Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-01210/USCOURTS-casd-3_11-cv-01210-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

RICHARD MASTALER, an individual,

Plaintiff,

CASE NO. 11cv1210 DMS (NLS)

vs. ORDER GRANTING

DEFENDANTS’ MOTION TO

CONFIRM ERISA’S

APPLICATION AND

PREEMPTION

[Docket Nos. 13, 28]

UNUM LIFE INSURANCE COMPANY, a

Delaware Corporation, et al.,

Defendants.

This matter comes before the Court on Defendants The Paul Revere Life Insurance Company

and Unum Group’s motion to confirm ERISA’s application and preemption. Plaintiff filed an

opposition to the motion, and Defendants filed a reply. For the reasons discussed below, the motion is

granted.

I.

BACKGROUND

Plaintiff Richard Mastaler is a former executive employee of Magellan Health Services, Inc.

Magellan is a large publicly held corporation in the health care industry and employs approximately

4,900 people. At some time prior to 1997, Magellan entered into an arrangement with The Paul Revere

Life Insurance Company (“Paul Revere”) designated as an “Employee Security Program,” or “ESP.”

Pursuant to the ESP, Paul Revere agreed to issue individual disability income policies to specified

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/ / /

classes of Magellan executive employees that included specific coverage options and a substantial

premium discount of thirty percent (later increased to thirty-five percent). 

On February 9, 1997, Plaintiff applied for disability insurance with Paul Revere under the ESP.

Paul Revere issued a policy to Plaintiff on April 1, 1997. The policy does not include any mention of

the Employee Retirement Income Security Act (“ERISA”) or ERISA requirements.

While Plaintiff was employed at Magellan, Magellan paid the premiums on Plaintiff’s policy.

In September 1997, Plaintiff left Magellan’s employ and moved to San Diego. Plaintiff elected to

continue his coverage under the Paul Revere policy, and thereafter paid the premiums directly to Paul

Revere. 

In April 2002, Plaintiff suffered a heart attack while participating in strenuous exercise. The

following month, Plaintiff submitted a claim under the policy. Defendants paid the claim, but advised

Plaintiff they would only pay benefits until Plaintiff reached the age of 65 on January 31, 2011. Plaintiff

appealed that decision, but his appeal was denied.

On April 27, 2011, Plaintiff filed the present Complaint in San Diego Superior Court. In the

Complaint, Plaintiff alleges the following claims for relief: (1) breach of contract, (2) bad faith, (3)

violation of California Business and Professions Code § 17200, and (4) declaratory relief. Defendants

removed Plaintiff’s Complaint to this Court on June 2, 2011. The present motion followed.

II.

DISCUSSION

Defendants move to confirm ERISA’s application to this case. They argue the policy is part of

an “employee welfare benefit plan” under ERISA, therefore ERISA preempts Plaintiff’s claims.

Plaintiff disputes that the policy is part of an “employee welfare benefit plan,” and thus whether his

claims are preempted.

Under ERISA § 3(1), 29 U.S.C. § 1002(1), an “employee welfare benefit plan”

or “welfare 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.” 

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Kanne v. Connecticut General Life Ins. Co., 867 F.2d 489, 492 (9th Cir. 1989) (quoting Donovan v.

Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982) (en banc)). The parties do not dispute that elements

(1), (3), (4) and (5) are met in this case. However, they do dispute element (2). Because ERISA

preemption is an affirmative defense, Defendants bear the burden of establishing that element (2) is

satisfied. Id. at 492 n.4. 

In an effort to meet that burden, Defendants rely on the following facts. First, they assert

Magellan arranged for the insurance coverage by entering into the ESP. Notably, Defendants do not

provide a copy of the ESP because it “no longer exists[.]” (Decl. of Roxanne Kaminski in Supp. of Mot.

(“Kaminski Decl.”) ¶ 9.) Plaintiff does not appear to dispute the existence of the ESP, but the mere

existence of the ESP does not prove that Magellan established or maintained an employee welfare

benefit plan. Indeed, without the ESP, it is impossible for the Court to determine the details of the Plan

or the nature of the relationship created thereby. Thus, the ESP does not demonstrate Magellan

established or maintained an employee welfare benefit plan. 

Second, Defendants assert Magellan paid for the disability coverage at issue in this case.

Without the ESP, Defendants rely on the Declaration of Roxanne Kaminski to establish this fact. Ms.

Kaminski states Magellan “was required to agree to pay 100% of the premium cost of the policies.

Premiums were billed directly to the employer in a list bill that included all policies issued pursuant to

the ESP arrangement.” (Id. ¶ 5.) Plaintiff does not appear to dispute that Magellan paid the premiums

pursuant to a list bill, but argues that under the practice of list billing, the premiums were ultimately paid

by the employee-insureds, not Magellan. In support of this argument, Plaintiff relies on the Declaration

of Lloyd Rhodes, an insurance broker and consultant, who offers his understanding of the practice of

list billing. However, Mr. Rhodes’s testimony is general, and says nothing about the specific list billing

practice for the policy at issue here. The only evidence relevant to that issue is Plaintiff’s application

for coverage, which states the coverage will be paid by the employer, Magellan. (Kaminski Decl., Ex.

2.) Although not overwhelming, this evidence supports Defendants’ argument that Magellan paid for

the coverage provided. It is also evidence of the existence of an ERISA plan. Kanne, 867 F.2d at 492.

The final factor Defendants rely on to support their argument that Magellan established or

maintained the plan is the favorable terms provided to the policyholders. Those terms include higher

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1

 Plaintiff requested leave to file a surreply so he could address this regulation. The Court has

reviewed that application and Defendants’ opposition thereto, and respectfully denies Plaintiff’s

request. Plaintiff capably set out his position in his application, and further briefing on the issue is

unnecessary. 

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coverage amounts, discounted premiums and less documentation. Plaintiff does not dispute that he

received these benefits, but argues they do not constitute employer contributions to the plan. Whether

the employer contributed to the plan, however, is separate from whether the employer established or

maintained the plan. On the latter issue, the favorable terms are not conclusive, but they are evidence

of an ERISA plan. See 26 C.F.R. § 54.4980B-2(a).1

“The existence of an ERISA plan is a question of fact, to be answered in light of all the

surrounding facts and circumstances from the point of view of a reasonable person.” Kanne, 867 F.2d

at 492 (citing Credit Managers Ass’n v. Kennesaw Life & Accident Ins. Co., 809 F.2d 617, 625 (9th Cir.

1987)). In this case, the facts and circumstances support a finding that the policy at issue was part of

an ERISA plan. Magellan entered into an agreement with Paul Revere to make disability insurance

available to certain employees at discounted rates. Pursuant to that agreement, the employees received

higher coverage with less documentation. The evidence also reflects Magellan paid the premiums for

its employees. Under these circumstances, Defendants have shown the existence of an ERISA plan. 

Nevertheless, Plaintiff argues the policy falls within a safe harbor from ERISA. That exemption

states: 

For purposes of Title I of the Act and this chapter, the terms “employee welfare benefit

plan” and “welfare plan” shall not include a group or group-type insurance program

offered by an insurer to employees or members of an employee organization, under

which (1) No contributions are made by an employer or employee organization; (2)

Participation [in] the program is completely voluntary for employees or members; (3)

The sole functions of the employer or employee organization with respect to the program

are, without endorsing the program, to permit the insurer to publicize the program to

employees or members, to collect premiums through payroll deductions or dues

checkoffs and to remit them to the insurer; and (4) The employer or employee

organization 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). All of these requirements must be met before the exemption will apply. Stuart

v. Unum Life Ins. Co. of Am., 217 F.3d 1145, 1150 (9th Cir. 2000). 

/ / /

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2

 The existence of a continuation policy rather than a converted policy also takes this case

outside the scope of Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872 (9th Cir. 2001). Plaintiff

relies on that case to support his argument that his policy ceased to be governed by ERISA after he

left his employment, but unlike Plaintiff’s policy here, the policy at issue in Waks was actually

converted to an individual policy. Thus, Waks is inapplicable to the facts of this case. 

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Plaintiff asserts all of the requirements are met in this case, but the record shows otherwise. As

discussed above, Magellan paid for the coverage for its employees. Those payments constitute

“contributions ... made by an employer,” and thus defeat the first requirement of the exemption. Roehrs

v. Minn. Life Ins. Co., 390 F.Supp.2d 886, 895-96 (D. Ariz. 2005). Accordingly, the policy does not

fall within the safe harbor. 

Plaintiff’s final argument against a finding that the policy is part of an ERISA plan is one of

conversion. Specifically, Plaintiff argues that although the policy may have been part of an ERISA plan

at its inception, it was converted to an individual policy when Plaintiff left Magellan’s employ. Notably,

however, Plaintiff fails to provide any evidence that he converted his coverage to an individual policy.

Rather, the evidence reflects Plaintiff elected to continue his group coverage after leaving his

employment by paying the premiums himself. (Kaminski Decl., Ex. 6.) Under these circumstances, i.e.,

where there is a continuation policy rather than a converted policy, ERISA still applies. See Qualls v.

Blue Cross of Cal., Inc., 22 F.3d 839, 843 n.4 (9th Cir. 1994) (stating converted policies continue to be

governed by ERISA).2

III.

CONCLUSION AND ORDER

Having established the existence of an ERISA plan, Defendants argue, and Plaintiff does not

dispute, that his claims are preempted by ERISA. Accordingly, the Court grants Defendant’s motion

to confirm ERISA’s application and preemption, and dismisses the present case.

IT IS SO ORDERED.

DATED: February 22, 2012

HON. DANA M. SABRAW

United States District Judge

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