Legal Summary: Gillespie v. Paul Revere Life Insurance Company
Gillespie v. Paul Revere Life Insurance Company
No. 120CV00102DCLCCHS, 2021 WL 6333362 (E.D. Tenn. 2021)
Our client worked as a gastroenterologist until he suffered a stroke, after which he submitted a claim for disability benefits from Paul Revere Life Insurance. Unum Group, Paul Revere’s parent company, approved the claim.
Our client filed a complaint against Paul Revere, alleging breach of contract and bad faith failure to pay disability benefits under Tennessee law. He sought to resolve the question of whether his disability is the result of sickness or injury.
Paul Revere and Unum removed the case to federal court, claiming that the federal court had jurisdiction. In order for a federal court to have jurisdiction, the court must either have diversity jurisdiction under 28 U.S.C. § 1332 when the parties involved are from different states, or the court can have jurisdiction if the dispute is one under federal law. Paul Revere alleged that our client’s policy was governed by the Employee Retirement Income Security Act (ERISA) 29 U.S.C. § 1001, et seq., a federal law. The Supreme Court has held that state-law causes of action that seek to recover benefits, enforce rights, or clarify rights to future benefits under an employee benefit plan are completely preempted by ERISA and, thus, arise under federal law. Thus, if the policy was subject to ERISA, the federal court would have jurisdiction.
We argued that ERISA did not apply to our client’s policy, and that the federal Court lacked subject matter jurisdiction, so that the case be remanded to state Court. See Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986); 28 U.S.C. § 1447(c).
The essence of Paul Revere and Unum’s arguments was that our client’s policy was part of an employee benefit plan because the employer contributed to the policy, thus making the policy subject to ERISA.
We argued that our client had obtained a long-term disability policy from an agent of Paul Revere’s, independent from his employer, thus it was not a policy issued as part of an employee benefit plan subject to ERISA.
When determining whether ERISA applies to a policy, the court conducts a three-part analysis under Thompson v. Am Home Assur. Co., 95 F.3d 429, 434 (6th Cir. 1996). Under that test, a court determines whether:
- The policy falls under the ERISA “safe harbor” regulations established by the Department of Labor.
- A plan can be ascertained, “from the surrounding circumstances a reasonable person [could] ascertain the intended benefits, the class of beneficiaries, the source of financing, and procedures for receiving benefits.”
- The employer “established or maintained” the plan with the intent of providing benefits to its employees.
Thompson, 95 F. 3d at 434-435.
Starting with the “safe harbor” regulations, a policy is exempt from ERISA if: 1) the employer makes no contribution to the policy; (2) employee participation in the policy is completely voluntary; (3) the employer’s sole functions are, without endorsing the policy, to permit the insurer to publicize the policy to employees, collect premiums through payroll deductions and remit them to the insurer; and (4) the employer receives no consideration in connection with the policy other than reasonable compensation for administrative services actually rendered in connection with payroll deduction. If the policy fails to meet all 4 requirements, the policy is not subject to the safe harbor and is subject to ERISA.
Paul Revere and Unum argued that our client’s policy failed the first prong of this test because his employer contributed in two ways, they claimed. First, the employer paid the premiums, and second our client received a discount as a contribution by his employer. We argued, on behalf of our client, that he paid all the premiums and his employer did not contribute to any discount.
The insurance agent who sold the policy testified that he met with our client independently of his employer, and that his employer did not endorse or encourage our client to buy insurance from Paul Revere.
Paul Revere offered a “Multiple Life Discount” when several policies were sold to different individuals at the same business, giving both our client and his employer a 10% discount. The insurance agent explained this was a form of pre-authorization bundled billing in which Paul Revere could dedict directly from the checking accounts of policyholders. He explained the bundled billing procedures and discounts were used “as a marketing tool … to cross-sell policies to colleagues of current policyholders” and “[t]he employer was not involved in the sale process, did not negotiate the discount on behalf of
its employees, and did not endorse buying a policy from Paul Revere.” Gillespie v Paul Revere, 2021 WL 6333362, 1 (Opinion and Order, March 25, 2021, E.D. Tn), unpublished.
Unum argued that the employer was involved because the original documents showed the employer would pay the premiums at first and that the premiums would not be deducted from our client’s account until a few months later. Id., at 4. However, Paul Revere did not provide evidence that our client’s employer had actually paid any of our client’s premiums.
On the other hand, the statement from our client’s insurance agent supported our client’s claim that he paid all the premiums. The agent stated he “received and submitted to Paul Revere [our client’s] initial premium payment, which was paid by [our client] using his personal checking account.” Paul Revere’s agent affirmed that, to his knowledge, our client’s employer never paid any premiums.
Paul Revere’s second argument was that the discount they offered amounted to an employer contribution. The court explained it had previously looked at a similar situation and held that, “a non-negotiated group discount that applies only because premiums are paid through payroll deduction” does not qualify as an employer contribution under the first requirement of the safe harbor provision. Gooden v. Unum Life Ins. Co. of Am., 181 F. Supp. 3d 465, 471-72 (E.D. Tenn. 2016.)
Unum argued that this rule should not be followed because what counts as a “negotiation” is unclear, and that the court should follow a “but-for” analysis. ERISA should apply if the employee would not have received the discount “but for” the employer-employee relationship.
The court rejected the “but for” test and instead said the focus should be on whether the employer negotiated the discount or not. The court when on to explain that our client’s employer was neither involved with his purchase of the insurance policy nor the procurement of the premium discount, which our client’s insurance agent offered as a “good salesman.” The employer did not encourage our client to purchase the policy, nor did he inquire about receiving the discount on his policy. The Court determined that the discount our client received did not qualify as an employer contribution under the first requirement of the Court’s safe harbor provision.
The second requirement of the Court’s safe harbor provision is that participation in the program is “completely voluntary for employees….” 29 C.F.R. § 2510.3-1(j)(2). The Court agreed that our client’s purchase of his plan was entirely voluntary.
The third requirement of the safe harbor provision is that “the sole functions of the employer … with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees …, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer.” 29 C.F.R. § 2510.3-1(j)(3). The Court agreed that our client’s employer was not “substantially involved in the creation and administration of the plan” because he merely introduced our client to Paul Revere’s agent. Thus, the third safe harbor requirement was met.
The final safe harbor requirement is that the employer “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)(4). Paul Revere failed to provide any evidence that our client’s employer received consideration in connection with our client’s policy; the Court agreed that our client’s employer did not negotiate or solicit the increased discount and satisfied the fourth safe harbor requirement.
The Court noted that Paul Revere did not address the last three safe harbor requirements in their response, relying only on the first safe harbor requirement argument that “the record is clear in this case that [our client’s employer] contributed to the policy.” Therefore, Paul Revere waived any opposition to our arguments with respect to voluntary participation, endorsement by the employer, and consideration received by the employer. See Taylor v. UnumProvident Corp., No. 1:03-CV-1009, 2005 WL 3448052, at *2 (E.D. Tenn. Dec. 14, 2005)
The Court ruled that our client’s policy was not preempted under ERISA because it satisfied the four safe harbor regulations. The case was remanded to the Circuit Court for Hamilton County, Tennessee.