MEMORANDUM DECISION

DENNY CHIN, United States District Judge.

Plaintiff Robert Natoli suffers from "major depression," a disability that has kept him from working since September 1996. Natoli received short-term disability benefits until December 1996; when those benefits expired, Natoli applied to First Reliance Life Insurance Company ("First Reliance"), his employer's long-term disability insurance carrier, for long-term benetits. First Reliance approved Natoli's claim and paid him long-term disability benefits for two years. On December 16, 1998 — the end of the two-year period — First Reliance stopped Natoli's benefits. In response, Natoli commenced an action against First Reliance in the New York State Supreme Court, New York County alleging that First Reliance's policy, which limits benefits for disabilities caused by "mental or nervous disorder or disease" to two years but does not limit benefits for physical disabilities, violates New York State Insurance Law § 4224(b)(2) (McKinney 2000).

First Reliance removed the case to this Court on the ground that the plaintiff's claim "relates to an allegedly improper denial of benefits pursuant to an employee benefit plan governed by" the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § 1001et seq., and therefore arises under that federal statute. (Notice of Removal, p. 2) See 28 U.S.C. § 1441 (a)-(b). Presently before the Court is First Reliance's motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) on the grounds that: (1) plaintiff's § 4224(b)(2) claim is preempted by ERISA, (2) § 4224(b)(2) is inapplicable to the policy at issue, and (3) the policy at issue does not violate § 4224(b)(2). Plaintiff cross-moves pursuant to 28 U.S.C. § 1447 for remand to state court and for attorneys' fees and costs. For the reasons that follow, defendant's motion to dismiss is denied; plaintiff's cross-motion for remand is granted. Plaintiff's request for an award of attorneys' fees and costs is denied.

BACKGROUND

A. Facts

The following facts are undisputed for purposes of this motion. Natoli worked as an Assistant Vice President for Bayerische Hypo-und Vereinshbank AG ("Hypo Bank") from 1994 until September 1996 when "major depression" forced him to stop working. After his short-term disability benefits expired, Natoli applied for and received long-term disability benefits under Hypo Bank's policy with First Reliance.

The relevant provision of the policy at issue provides:

LIMITATIONS MENTAL OR NERVOUS DISORDERS: Monthly Benefits for Total Disability caused by or contributed to by mental or nervous disorders will not be payable beyond an aggregate lifetime maximum duration of twenty-four (24) months unless the Insured is in a Hospital or Institution at the end of the twenty-four (24) month period. . . . Mental or Nervous Disorders are defined to include disorders which are diagnosed to include a condition such as: . . . (5) depressive disorders.

(Def. Mem. Ex. C, p. 9). The policy does not contain the same 24-month limitation for disabilities caused by physical disorders. In accordance with the policy, First Reliance paid Natoli disability benefits for 24 months, from December 1996 until December 16, 1998, at which time it ceased making payments.

B. Prior Proceedings

Plaintiff originally commenced an action in this Court on December 14, 1999 against Hypo Bank and First Reliance alleging claims under the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq., New York State Human Rights Law, N.Y. Exec. Law § 296(1)(a) (McKinney 1993 Supp. 1999), and N.Y. Ins. Law § 4224(b)(2). On June 5, 2000, plaintiff discontinued his claims against Hypo Bank with prejudice and, by stipulation so ordered June 26, 2000, discontinued his ADA and Human Rights Act claims against First Reliance without prejudice. Because the sole remaining claim in the case arose under the New York State Insurance Law, and because plaintiff based his complaint solely upon the Court's federal question jurisdiction, on June 26, 2000 I dismissed the action for lack of subject matter jurisdiction.

Immediately thereafter, plaintiff filed the instant complaint against First Reliance in state court seeking, inter alia, declaratory and compensatory relief. First Reliance removed the case to this Court and I accepted it as related to plaintiff's original action.

DISCUSSION

Plaintiff brings his claims pursuant to N.Y. Ins. Law § 4224(b)(2). That statute provides in relevant part:

No insurer doing in this state the business of accident and health insurance . . . shall

* * *

(2) refuse to insure, refuse to continue to insure or limit the amount, extent or kind of coverage available to an individual, or charge a different rate for the same coverage solely because of the physical or mental disability, impairment or disease, or prior history thereof, of the insured or potential insured, except where the refusal, limitation or rate differential is permitted by law or regulation and is based on sound actuarial principles or is related to actual or reasonably anticipated experience, in which case the insurer . . . shall notify the insured or potential insured of the right to receive, or to designate a medical professional to receive, the specific reason or reasons for such refusal, limitation or rate differential.

First Reliance contends that any claim based on § 4224(b)(2) must be dismissed because it is preempted by ERISA.

A. ERISA Preemption 1. Legal Principles

ERISA's preemption clause "broadly states that ERISA provisions `shall supersede . . . State laws' to the extent those laws `relate to any employee benefit plan.'" UNUM Life Insurance Co. v. Ward, 526 U.S. 358, 363 (1999) (quoting ERISA § 514(a), 29 U.S.C. § 1144(a)). Congress included in ERISA a "saving clause" excepting from preemption "any law of any State which regulates insurance." ERISA § 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A). Plaintiff appears to concede that § 4224(b)(2) falls under ERISA's preemption clause as a state law that "relates to" an employee benefit plan. The crux of the parties' dispute, therefore, is whether § 4224(b)(2) "regulates insurance" such that it escapes preemption under ERISA's saving clause.

To determine whether a state law "regulates insurance" within the meaning of ERISA's saving clause, a court must first "ask whether, from a `common-sense view of the matter,'" the statute regulates insurance.UNUM, 526 U.S. at 367; see Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 740 (1985). If the statute regulates insurance as a matter of common sense, the court must then consider whether the law regulates the "business of insurance" as that phrase is used in the McCarran-Ferguson Act, 59 Stat. 33, as amended, 15 U.S.C. § 1011 et seq. See UNUM, 526 U.S. at 367; Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48 (1987). In making this determination, the court looks to three factors: (1) whether the statute has the "effect of transferring or spreading a policyholder's risk"; (2) whether the statute "is an integral part of the policy relationship between the insurer and the insured"; and (3) whether the statute is "limited to entities within the insurance industry." UNUM, 526 U.S. at 367; see Metropolitan Life, 471 U.S. at 743. A state law need not satisfy all three factors to be held to "regulate insurance" under ERISA's saving clause. See UNUM, 526 U.S. at 373.

2. Application

Defendant does not dispute that § 4224(b)(2) regulates insurance as a matter of common sense. The statute "controls the terms of the insurance relationship," including the amount, extent, and kind of coverage and the rates charged, by prohibiting discrimination on the basis of physical or mental disability. UNUM, 526 U.S. at 368. Moreover, the law is directed specifically at the insurance industry and is applicable only to insurers in the business of accident and health insurance. The statute does not merely have an impact on the insurance industry, but rather "homes in on" it, clearly satisfying the common sense test. Id.; see Pilot Life, 481 U.S. at 50.

Looking to the three McCarran-Ferguson factors outlined above, it is also clear that § 4224(b)(2) regulates the business of insurance. First, § 4224(b)(2) "has the effect of transferring or spreading a policyholder's risk." The statute prohibits accident and health insurers from refusing to insure the disabled, charging the disabled different rates for the same coverage, and limiting "the amount, extent or kind of coverage available" to the disabled. Like the Massachusetts statute guaranteeing minimum mental health benefits at issue in Metropolitan Life, § 4224(b)(2) ensures that costs of mental and physical disabilities are shared by policyholders. See Metropolitan Life, 471 U.S. at 743. First Reliance argues that because the statute contains an exception for limitations based on sound actuarial principles or experience, § 4224(b)(2) does not "spread the risks among policyholders." This is incorrect. Even though § 4224(b)(2) does contain such an exception, it still has the "effect" of transferring and spreading a policyholder's risk, at least in some circumstances.

Second, § 4224(b) is an "integral part of the policy relationship between the insurer and the insured." In Metropolitan Life, the Supreme Court held that a statute meets this prong if it "limit[s] the type of insurance that an insurer may sell to the policyholder." 471 U.S. at 743. Section 4224(b)(2) satisfies this criterion by prohibiting the inclusion of discriminatory terms in insurance policies. See PAS v. Travelers Ins. Co., 7 F.3d 349, 355 (3d Cir. 1993) (New Jersey anti-discrimination statute not preempted by ERISA). Indeed, "nondiscrimination is at the heart of the insurer-insured relationship."Attar v. UNUM Life Ins. Co., No. CA 3:96-CV-0367-R, 1997 WL 446439, at *9 (N.D. Tex. July 19, 1997) (quoting Christenson v. Mutual Life Ins. Co. of New York, 950 F. Supp. 179 (N.D. Tex. Dec 19, 1996)) (Texas statute prohibiting discrimination in the provision of insurance not preempted by ERISA), reconsideration granted in part on other grounds, 1998 WL 574817 (N.D. Tex. Aug. 31, 1998).

Finally, the third factor is easily met; the statute is explicitly aimed at — and solely applicable to — the insurance industry. See UNUM, 526 U.S. at 375; Attar, 1997 WL 446439, at *9.

First Reliance does cite a string of cases in which plaintiffs' state law claims challenging an insurance policy's disparity in long term disability benefits for mental and physical disabilities have been dismissed as preempted by ERISA. See Beegan v. Associated Press, 43 F. Supp.2d 70, 75-76 (D. Me. 1999) (breach of employment contract);Parker v. Metropolitan Life Ins. Co., 875 F. Supp. 1321, 1333 (W.D. Tenn. 1995) (breach of contract and negligent and intentional infliction of emotional distress), aff'd in part, rev'd in part, 99 F.3d 181 (6th Cir. 1996), vacated, 107 F.3d 359 (6th Cir. 1997) (en banc); Schroeder v. Connecticut Gen. Life Ins. Co., No. 93-M-2433, 1994 WL 909636, at *2 (D. Colo. Apr. 22, 1994) (breach of contract). The Second Circuit has drawn a distinction, however, between laws involving "general contract or tort principles" that may affect the insurance industry, such as those at issue in First Reliance's cited cases, and statutes such as § 4224(b)(2) that directly concern insurance. See Franklin H. Williams Ins. Trust v. Travelers Ins. Co., 50 F.3d 144, 151 (2d Cir. 1995) ("Unlike statutes that provide general remedies for unfair practice, fraud, and breach of contract, [N.Y. Ins. Law] § 3214(c) concerns the amount of the payment to which an insured in entitled. We believe that this provision is more similar to the statute addressed in Metropolitan Life, and is precisely the type of statute that Congress intended to save from ERISA preemption.") (citing Metropolitan Life, 471 U.S. at 744).

More similar to the instant action than those cases cited by defendant is the Northern District of Texas case, Attar. There, the plaintiff alleged that his insurance company's 24-month limitation on benefits for disabilities due to mental, but not physical, illness violated a Texas statute — similar to § 4224(b)(2) — that prohibits discrimination in the provision of insurance. Attar, 1997 WL 446439, at *9; see Tex. Ins. Code Ann. art. 21.21-6 (Vernon 1995). Applying the McCarran-Ferguson factors, the court held that the Texas insurance statute was not preempted by ERISA. Id.; see Christenson, 950 F. Supp. at 182-83 (same); but see Fitts v. Federal National Mortgage Assoc., 44 F. Supp.2d 317, 329-30 (D.D.C. 1999) (dismissing state human rights law claim for discrimination on the basis of mental disability as preempted by ERISA without discussing saving clause).

For all the above reasons, I hold that § 4224(b)(2) "regulates insurance" and thus is "saved" from preemption under ERISA. B. Defendant's Alternative Arguments

Defendant argues that even if I hold § 4224(b)(2) is not preempted by ERISA, I should dismiss plaintiff's claim because (1) the statute does not govern the policy at issue, and (2) the policy does not violate the statute. The Second Circuit has instructed, however, that "when [ERISA] preemption is precluded by the saving clause, removal is also barred."Franklin H. Williams Ins. Trust, 50 F.3d at 149. No alternate basis for federal subject matter jurisdiction having been cited, it appears that removal was improper and the case must be remanded to state court. See id. at 151.

C. Attorneys' Fees and Costs

In connection with his motion for remand, plaintiff seeks attorneys' fees and costs, presumably pursuant to 28 U.S.C. § 1447(c). Section 1447(c) provides that "[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." The decision whether to award costs or fees is left to the discretion of the district court; the court "need not find that the removal was in bad faith, only that it was improper." Eastern States Health Welfare Fund v. Philip Morris, Inc., 11 F. Supp.2d 384, 406 (S.D.N.Y. 1998) (denying fees) (citing Morgan Guaranty Trust Co. of New York v. Republic of Palau, 971 F.2d 917, 923 (2d Cir. 1992)); see Haggerty v. Wyeth Ayerst Pharms., 79 F. Supp.2d 182, 190 (E.D.N.Y. 2000) (denying fees); Greenidge v. Mundo Shipping Corp., 60 F. Supp.2d 10, 12 (E.D.N.Y. 1999) (awarding fees where "impropriety of removal should have been clear").

In exercising their discretion, district courts look to whether the grounds for removal were "substantial or presented a close question,"Eastern States, 11 F. Supp.2d at 407, or "colorable," even if ultimately unpersuasive. Bellido-Sullivan v. American Int'l Group. Inc., No. 00 Civ. 6403, 2000 WL 1738413, at *5 (S.D.N.Y. Nov. 21, 2000) (denying award of fees and costs where basis for removal was "colorable"); see Haggerty, 79 F. Supp.2d at 190 (denying fees where defendant "had no good reason to believe that its preemption argument would provide a basis for removal" but "the issues presented were otherwise matters of first impression"); Gehm v. New York Life Ins. Co., 992 F. Supp. 209, 212 (E.D.N.Y. 1998) (denying award of fees where basis for argument for removal was "colorable . . . despite the clear procedural bar of the removal statutes"). Here, defendant's argument for removal was colorable, although ultimately incorrect. Accordingly, plaintiff's motion for an award of fees and costs is denied.

CONCLUSION

For the foregoing reasons, defendant's motion to dismiss is denied. Plaintiff's cross-motion to remand is granted; his motion for costs and attorneys' fees is denied. This action is remanded to the Supreme Court of the State of New York, New York County pursuant to 28 U.S.C. § 1447 (c), for lack of subject matter jurisdiction. Defendant is free to argue its state law defenses in state court.