Opinion
Civil Action No. 3:98-CV-0770-M.
June 9, 2000
MEMORANDUM OPINION AND ORDER
Defendant UNUM Life Insurance Company ("UNUM" or "Defendant") has denied Plaintiff Murry E. Page ("Page" or "Plaintiff") disability benefits under three separate insurance policies: 1) a group long term disability policy (the "Group Policy"), 2) a Business Purchase Policy (the "BP Policy"), and 3) an individual disability income policy (the "DI Policy"). Plaintiff concedes, as Defendant contends, that the Employee Retirement Income Security Act ("ERISA") governs the Group Policy, but asserts that neither the BP Policy nor the DI Policy fall within the ambit of ERISA, and that his state law claims relating to those policies are therefore not preempted by ERISA.
Plaintiff claims that the denial of benefits under the Group Policy violates 29 U.S.C. § 1132(a)(1)(B) (part of ERISA). With respect to the BP and DI policies, Plaintiff sues for breach of contract; breach of the covenant of good faith and fair dealing; violations of TEX. INS. CODE arts. 21.21 and 21.55; and violations of TEX. BUS. COM. CODE § 17.50 (part of the Texas Deceptive Trade Practices Act, known as the "DTPA").
The Court construes Page's breach of contract claim, as it relates to the Group Policy, to be an ERISA claim.
Before the Court is Defendant's Amended Motion for Partial Summary Judgment on all of Plaintiffs claims, and all responses and replies thereto.
Defendant notes that, although it moves for summary judgment on all of Plaintiff's claims, it has titled its pleading a partial motion for summary judgment because, if granted, its counterclaim for attorney's fees will remain.
Having considered the record, applicable law, and arguments of counsel in a hearing held in open court on April 28, 2000, for the reasons stated below, the Court DENIES Defendant's Amended Motion for Partial Summary Judgment.
I. Background
Beginning in 1978, Page was a practicing attorney and named partner in the law firm of Page Addison. Page began seeing Dr. Kathleen Erdman ("Dr. Erdman"), a psychiatrist, in December of 1994. Dr. Erdman concluded that Page suffers from a major depression, moderately severe, without psychotic features, chronic dysthymia, coupled with obsessive compulsive personality traits, and that his condition, the symptoms of which, according to Page, include severe depression, loss of self-confidence, passivity, inability to handle confrontation, and impaired judgment, rendered him completely unable to work by May 1996. Page stopped practicing law altogether in October 1996 and, since then, without monetary compensation, he has helped a friend who is trying to start a computer business. He has also given speeches and worked on a book.
Page contends that he purchased the three separate disability insurance policies described above from UNUM well before the onset of his illness. He further asserts that, although "disability" is defined slightly differently under each policy, his condition rendered him "disabled" under each of the three definitions, such that UNUM was obligated to pay him disability insurance benefits under each policy. UNUM, however, refused to pay Page disability benefits under any of the policies. As a result, Page filed suit.
II. Summary Judgment Standard
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that, as a matter of law, the movant is entitled to judgment. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). A material fact is one that "might affect the outcome of the suit under the governing law" and a "dispute about a material fact is "genuine'...if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In a motion for summary judgment, the burden is on the movant to prove that no genuine issue of material fact exists, and if the movant fails to meet its burden, the motion must be denied, regardless of the nonmovant's response. Little, 37 F.3d at 1075. If, however, the movant does meet its burden, then the nonmnovant must go beyond the pleadings and "designate specific facts showing that there is a genuine issue for trial." Id. The record before the court must be considered in the light most favorable to the nonmovant. Harrison v. Byrd, 765 F.2d 501, 504 (5th Cir. 1985).
III. Analysis
A. Preemption Under ERISA
Although Page concedes that ERISA governs the Group Policy, the parties dispute whether the BP Policy and the DI Policy are likewise within the purview of ERISA. In order for ERISA to govern Page's claims under either the BP or the DI Policy, this Court must decide whether, as a threshold matter, either, or both, of those policies constitute an "employee welfare benefit plan" as that term is defined by ERISA. Meredith v. Time Ins. Co., 980 F.2d 352, 353 (5th Cir. 1993). This inquiry is a question of fact. Id. If a plan is governed by ERISA, then state law claims relating to that plan are preempted. Hansen v. Continental Ins. Co., 940 F.2d 971, 976 (5th Cir. 1991).
The Court's preemption determination in this case turns on whether, as Page contends, the BP Policy and the DI Policy should be evaluated on their own, or, rather, as UNUM urges, as components, along with the Group Policy, of a comprehensive ERISA employee benefit plan. In support of this assertion, UNUM emphasizes the relationship between the three plans and argues that the BP Policy and the DI Policy supplemented the Group Policy, which all parties agree is governed by ERISA.
In order to be considered an ERISA plan, a plan must, among other things, satisfy the primary elements of an ERISA "employee benefit plan" — establishment or maintenance by an employer intending to benefit employees. Meredith, 980 F.2d at 355. As the court in Hansen stated, an ERISA plan "must be established or maintained by an employer, and . . . the employer must have a certain intent — a purpose to provide benefits to its employees." Hansen, 940 F.2d at 977. Importantly, for the purpose of determining whether a plan is governed by ERISA, business owners are not considered "employees" and, therefore, are not counted as employees to satisfy the ERISA requirement that the plan benefit employees. Vega v. National Ins. Servs., Inc., 188 F.3d 287, 294 (5th Cir. 1999). In other words, a plan that covers only business owners or partners, and no other "employees," would not be regulated by ERISA. Meredith, 980 F.2d at 357-58.
It thus makes sense that a policy which only covers owners/partners ("employers") must be analyzed separately from an employee benefit plan (here, the Group Policy), absent evidence showing that the policy and benefit plan are "related." Slamen v. Paul Revere Life Ins. Co., 166 F.3d 1102, 1106 (11th Cir. 1999). See Hampton v. Provident Life Accident Ins. Co., No. Civ.A. 99-1446, 1999 WL 1332189, at *3 (E.D. La. 1999), relying on Robertson v. Alexander Grant Co., 798 F.2d 868, 870-72 (5th Cir. 1986) (an accounting firm's partners' retirement plan was not covered by ERISA because it covered only partners, even though the firm had another retirement plan, covering only non-partner employees, which was nearly identical to the partners' retirement plan). To determine whether a policy is "related" to an "employee benefit plan, " the Court looks at (I) whether any employees have received benefits under the policy, and (2) whether the policy was purchased at the same time, from the same insurer and for the same purpose as the "employee benefit plan." Hampton, 1999 WL 1332189, at *3; Slamen, 166 F.3d at 1105-06.
The facts in Hampton are similar to those here. Mr. Hampton and his wife co-owned a business. Hampton, 1999 WL 1332189, at *1. He purchased a disability insurance policy from Defendant Provident Life Accident Insurance Company in 1987. Id. The disability policy covered only Mr. Hampton. Id. In 1993, the Hamptons' business purchased health insurance for its employees through another insurance company. Id. The court in Hampton held that the plan covering only Mr. Hampton was not governed by ERISA, as "no employees were named insured on the disability policy . . . [and], [f]urthermore . . . 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." Hampton, 1999 WL 1332189, at *3.
Similarly, in Slamen, Mr. Slamen was the owner of his dental practice, which, in 1981, established a health plan providing health and life insurance coverage to Mr. Slamen and his employees. Slamen v. Paul Revere Life Ins. Co., 166 F.3d 1102, 1103 (llth Cir. 1999). In 1985, Mr. Slamen purchased a disability insurance policy, which covered only himself, from another life insurance company. Id. The premiums for both policies were paid by Mr. Slamen's professional corporation. Id. at 1103-04. The court held that Slamen's disability policy should not be treated as a component of the employer's employee benefit program, reasoning that:
[n]o employees received any benefits under the plan and there is nothing in the record showing that the disability insurance policy bears any relationship to the health and insurance benefits that Slamen provides to his employees. On the contrary, the two policies were purchased at different times, from different insurers, and for different purposes. The first policy covers Slamen's employees as well as himself, while the second policy only covers Slamen and was not designed to benefit Slamen's employees.Id. at 1105.
UNUM references both Peterson v. American Life Health Ins. Co., 48 F.3d 404 (9th Cir. 1995) and Madonia v. Blue Cross Blue Shield of Va., 11 F.3d 444 (4th Cir. 1993) in support of its contention that the BP Policy and the DI Policy should be considered as part of a larger ERISA covered plan. The plaintiff in Peterson was a partner in a company. Peterson, 48 F.3d at 406. He obtained health insurance for himself, his partner and their employee. Id. That insurance was intended to provide interim coverage while the company secured a long-term policy with another insurer — which it eventually did. Id. However, Peterson remained covered by the first insurance policy because he failed a physical examination required by the company's new insurer. Id. In Peterson, the court held that the first insurance policy, under which Peterson was the sole insured at the time he made the contested claim, was part of the company's ERISA plan. Id. at 408. In so doing, the court emphasized that the first insurance policy was once clearly an ERISA group policy, covering both partners and employees, and the fact that it was later "converted" to an individual policy, covering only a partner, did not remove it from ERISA's ambit. Id. Likewise, Madonia involved the claim of a sole shareholder in a Virginia company under a group plan open to all of her company's employees. Madonia, 11 F.3d at 445-46. At the time of her insurance claim and the removal of her case to federal court, Madonia was the only person insured under the plan. Madonia, 11 F.3d at 448. In holding that ERISA governed the company's plan despite the fact that no "employee" was enrolled in the plan at the time when the claim was asserted and the case removed, the court emphasized that a non-owner employee had previously been covered under the plan and all employees were still eligible for coverage. Id.
1. The BP Policy
The summary judgment evidence establishes that, unlike the policies in Peterson and Madonia, but like the policies in Slamen and Hampton, no one but equity owners/partners was ever covered, or eligible for coverage, under the BP Policy. In fact, it is undisputed that the BP Policy was not available to anyone but equity partners in Page Addison and that the policy was obtained for the purpose of funding the purchase of a partner's share in Page Addison in the event that that partner was to become permanently disabled. The summary judgment record establishes that the Group Policy became effective on January 1, 1988, almost three months after the October 9, 1987 effective date of the BP Policy. That sequence undercuts UNUM's assertion that the BP Policy supplemented the group coverage. Although both the Group Policy and the BP Policy were purchased from UNUM, the coverage was considerably narrower under the BP Policy. Based on the summary judgment record, the Court does not find the BP Policy to be part of a comprehensive employee benefit plan and therefore, as a matter of law, DENIES UNUM's motion for summary judgment that the BP Policy is covered by ERISA and that the state claims are thus preempted.
2. The DI Policy
The summary judgment evidence establishes that the DI Policy became effective on April 25, 1991, more than three years after the January 1, 1988 effective date of the Group Policy. Although the policy was purchased from UNUM to provide disability insurance to those covered by the policy, it was made available only to owners/partners of Page Addison. Unlike the BP Policy, however, it was offered to at least one attorney who was a "non equity" partner in Page Addison, Richard Cassidy. Although Cassidy testified that he was "not an owner, " in the sense that he would not have to advance funds if the firm suffered a loss, he also testified that he had a voice in the running of the firm and participated in meetings with the other partners. There were associate attorneys of the firm and non-attorney employees who were not covered by the DI Policy. Although the case law is admittedly not helpful on the issue of whether "nonequity" partners are to be considered employers or employees for purposes of analyzing ERISA applicability, this Court finds that the summary judgment evidence detailing the nature of Mr. Cassidy's non-equity status is insufficient for this Court to conclude, as a matter of law, that his inclusion in the DI Policy brings that Policy within the ambit of ERISA. The fact that the DI Policy was purchased well after the Group Policy further supports the conclusion that it was not part of a comprehensive employee benefit plan. Therefore, the Court DENIES UNUM's Motion for Summary Judgment that the state law claims related to the DI policy are preempted by ERISA.
B. The Group Policy
Page brings his Group Policy ERISA claim under 29 U.S.C. § 1132 (a)(1)(B), which provides that "[a] civil action may be brought — by a participant or beneficiary — to recover benefits due him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of his plan . . ." Before the Court can analyze UNUM's summary judgment motion on this claim, it must first consider under what standard it should review UNUM's denial of Group Policy benefits to Page. The case law does not provide precise guidance.
The United States Supreme Court has given this Court a starting point:
[A] denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility benefits or to construe the terms of the plan.Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). In Pierre v. Connecticut Gen. Life Ins. Co., 932 F.2d 1552, 1557 (5th Cir. 1991), the applicable standard of review for claims made under 29 U.S.C. § 1132(a)(l)(B) was again addressed, this time by the Fifth Circuit:
[B]efore benefits are paid or denied, a plan administrator has to make determinations that may be divided into two general categories . . . First, he must determine the facts underlying the claim for benefits (citation omitted). Second, he must then determine whether those facts constitute a claim to be honored under the terms of the plan (citation omitted). Bruch addressed the proper standard of review that is to be given to the plan administrator's second determination. Bruch did not speak to the first.
"Factual determinations"— the "first category" to be considered — do not involve contract interpretations. Pierre, 932 F.2d at 1558. Such "factual determinations" involve analyses of facts beyond the boundaries of the plan or policy in issue and are, according to Pierre, subject to a deferential standard of review. Id. at 1561. In contrast, the "second category" of determinations by the plan administrator are contract or plan interpretations, by which the underlying facts are applied to the terms of the plan, to determine if a "claim [is] to be honored under the terms of the plan." Id. at 1557.
When analyzed together, Bruch and Pierre instruct that when a plan administrator has discretion to determine eligibility benefits or to construe the terms of the plan, both the administrator's factual determinations and plan interpretations are to be reviewed on an abuse of discretion standard. However, if a plan administrator does not have this discretion, the abuse of discretion standard applies only to the court's review of "factual" determinations. A court's consideration of plan interpretation determinations, that is, whether the factual determinations constitute a claim to be honored under the terms of the plan or policy, is to be based on a de novo review.
The terms of the Group Policy in the instant case are nearly identical to those referenced in Rowan v. UNUM Life Ins. Co. of Am., 119 F.3d 433 (6th Cir. 1997). In Rowan, UNUM conceded that the terms of the policy at issue there, almost identical to the terms here, did not grant UNUM discretionary authority as to either plan terms or factual findings. Rowan, 119 F.3d at 435. Here, UNUM never asserts that it has discretionary authority, nor does it point to any evidence in the summary judgment record that would indicate discretionary authority. Therefore, UNUM's factual determinations should be reviewed under an abuse of discretion standard, but its plan interpretations should be reviewed de novo.
The mechanical approach by which this Court is to determine the applicable standard of review, as set out above, seems clear enough. However, the actual application of this approach in other cases has made it difficult to establish bright line tests. For example, in Pierre, the court concluded that whether the plaintiffs husband's death was "accidental" under the applicable policies was a factual determination to be reviewed on an abuse of discretion basis. Id. at 1563. However, the court also commented that whether a decedent was an "employee," which was the issue in a Sixth Circuit case the Pierre court was distinguishing, was "arguably a plan term interpretation." Id. at 1559. Those two determinations — whether a person is an "employee" and whether a person's death was "accidental" — seem to be of the same type, either both being factual or both being plan interpretations. However, the Pierre court indicated that the former might be a plan interpretation while the latter was a factual determination. Two cases in this district further illustrate the difficulty in finding bright lines. Compare Salazar v. Owens Illinois, Inc. Salary Employee Welfare Benefit Plan, Civ.A. No. 3:94-CV-1785-D, 1997 WL 10022, at *3 (N.D. Tex. 1997) (question of "total disability" is factual determination subject to abuse of discretion review) with Attar v. First UNUM Life Ins. Co., No. CA 3-96-CV-367-R, 1998 U.S. Dist. LEXIS 13871, at *9-l0 (N.D. Tex. 1998) (question of whether insured suffered from physical injury is to be reviewed de novo).
The Fifth Circuit recently addressed the standard of review issue in Meditrust Fin. Servs. Corp. v. The Sterling Chems. Inc., 168 F.3d 211 (5th Cir. 1999). In Meditrust the court affirmed summary judgment for the Plan, concluding that the denial of benefits was to be reviewed on an abuse of discretion/arbitrary and capricious standard. Meditrust, 168 F.3d at 213-16. Meditrust certainly suggests that this Court should review the administrator's judgment on an abuse of discretion standard of review. The Court will, however, defer its consideration of the Group Policy and its final determination of what standard of review applies, until after the trial in this case. The Court DENIES UNUM's summary judgment motion on the Group Policy at this time. See Lynd v. Reliance Standard Life Ins. Co., 94 F.3d 979, 981 (5th Cir. 1996) ("[W]e pretermit the issue regarding which standard of review the district court should have employed in reviewing the plan administrator's eligibility determination. We do so because, regardless of whether the district court reviewed the administrator's eligibility determination for abuse of discretion or de novo, the nature of [the plaintiff's] disability compelled the district court to conclude that [the plaintiff si long-term benefits under the plan were properly terminated.") Should the Court determine that an abuse of discretion is the appropriate standard of review, as is suggested by Meditrust, the Court, as the fact-finder on claims relating to the Group Policy, will consider only the evidence in the administrative record, that is, only that evidence UNUM had before it when it made its determination under the Group Policy. However, if the Court determines that a de novo review is appropriate, it will have before it, and will consider, the additional evidence introduced at trial.
C. The BP Policy
Since this Court has denied UNUM's motion for summary judgment that Page's state law claims related to the BP Policy are preempted by ERISA, the Court considers UNUM's Motion for Summary Judgment on those claims. The parties do not dispute that the BP Policy was obtained for the purpose of funding the purchase of a partner's share in Page Addison in the event that that partner was to become permanently disabled. The BP Policy states, in pertinent part:
Disability Benefit. We will pay the Business Purchase Amount if:
1. the Insured becomes totally disabled while this policy is in effect;
2. the Insured is receiving medical care which is appropriate for the condition which causes the disability;
3. the elimination period has been satisfied;
4. the Insured was working full time in the Business when the total disability began; and
5. the Insured's interest is sold to the other owners of the Business or to the Business itself. UNUM's App. at 64.
The summary judgment record reflects that Page Addison was the "owner" of the policy and that the policy provides that benefits are to be paid to the owner. However, the summary judgment evidence also reflects that Page was an insured under the policy and that he, along with the other co-owners of Page Addison, was designated as a "loss payee" under the policy, such that benefits would be payable to him, instead of Page Addison, if he became "totally disabled" and satisfied the other requirements set out above.
The parties do not dispute that Page did not "sell" his shares of Page Addison. UNUM contends that Page did not comply with the requirement that he "sell" his interest in Page Addison to the firm or to the other owners of the firm, and that it thus properly denied Page benefits under the express terms of the BP Policy. Page argues, however, that a strict reading of the requirement that Page "sell" his interest in Page Addison is not appropriate here. Page asserts that the BP Policy was not structured such that UNUM would pay Page Addison, which would then pay the disabled partner, but rather, was structured so that the money would go directly to the disabled partner, who, instead of selling his interest in the finn, would "abandon" his interest. Because the summary judgment evidence contains some evidence that Page abandoned his interest in Page Addison, Page argues that the Court should deny UNUM's summary judgment motion relating to the alleged breach of the BP Policy. While not fully persuaded that section five of the definition of disability benefits should be ignored or modified, the Court concludes that these facts should be developed at trial, so it DENIES UNUM's summary judgment motion on Page's breach of contract claim, as it relates to the BP Policy. The Court further finds that disputed fact issues exist as to the rest of Page's state law claims relating to the BP Policy and does, therefore, DENY summary judgment on those claims.
D. The DI Policy
The Court likewise finds that disputed fact issues exist as to all of Page's state law claims relating to the DI Policy. The Court therefore DENIES UNUM's summary judgment motion on all of those claims.
IV. Conclusion
For the reasons stated above, Defendant's Motion for Summary Judgement is DENIED.
SO ORDERED.