Opinion ID: 24847
Heading Depth: 2
Heading Rank: 2

Heading: Participant or Beneficiary

Text: 18 Although the existence of an ERISA plan is a necessary requirement for preemption, its existence does not necessitate preemption. See Weaver, 13 F.3d at 176. For preemption to occur, the claims must directly affect the relationship between traditional ERISA entities-the employer, the plan and its fiduciaries, and the participants and beneficiaries. See 29 C.F.R. § 2510.3-3(b) (2001); Memorial Hosp. Sys., 904 F.2d at 245. Because Hollis's claims directly affect the relationship between traditional ERISA entities, the second element of preemption is met. 19 Claims of breach of duty of good faith, breach of contract, and denial of benefits, like Hollis's claim against Provident, certainly can be preempted by ERISA. See Weaver, 13 F.3d at 177. However, the rule that the claims must directly affect the relationship between traditional ERISA entities has a standing component as well. See id. Claims, such as those referenced above, are preempted only when the claimant is a plan participant or beneficiary. See id. Thus, for preemption to occur, Hollis must be either a participant or beneficiary as ERISA defines those terms. Provident does not assert that Hollis is a participant. 20 Thus, ERISA preempts his claims only if he is a beneficiary. ERISA defines beneficiary as a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder. 29 U.S.C. § 1002(8). Clearly, Hollis is a person who, by the terms of the Provident policy, a part of Graduate Supply's ERISA plan, is or may become entitled to a benefit thereunder. Id. He was the beneficiary of the disability insurance policy, he was entitled to receive benefits under that policy in the event of total disability, and he did, in fact, receive benefits from Provident for several months. Therefore, under the definition's plain language, Hollis is a beneficiary. 21 In spite of the definition, Hollis gives two separate and independent reasons why he is not a beneficiary. First, he argues that independent contractors, such as himself, cannot be ERISA beneficiaries. Second, he argues that the definition of beneficiary does not include a person whose services resulted in the accrual of the benefit. We are not persuaded by either argument. 22 Relying on our decision in Weaver, the district court concluded that an independent contractor can not be an ERISA beneficiary. In that case, Weaver, an independent contractor, sued his employer and the insurance carrier obligated to pay benefits under the ERISA benefit plan. See Weaver, 13 F.3d at 173-74. We decided that ERISA did not preempt state law in that case because Weaver was neither a participant nor a beneficiary. See id. at 176. We said that Weaver was not a participant precisely because he was an independent contractor. After all, ERISA defines a participant as any employee . . . who is or may become entitled to a benefit. 29 U.S.C. § 1002(8). However, we gave an entirely different reason why Weaver was not a beneficiary. See id. at 177. Weaver was not a beneficiary because the benefit plan did not designate him as a beneficiary. See id. In other words, Weaver was not a person who could ever become entitled to benefits; thus, he did not meet the definition of beneficiary. 23 For this particular issue, what we did not say in Weaver is more important than what we said. We did not say that his status as an independent contractor had anything to do with him not being a beneficiary. In fact, implicit in our holding in Weaver is that an independent contractor can be a beneficiary so long as he is a person who is or may become entitled to a benefit under the plan. Therefore, Hollis's independent contractor status does not preclude him from being a beneficiary. 24 Similarly, Weaver's claim that his own services accrued a benefit had nothing to do with our holding that he was not a beneficiary. However, citing a footnote from an opinion of the Fourth Circuit, Hollis argues that a beneficiary under ERISA includes only a person other than one whose service resulted in the accrual of the benefits, but who is designated as the recipient of benefits accrued through the service of another. Darden v. Nationwide Mutual Ins. Co., 796 F.2d 701, 704 n.3 (4th Cir. 1986)(emphasis added). In other words, Hollis argues that a beneficiary is limited to people such as the worker's spouse and children. Until now, we have not squarely decided this issue. However, the other courts of appeals faced with this issue have decided that beneficiary includes those persons whose services accrued the benefit. We agree with our sister courts. 25 In Peterson v. American Life and Health Ins. Co., the Ninth Circuit, relying on the plain language of ERISA's definition of beneficiary, held that an ERISA beneficiary includes any person designated to receive benefits from a policy that is part of an ERISA plan. 48 F.3d 404, 409 (9th Cir. 1995). The Peterson court reasoned that to hold otherwise would create the anomaly of requiring some insureds to pursue benefit claims under state law while requiring others covered by the identical policy to proceed under ERISA. Id. The Peterson court noted that such a scenario would frustrate Congress's intent of achieving uniformity in the law governing employment benefits. Id. 26 Other circuits have found the Ninth Circuit's reasoning as persuasive as we do. In Prudential Ins. Co. of America v. Doe, the Eighth Circuit held that the controlling shareholder in a law firm was an ERISA beneficiary because he was designated to receive benefits under the terms of the employee benefit policy. 76 F.3d 206, 208 (8th Cir. 1996). In Wolk v. Unum Life Ins. of America, the Third Circuit held that a partner in a law firm was an ERISA beneficiary because she was designated to receive benefits under an employee welfare benefit plan. 186 F.3d 352, 356 (3d Cir. 1999). Finally, in Engelhardt v. Paul Revere Life Ins. Co., the Eleventh Circuit held that a physician-shareholder of a professional corporation was an ERISA beneficiary because he was a beneficiary under the group disability insurance plan. 186 F.3d 352, 356 (11th Cir. 1999). 27 At the end of this analysis, we reach the unremarkable conclusion that ERISA's definition of beneficiary means precisely what it says. A beneficiary is a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder. 29 U.S.C. § 1002(8). Because Hollis was a person designated by the terms of the plan who could become entitled to benefits thereunder, he is an ERISA beneficiary. 28 Both elements of preemption are satisfied in this case. Hollis's state law claims address areas of exclusive federal concern because he is claiming a right to receive benefits under the terms of an ERISA plan. Because Hollis is an ERISA beneficiary, his claims directly affect the relationship between traditional ERISA entities. Therefore, ERISA preempts Hollis's state law claims against Provident for bad-faith denial of disability benefits. 29 The judgment against Provident is vacated and the case is remanded to the district court so Hollis's claims against Provident can be concluded as appropriate under ERISA. We leave it to the district court to determine whether Hollis has exhausted his administrative claims against Provident. If not, the district court should remand Hollis's claims against Provident to the plan administrator. If the claims have been administratively exhausted, then the district court should consider whether to allow Hollis to amend his suit to seek review of the administrative findings under the appropriate standard of review. 2