Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_11-cv-08110/USCOURTS-azd-3_11-cv-08110-1/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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 Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§

10001-1461. 

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Martha Taylor, on behalf of the Estate of

Steven Thomson; Thomas Thomson, an

individual; and Kayci Thomson, an

individual,

Plaintiffs,

vs.

Zurich American Insurance Company,

Defendant.

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No. CV 11-8110-PCT-JAT

ORDER

The complaint in this case arises from the denial of a claim for accidental death

benefits filed by Plaintiffs following the death Steven Thomson (hereafter “Decedent”).

Plaintiffs filed this complaint in state court, pleading only state law claims including: bad

faith, breach of contract, negligent misrepresentation, and unjust enrichment. (Doc. 1-1 at

3-13). Defendant removed alleging that the insurance plan in this case is part of an ERISA1

plan. Pending before the Court is Defendant’s motion for summary judgment seeking to

have this Court: 1) determine that the insurance plan in this case is covered by ERISA and,

accordingly, 2) dismiss all of Plaintiff’s state law claims because they are preempted by

ERISA.

Case 3:11-cv-08110-JAT Document 67 Filed 10/18/12 Page 1 of 10
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I. Factual Background

Decedent worked for an affiliated entity of YRC Worldwide Inc. and was a participant

in the YRC Health and Welfare Plan. (Doc. 56 at 5). YRC Worldwide Inc. offered a variety

of benefits to its employees including medical benefits, prescription drug benefits, dental care

benefits, vision care benefits, life insurance benefits, accidental death and dismemberment

(AD&D) insurance benefits, group term life insurance benefits, long-term disability benefits,

and other benefits for eligible employees. (Id. at 2-3). At issue here, the AD&D benefit was

provided by purchasing an insurance policy. (Id. at 3). It appears that the AD&D policy was

a separate insurance policy from all the other policies. (Id. at 4-5).

The premiums for the AD&D policy were funded in two categories: hourly eligible

employees and salaried eligible employees. (Id. at 3-4). For salaried employees, YRC

Worldwide Inc. provided “flex dollars” that the employee could choose to use to purchase

AD&D benefits. (Id.). Decedent, an hourly employee (Id. at 5), paid all of his own

premiums for the AD&D policy (Doc. 61 at 3), via a biweekly payroll deduction (Doc. 56

at 6). Decedent’s employer paid all premiums for his medical, long-term disability, and life

insurance benefits. (Doc. 56 at 5). 

Decedent died as a result of head trauma suffered while riding a motorcycle in a “Best

of the Desert” event. (Id. at 6). Thomas Thompson was named primary beneficiary on

Decedent’s AD&D policy. (Id.). Thomas Thompson applied for the AD&D benefits

($300,000). (Id. at 5, 6). Zurich denied the claim. (Id. at 6).

II. Applicability of ERISA

A. Determining ERISA Status

As discussed above, the issue before the Court in the currently pending summary

judgment motion is whether Decedent’s AD&D policy is covered by ERISA. Preliminarily,

the Court notes that the Ninth Circuit Court of Appeals has stated that whether a plan is

governed by ERISA is a question of fact, see e.g. Stuart v. Unum Life Ins. Co. of Am., 217

F.3d 1145, 1149 (9th Cir. 2000), which would not usually be resolved on summary judgment.

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 When there is no genuine issue of disputed fact, summary judgment is appropriate.

Walker v. Hoffman, 583 F.2d 1073, 1075 (9th Cir. 1978).

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However, a district court in Nevada explained:

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

light of all the surrounding circumstances from the perspective of a reasonable

person. Stuart v. UNUM Life Ins. Co. Of Am., 217 F.3d 1145, 1149 (9th

Cir.2000). The Ninth Circuit has determined that in some cases, ERISA status

for employee benefit plans can be made as a matter of law. See Id.; Crull v.

Gem Ins. Co., 58 F.3d 1386 (9th Cir.1995); Pacificare Inc. v. Martin, 34 F.3d

834 (9th Cir.1994); Qualls v. Blue Cross of California, Inc., 22 F.3d 839 (9th

Cir.1994). Accordingly, determination of ERISA status is appropriate at

summary judgment.

Williamson v. Life Ins. Co. of North Am., 2012 WL 3262857, *2 (D. Nev. Aug. 8, 2012).

In this case, there are no disputed issues of fact. Instead, the parties dispute whether

the undisputed facts establish that the AD&D plan is covered by ERISA. Thus, like the

Nevada court, this Court concludes that determining ERISA status is appropriate at summary

judgment.2

B. Law Governing ERISA Status

“To determine whether an insurance plan is an ERISA plan, a district court

considers 29 U.S.C. § 1002(1), which defines an employee welfare benefit

plan, and 29 C.F.R. § 2510.3–1(j), which clarifies the meaning of ‘establishing

and maintaining’ such a plan.” Meadows v. Emp'rs Health Ins., 826 F.Supp.

1225, 1228 (D. Ariz. 1993). An “employee welfare benefit plan” is:

[A]ny plan, fund, or program ... established or maintained by an

employer or by an employee organization, or by both, to the

extent that such plan, fund, or program was established or is

maintained for the purpose of providing for its participants or

their beneficiaries, through the purchase of insurance or

otherwise, ... benefits in the event of ... accident, [or] death....

29 U.S.C. § 1002(1); ERISA applies broadly to employee benefit plans that are

established or maintained by an employer as defined in 29 U.S.C. § 1002(1).

The Ninth Circuit has found that an employer can establish an ERISA plan if

it does no more than arrange for a group type insurance program. Kanne v.

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

However, there is a regulatory exemption, known as the “safe harbor”

provision, that exempts pure, third party insurance programs from

ERISA-coverage. Under the safe harbor, “employee welfare benefit plans” do

not include group or group-type insurance programs offered by an insurer to

employees or members of an employee organization, under which:

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 Decedent had medical, prescription drug, dental, vision, 60% of pay long-term

disability, AD&D and basic life insurance at the time of his death. (Doc. 56 at 5). As

discussed above, except for the AD&D, the employer paid the premiums for these benefits.

(Id.).

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(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....

29 C.F.R. § 2510.3–1(j). This regulation is construed narrowly and failure to

meet any one of these conditions removes the protection of the safe harbor and

subjects the insurance plan to ERISA. Stuart v. UNUM Life Ins. Co. of

America, 217 F.3d 1145, 1153 (9th Cir. 2000).

Williamson, 2012 WL 3262857, *2-3.

Initially, Defendant has the burden of establishing that an ERISA plan exists. See

Zavora v. Paul Revere Life Ins. Co., 145 F.3d 1118, 1120 n. 2 (9th Cir. 1998). If Defendant

meet this burden, Plaintiff must show that the insurance should be exempted from ERISA

coverage because the four safe harbor criteria are met. See Weber v. Hartford Life & Acc.

Ins. Co., 2008 WL 3932014, *7 (D. Ariz. August 25, 2008).

C. Analysis

In this case, Defendant’s main argument is that an ERISA plan must be construed as

a whole and that taking Decedent’s elections together,3

 Decedent’s entire benefits package

was governed by ERISA. Plaintiffs respond and treat the AD&D policy individually to

determine if it qualifies for the safe harbor. Defendant replies, and while disputing Plaintiffs’

argument, argues alternatively that even if the Court considers the AD&D policy

individually, it still does not fall within the safe harbor and is, therefore, an ERISA plan.

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In Alloco v. Met. Life Ins. Co., 256 F.Supp.2d. 1023 (D. Ariz. 2003), another Judge

in this district analyzed a very similar question: namely when determining whether a plan is

subject to ERISA, should the Court view an individual insurance policy separately from the

entire benefits plan. The Court summarized the cases as follows: 

[O]ther circuits have specifically held that particular components of an

employee benefit plan cannot be “severed” for purposes of determining

whether the plan meets the safe harbor requirements. In Gaylor v. John

Hancock Mutual Life Ins. Co., 112 F.3d 460 (10th Cir. 1997), the Tenth

Circuit considered an analogous case where the plaintiff purchased optional

disability coverage without contribution from her employer. However, because

the plaintiff had enrolled in an accidental death and dismemberment plan

where the employer did contribute, the Court evaluated the “employee welfare

benefit plan” as a whole. The Court held that, “[f]or purposes of satisfying the

safe harbor provision, [the plaintiff] attempts to sever her optional disability

coverage from the rest of the benefits she received through her employer’s

plan. ‘This cannot be done because the [optional] coverage was a feature of the

Plan, notwithstanding the fact the cost of such coverage had to be contributed

by the employee.” ’ Gaylor, 112 F.3d at 463 (quoting Smith v. Jefferson Pilot

Life Ins. Co., 14 F.3d 562, 567 (11th Cir.1994)). The Seventh Circuit has also

recently adopted this approach. See Postma v. Paul Revere Life Ins. Co., 223

F.3d 533, 538 (7th Cir. 2000) (“For purposes of determining whether a benefit

plan is subject to ERISA, its various aspects ought not be unbundled.”).

Without addressing this precise situation, the Ninth Circuit has held that courts

should look at an employer’s benefit program as a whole to determine if the

plan is covered by ERISA. In Peterson v. American Life & Health Ins. Co., 48

F.3d 404 (9th Cir. 1995), the Court considered an employer plan where only

one partner was the only employee covered by a particular policy. ERISA does

not cover an employer plan where the only beneficiary is a partner in a

partnership, but the Court evaluated the employer program, which also covered

other employees under separate policies, in its entirety. The Court found the

features of one component of the plan “not determinative,” concluding that

“the [partner’s] policy was just one component of [the employer’s] employee

benefit program and that the program, taken as a whole, constitutes an ERISA

plan.” Peterson, 48 F.3d at 407. The Ninth Circuit's approach therefore is

consistent with that of other circuits that evaluate the “employee benefit

program ... as a whole.” [footnote omitted] 

Alloco, 256 F.Supp.2d at 1027-28.

Thus, at first glance, it appears that the Court should consider all of Decedent’s

benefits together to determine ERISA status. However, since Alloco, courts have further

refined when to treat all benefits together. Specifically, whether all of the insurance plans

provided to Decedent should be treated “as a whole” depends on whether the company

administered the plans as a single unit. See Gonzales v. Unum Life Ins. Co., 2009 WL

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3226519, *5 (S.D. Cal. October 2, 2009) (“Drawing from the Supreme Court’s reasoning in

Shaw [v. Delta Airlines, Inc., 463 U.S. 85 (1983)], other courts considering whether an

ERISA multi-benefit plan exists, as in Peterson and Alloco, have focused closely on whether

the program is administered as on single unit.”). As the Gonzales court recounted:

For example, in Mortier v. Mass. Gen. Life Ins. Co., 805 F.Supp. 816 (C.D.

Cal. 1992) the district court considered whether a cancer insurance policy was

part of the employer’s general, ERISA-regulated plan. Noting that Shaw “was

clearly concerned with plans that are administered as a single unit,” the district

court found that the cancer plan was not a part of the general ERISA plan

because it was offered by an entirely different insurer and administered

separately. Id. at 819.

In Fisher [v. Prudential Ins. Co. of Amer., 842 F.Supp. 397 (N.D. Cal. 1993)],

the district court similarly focused on whether the alleged multi-benefit plan

was administered as a single unit. The policy at issue in Fisher was one of

three plans offered by the American Institute of Certified Public Accountants.

Id. at 398. Although only one plan definitively constituted an employee

welfare benefit plan under ERISA, the district court held that the Act covered

all three plans because together they “demonstrate[d] characteristics of a plan

administered as a single unit under Shaw .” Id. at 401. Specifically, the court

noted that all plans in the program were backed by a single trust, had a single

trustee and a single insurer, and were overseen by the same administrative and

clerical staff. Id. The court further relied on the fact that the trust filed only

one Internal Revenue Service–Department of Labor Form 5500 (“Form 5500”)

covering all three plans together. Id.

Gonzales, 2009 WL 3226519, *5-6.

Turning to the facts in this case, as discussed above, Defendant’s primary argument

is that the AD&D policy cannot be viewed in isolation. Although Defendant adamantly

argues that all components of Decedent’s insurance should be taken “as a whole,” rather than

the AD&D policy being considered individually, Defendant has offered no evidence that all

the different policies were administered as a single unit. Indeed, Defendant’s discussion of

how the AD&D policy was bid and selected suggests that it is a completely separate policy

from all the other policies. Doc. 56 at 4. Additionally, it appears that Zurich was the “claims

fiduciary” for the AD&D policy only, suggesting it was separately administered from all the

other policies. Id. at 5. On this record, the Court finds that Defendant failed to establish that

all the different policies were administered as a single unit. Thus, Defendant’s motion for

summary judgment on this theory is denied.

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 As the Court in Weber discussed, first this Court must determine that the plan is an

“employee welfare benefit plan” within the meaning of 29 U.S.C. § 1002(1), for the plan to

be subject to ERISA. 2008 WL 3932014, *6. In this case, Plaintiffs do not dispute that the

AD&D plan was established or maintained by the employer sufficiently to initially satisfy

ERISA’s criteria. See 29 U.S.C. § 1002(1). Instead, Plaintiffs argue that because the four

safe harbor provisions are met, the AD&D policy is exempted from ERISA treatment.

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Next, Plaintiff argues that considering the AD&D policy individually, it meets the safe

harbor provisions.4

 The first element of the safe harbor provisions requires that no

contributions be made by the employer. 29 C.F.R. § 2510.3–1(j). Here, whether the

employer made contributions depends on how the “AD&D plan” is defined. 

In Defendant’s statement of facts, Defendant makes the following two assertions:

28. Each month, YRC pays Zurich premiums associated with all YRC

employees’ AD&D benefit elections, and also each month, YRC’s

affiliated companies ... are charged the total of all their respective

employees’ premiums through inter-company allocations. [citation

omitted.]

29. The premiums for the employees’ elections of AD&D benefits were

paid by a combination of amounts deducted from employees’ wages

and amounts paid by their respective employers. [citations omitted].

Doc. 57 at 5. Plaintiffs controvert these two statements of facts only by asserting that

Decedent paid all of his own premiums for AD&D coverage. Doc. 61-1 at 4. Defendant

does not dispute that Decedent paid his own premiums because he was an hourly employee.

Based on these facts, Defendant argues that even if the AD&D plan is viewed alone,

because the employer paid some employees’ premiums, the AD&D plan cannot fall within

the safe harbor requirements. Doc. 62 at 7 (citing LaPrease v. UNUM Life Ins. Co. of Am.,

347 F.Supp.2d 944, 950 (W.D. Wash. 2004)). In LaPrease, the Court found that the first

element of the safe harbor was not meet when the plan documents stated that there was a

possibility that some employees’ benefits might have been paid for by the employer, even

though it was undisputed that the employer did not pay Mr. LaPrease’s benefits. 347

F.Supp.2d at 950.

Here, the Court is again faced with defining the “plan” as a “whole.” If the Court

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 Because the Court has found that the AD&D plan fails the first element of the safe

harbor test, the Court has not reached any of the other elements. See Alloco, 256 F.Supp.2d

at 1027 (“...failure to satisfy just one requirement of the safe harbor regulation conclusively

demonstrates that an otherwise qualified group insurance plan is an employee welfare benefit

plan under ERISA.”) (quoting Stuart v. UNUM Life Ins. Co., 217 F.3d 1145, 1151-2 (9th Cir.

2000)). Thus, the Court has not reached Defendant’s argument AD&D policy also fails the

third element of the safe harbor test (see Doc. 62 at 7-10). 

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views the AD&D plan as a single plan, then, because the employer paid some employees’

policy premiums, it would not fall within the safe harbor. The following facts bear on

whether the AD&D plan is a administered as a single unit. First, the AD&D plan is through

a single insurer, Zurich. Doc. 57 at 4, ¶¶ 22-24 (Plaintiffs admitted this fact, Doc. 61-1, at

4 ¶¶ 22-24). Second, YRC sent a single monthly payment to Zurich representing all AD&D

payments. Doc. 57 at 5, ¶ 28 (Plaintiffs did not controvert this fact, Doc. 61-1 at 4). There

was a single plan. Doc. 57 at 5, ¶ 27 (Plaintiffs admitted this fact, Doc. 61-1 at 4, ¶ 27).

There was a single claims fiduciary, Zurich. Doc. 57 at 5, ¶ 27 (Plaintiffs admitted this fact,

Doc. 61-1 at 4, ¶ 27).

Based on these undisputed facts, the Court finds that the AD&D policy for the hourly

and salaried employees is administered as a single unit. Therefore, the Court will consider

the AD&D plan as a whole. Considering the AD&D plan as a whole, the plan does not meet

the four elements for the safe harbor because it fails the first element: specifically, the

employer makes some contributions to the plan.5

 Because the AD&D policy is not within

the safe harbor, it is covered by ERISA.

III. ERISA Based Claims

In their motion, Defendant points out that Plaintiffs have pleaded only state law claims

in the complaint. Defendant further points out that the time to move to amend the complaint

has expired. Thus, Defendant concludes that this Court should grant the motion for summary

judgment and enter judgment in Defendant’s favor without Plaintiffs being allowed to amend

the complaint to add any ERISA claims. 

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 Plaintiff does not dispute that if the policy in this case is covered by ERISA, all of

his state law claims are preempted. See, e.g., Tingey v. Pixley-Richards West, Inc., 953 F.2d

1124, 1133 (9th Cir. 1992) (holding, for example, that Arizona’s tort of bad faith is

preempted by ERISA).

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Defendant is correct that Plaintiffs have not timely moved to amend. However, there

can be no dispute that Plaintiffs have contended all along that no amendment was necessary

because this case was not governed by ERISA. Further, the Court of Appeals has expressed

a public policy in favor of resolution of cases on the merits, rather than for a procedural

reason. See Henderson v. Duncan, 779 F.2d 1421, 1423 (9th Cir. 1986). Finally, this Court

cannot say that Plaintiffs have no claims either for benefits under ERISA, or for breach of

fiduciary duty under Cigna Corp. v. Amara, 131 S.Ct. 1866, 1880-81 (2011). Thus, the

Court will allow Plaintiffs 20 days from the date of this Order to move to amend. In so

moving, Plaintiffs must first address the fact that their motion is untimely under Rule 16, and

second the test for leave to amend under Rule 15. See TriQuint Semiconductor, Inc. v. Avago

Tech. Ltd., 2010 WL 3034880, *6-10 (D. Ariz. August 3, 2010). Further Plaintiffs must

comply with Local Rule Civil 15.1.

IV. Conclusion

Based on the foregoing,

IT IS ORDERED that Defendant’s motion for summary judgment (Doc. 56) is

granted to the extent that the Court finds that the insurance policy in this case is subject to

ERISA, and accordingly, all state law based claims in the complaint are preempted by

ERISA;6

 therefore Defendant is entitled to judgment on all Plaintiffs’ state law based claims.

However, the Clerk of the Court shall not enter judgment at this time.

/ / /

/ / /

/ / /

/ / /

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IT IS FURTHER ORDERED that Plaintiffs have 20 days from the date of this Order

to file a motion to amend the complaint, as specified above. If Plaintiffs fail to move to

amend within 20 days, the Clerk of the Court shall enter judgment for Defendant, Plaintiffs

to take nothing.

DATED this 18th day of October, 2012.

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