Legal Summary: Bates v. Hartford Life and Accident Insurance Company
Bates v. Hartford Life and Accident Insurance Company
428 F. Supp. 3d 277 (D. Idaho 2019)
The District Court of Idaho decided that our client’s claim was not preempted by ERISA.
Our client worked for American Family Insurance as an independent agent and was covered by American Family’s long-term disability plan. After she resigned from American, her coverage under that plan was terminated. The American Plan contains a conversion provision that allows an employee who no longer meets the eligibility requirements for the plan to obtain “personal insurance under another group policy called the group long term disability conversion policy.”
Following her departure from American, our client used the conversion provision of the American Plan to obtain insurance through the Group Long Term Disability Plan of Insurance for which the policyholder is The Northern Trust Company. Hartford Life Insurance is the administrator for both the American Plan and the Northern Plan.
When she became totally disabled, as defined by the Northern Plan, our client attempted to file disability claims with Hartford. Hartford initially either ignored or refused to process the claims before later denying her claim. She appealed but was denied again. Our client then filed this action, alleging multiple state law claims, including breach of contract and bad faith. Hartford argued that the Northern Plan is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461. Should the plan be governed by ERISA, our client’s state law claims are preempted, and her sole remedy is under ERISA.
The court had to determine whether the Northern Plan is an “employee benefit plan” that is governed by ERISA. An “employee benefit plan” is defined, in relevant part, as “an employee welfare benefit plan.” 29 U.S.C. § 1002(3). An “employee welfare benefit plan” is: (1) a “plan, fund or program” (2) established or maintained (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits (5) to the participants or their beneficiaries. Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 492 (9th Cir. 1988.) An employee benefit plan must also cover at least one employee to constitute an ERISA benefit plan. Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 875 (9th Cir. 2001); 29 C.F.R. § 2510.3–3(b).
The Ninth Circuit has held “that state-law claims arising under a converted policy—even though the policy has been converted from an ERISA plan—are not preempted by ERISA.” Waks. We argued that our client converted her coverage to that under an individual policy, which would not meet the elements of an ERISA Plan. Like the plaintiff in Waks, our client exercised her conversion right upon her departure from American Family and was then covered under the Northern Plan. When our client left American Family, she went through a conversion process that required her to apply to Hartford and pay her anticipated premium to obtain coverage under the Northern Plan. The Court found that our client converted her coverage and that the Northern Plan is a conversion plan.
The court ruled that Hartford provided no evidence that American Family or its employees received any benefit from the inclusion of the conversion provision. The Northern Plan was established between Northern Trust and Hartford to provide conversion policies to any employees who qualified for conversion privileges in employer sponsored policies issued by Hartford. There is also no evidence that American Family had any administrative role with the Northern Plan. Considering all of the circumstances surrounding the Northern Plan’s formation, administration, and the absence of meaningful involvement by American Family or any other employer, the Court determined that Northern Trust is not an “employer” for purposes of ERISA.
Hartford argued that because the Northern Plan covers former employees of various employers who included a conversion right in their group insurance plans, the Northern Plan covers “participants.” To be a “participant” under § 1002(7), the employee or former employee must receive a benefit from a plan which “covers employees” of an employer. An employee is defined as “any individual employed by an employer.” § 1002(6.) The court found that Northern Trust is not an employer, that the Northern Plan does not cover a single “employee,” and cannot provide coverage to “participants” for purposes of ERISA.
Hartford did not meet its burden to establish that the Northern Plan is governed by ERISA, and that the plan is a conversion plan. The Northern Trust is not an employer, and the Northern Plan does not cover any employees as required by ERISA. Accordingly, the Court found that our client’s state-law claims were not governed by ERISA.
