Spencer Stuart’s role in the application process or processing paper work in conjunction with the Policy. The Court will overrule Paul Revere’s objections regarding the Magistrate Judge’s construction of facts and consideration of material evidence, adopt the R&R, and deny Paul Revere’s Motion for Summary Judgment.

    . . .

    Paul Revere objects to the Magistrate Judge’s conclusion that the Policy is not an employee welfare benefit plan under ERISA. Paul Revere argues that the outcome was based on the “above-referenced exclusion, misconstruction, and disregard of material, admissible evidence.” (Def.’s Supp. Mem. at 9.) As a preliminary matter, the Court notes that it has overruled Paul Revere’s objections as to those grounds; thus, those grounds do not support rejecting the R&R’s conclusion that the Policy is not an employee welfare benefit plan under ERISA. Moreover, upon de novo review, the Court finds that the Policy is not an employee welfare plan under ERISA. A plan must be “established or maintained by an employer” for it to qualify as an employee welfare benefit plan governed by ERISA. 29 U.S.C. § 1002(1); see Lanpher v. Unum Life Ins. Co. of Am., No. 14-cv-2560 (JRT/HB), 2015 WL 5157519, at *5 (D. Minn. 2015) (“The Court must also consider whether an employer conducts activities that constitute the establishment or maintenance of an employee welfare benefit plan.”).“The pivotal inquiry is whether the plan requires the establishment of a separate, ongoing administrative scheme to administer the plan’s benefits.” Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 257 (8th Cir. 1994). “Simple or mechanical determinations do not necessarily require the establishment of such an administrative scheme; rather, an employer’s need to create an administrative system may arise where the employer, to determine the employees’ eligibility for and level of benefits, must analyze each employee’s particular circumstances in light of the appropriate criteria.” Id. Furthermore, ERISA preemption is an affirmative defense,3 thus the burden is on Paul Revere to show that the Policy is preempted by ERISA.

    Paul Revere fails to show that Spencer Stuart established or maintained a separate ongoing administrative scheme. Paul Revere first contends that its “100% responsibility for the payment of policy premiums” for 89 individual policies and its “corresponding administrative scheme” was indicative of establishing and maintaining a plan. (Objs. at 10.) Not so. That Spencer Stuart was a conduit for payments does not create an administrative scheme as contemplated by ERISA. This involves merely deducting and remitting payments and is exactly the mechanical determination exempted in Kulinksi. Kulinksi, 21 F.3d at 257-58 (no administrative scheme when, once the employee resigned, “there was nothing for the company to decide, no discretion for it to exercise, and nothing for it to do but write a check”). 4 This type of activity is also specifically permitted in the Safe Harbor Provision under the third element. 29 C.F.R. 2510.3-1(j)(3). It would be untenable, then, to hold that an activity which employers can engage in and still escape ERISA enforcement under the Safe Harbor Provision, would – standing alone – subject them to liability under ERISA. Thus, this objection must fail.

    Paul Revere further alleges that Spencer Stuart determined eligibility for the Policy. This argument has been fully addressed above. In sum, the only evidence that might directly support such an assertion comes from the Mugford Exhibits, which the Court will not consider. Paul Revere’s argument that Spencer Stuart must have set eligibility requirements because the application form for Paul Revere’s disability insurance requested occupational and income information also fails. That an insurance provider would need to reach out to an employer to verify employment and income on an insurance application does not mean that employer set those conditions as an eligibility criteria. And, again, the name of an insurance policy, by itself, does not show that Spencer Stuart created any eligibility requirements.

    Ultimately, Paul Revere does not demonstrate that Spencer Stuart was involved in determining employees’ eligibility for and level of benefits, analyzing each employee’s circumstances in light of given criteria, or any other discretionary decisions.5
    It is worth noting that the district court denied plaintiff’s summary judgment on ERISA’s Safe Harbor provision, finding that a genuine issue of material fact remained as to the contribution issue.
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