Hampton v. Provident Life Accident Ins. Co.

Full title: CHARLIE HAMPTON v. PROVIDENT LIFE ACCIDENT INSURANCE COMPANY

Court: United States District Court, E.D. Louisiana

Date published: Jan 20, 2000

Civ. No. 99-1446, SECTION "K" (3) (E.D. La. Jan. 20, 2000)

Opinion

Civ. No. 99-1446, SECTION "K" (3).

January 20, 2000.

Before the court is the motion of plaintiffs Charlie Hampton and Hamp's Enterprises Inc. to remand this action to state court on grounds that this court lacks subject matter jurisdiction. Defendant's Notice of Removal asserts that the intervention of Hamp's Enterprises implicates issues governed by the Employee Retirement Income Security Act ("ERISA"). Plaintiffs argue that the disability policy at issue in this case is not an employee benefit plan under ERISA. For the reasons explained below, the court finds that plaintiffs motion has merit and should be granted.

A. Factual Background

Charlie Hampton ("Hampton") and his wife Audrey are co-owners of Hamp's Enterprises ("Hamps"). In 1987, Hampton purchased a disability insurance policy from defendant Provident Life Accident Insurance Company ("Provident") The disability policy names Hampton as the sole insured and does not cover any of Hamp's employees. Hamp's pays the premiums on this disability policy. In 1993, Hamp's obtained health insurance for its employees through a different insurer, and Hamp's pays 85% of the premiums for the employees' health insurance.

In 1997, Hampton made a claim for benefits under his disability policy with Provident. Upon Provident's refusal to pay Hampton's disability claim, Hampton filed suit in state court in January of 1998. Hamp's intervened in the action in April of 1999, seeking reimbursement for its continued payment of policy premiums. Provident removed the action to federal court in May of 1999 on grounds of federal question jurisdiction under ERISA. Hampton now asks the court to remand this matter to state court.

In its opposition to Hampton's Motion for Remand, Provident contends that the disability policy is a component of an employee benefit plan under ERISA. Specifically, Providence argues that where employee benefits are funded by more than one insurance policy, the entire benefit program, including Hampton's disability policy, is governed by ERISA.

B. Standard for Removal

Title 28 U.S.C. § 1441(b) permits removal of any "civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties, or laws of the United States." Removal jurisdiction must be strictly construed, however, because it "implicates important federalism concerns." Frank v. Bear Stearns Co., 128 F.3d 919, 922 (5th Cir. 1997). The burden of establishing federal jurisdiction is on the party seeking removal. Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988). Furthermore, any doubts about removal must be construed against removal and in favor of remanding the case back to state court. See Vasquez v. Alto Bonito Gravel Plant Corp., 56 F.3d 689 (5th Cir. 1995); 28 U.S.C. § 1446(b).

C. Discussion

Provident contends that Hampton's disability policy qualifies as an employee benefit plan and is governed by ERISA. An employee welfare benefit plan is defined as:

any plan, fund, or program which was . . . established or maintained by an employer . . . for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits in the event of sickness, accident, [or] disability. . . .

29 U.S.C. § 1002(1). To qualify as an employee benefit plan, the plan must cover at least one employee as a participant.¹ The Department of Labor has excluded sole proprietors and spouses who jointly own corporations from the definition of ERISA employees.² See Meredith v. Time Ins. Co., 980 F.2d 352, 356-358 (5th Cir. 1993) (holding that holding that 29 C.F.R. § 2510.3-3(c) prevents application of ERISA to medical insurance policy where plaintiff was sole proprietor and policy covered only the plaintiff and her spouse). Thus, in order to establish an ERISA employee welfare benefit plan, the plan must provide benefits to at least one employee, not including an employee who is also an owner of the business. Id.

1 29 C.F.R. § 2510.3-3(b) provides, in pertinent part, "For purposes of Title I of the Act and this chapter, the term `employee benefit plan' shall not include any plan . . . under which no employees are participants under the plan. . . ."

2 29 C.F.R. § 2510.3-3(c) provides that "[a]n individual and his or her spouse shall not be deemed to be employees with respect to a trade or business whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse. . . ."

In this case, Hampton contends that the disability policy he purchased from Provident in 1987 is not an ERISA plan because he co-owned Hamp's with his wife and was the only named insured on the policy. Thus, Hampton argues that by virtue of 29 C.F.R. § 2510.3-3(c)(1), he should not be considered an employee for purposes of determining whether the disability policy is an ERISA plan. Hampton does not dispute that ERISA applies to the health insurance policy which Hamp's maintains for its employees.

In opposing remand, Provident maintains that the disability policy is a component of an employee benefit plan, which, taken as a whole, qualifies as an employee benefit plan for ERISA purposes. In support of this argument, Provident relies principally on Bellisario v. Lone Star Life Ins., 871 F. Supp. 374 (C.D.Cal. 1994) and Peterson v. American Life Health Ins. Co., 48 F.3d 404 (9th Cir. 1995), cert. denied, 133 L.Ed.2d 301 (1996).

In Bellisario, the owner of a company brought suit to recover disability benefits from the defendant. Plaintiff was the president and sole owner of a restaurant and had purchased a disability policy from defendant through the restaurant.³ The policy did not cover any employees. Plaintiff's restaurant also purchased a group health insurance policy from a different insurer for plaintiff and some of plaintiffs employees. The district court found that plaintiffs state law claims for benefits under the disability policy were preempted by ERISA because both policies were part of an overall employee benefit plan. Bellisario, 871 F. Supp. 374, 378-379. While Bellisario is factually similar to this case, it is not controlling authority.

3 When plaintiff purchased the policy, he signed a memoranda of understanding, stating that the policy was part of a wage continuation plan. Because of this characterization, the company received a tax deduction, and plaintiff qualified for additional benefits under the policy. However, the Ninth Circuit did not rely on estoppel in deciding that the plan was part of the restaurant's overall welfare benefit plan.

Provident also directs the court to the Ninth Circuit's decision in Peterson v. American Life Health Ins. Co. In Peterson, one of the partners in a partnership brought claims under a health insurance policy purchased by the business. 48 F.3d 404. The policy was originally purchased for the two partners and one employee. The plaintiff remained the sole insured on the original policy while his partner and employee obtained new insurance. The Ninth Circuit held that the original policy, under which the plaintiff was still insured, was "just one component of [the partnership's] employee benefit program . . . and the program, taken as a whole, constitutes an ERISA plan." Peterson, 48 F.3d at 407. Nonetheless, like Bellisario, Peterson is only persuasive authority.

Moreover, as Hampton points out, the facts of Peterson are distinguishable from those before the court. In Peterson, the plaintiffs health insurance policy was purchased initially to cover both owners and employees. Therefore, the plan was an employee welfare benefit plan and thus governed by ERISA from the outset. In this case, Hamp's purchased the disability policy from Provident solely for Hampton's benefit, and no employees of the business have ever been named insureds on the Provident policy.

Furthermore, the Eleventh Circuit recently decided a case which is factually similar to the case before this court. See Slamen v. Paul Revere Life Ins. Co., 166 F.3d 1102 (11th Cir. 1999). In Slamen, the plaintiff was a dentist who brought an action against his disability insurer. The disability policy was purchased through his professional corporation and covered only the plaintiff. The disability insurer argued that because the corporation also provided health and life insurance for Slamen and his employees, ERISA applied to the disability policy. The Eleventh Circuit noted that the disability policy covered only Slamen and that no employees received benefits under the plan. Moreover, the policies bore no relationship to one another; they were "purchased at different times, from different insurers, and for different purposes." Slamen, 166 F.3d at 1105. The court relied on the Fifth Circuit's reasoning in Robertson v. Alexander Grant Co. (discussed below) in holding that "Slamen's disability insurance policy — which is not, by its terms, an ERISA plan — is not converted into an ERISA plan merely because Slamen also provides ERISA benefits to his employees." Id.

As stated above, the Slamen court cited the Fifth Circuit's Robertson decision in finding that the plaintiffs disability policy was not governed by ERISA. In Robertson, the Fifth Circuit held that two plans, one of which covered owners of a business and the other covering employees, were two separate plans for purposes of ERISA. Robertson v. Alexander Grant Co., 798 F.2d 868 (5th Cir. 1986), cert denied, 479 U.S. 1089 (1987). The Robertson court relied on the fact that the plan covering partners did not pay any benefits to employees, and the plan covering employees did not pay any benefits to partners. Id. at 871-72. Hence, the plan covering only partners was not governed by ERISA.

Similarly, in this case, no employees were named insured on the disability policy. The policy was purchased solely for Hampton. Furthermore, like the policy at issue in Slamen, Hampton's disability policy was purchased at a different time, from a different insurer, and for a different purpose than the health insurance policy, which Hampton admits is an ERISA plan. The court finds the Slamen reasoning sound and persuasive. Moreover, Robertson is controlling precedent.

In accordance with the Fifth Circuit's reasoning in Robertson the Eleventh Circuit's decision in Slamen, the court finds that the disability policy purchased by Hamp's for Hampton in 1987 is not governed by ERISA. Because ERISA is inapplicable, the court lacks subject matter jurisdiction under 28 U.S.C. § 1331. Accordingly,

IT IS ORDERED that plaintiffs Motion to Remand should be GRANTED and this matter is hereby remanded to the Civil District Court for the Parish of Orleans, State of Louisiana, No. 98-291.