Court Addresses ERISA Coverage of Voluntary Benefit

An employee who sued the provider of supplemental accidental death and dismemberment (AD&D) benefits she obtained through her employer cannot have her case moved to state court because the voluntary, supplemental AD&D policy is an Employee Retirement Income Security Act (ERISA)-governed plan, a federal court has found.

Judge David J. Hale of the U.S. District Court for the Western District of Kentucky noted in his opinion in the case that the employer’s benefits guide mentions the supplemental policy alongside a “basic” AD&D policy, which the employer pays for on behalf of employees. Although employees pay for the supplemental insurance, the employer subscribes to it as a group accident policy for its employees.

According to the opinion, both the summary plan description (SPD) and the documents the plaintiff received as a policyholder note that Life Insurance Co. of North America (LINA) issues the policy; they also list the employer as the “subscriber” and “plan administrator.” The SPD and policy documents also provide certain disclosures required under ERISA.

Hale said that to determine whether ERISA governs an employee benefit plan, his analysis must include three steps: applying the ERISA “safe harbor” regulations to determine whether the program is exempt from ERISA; determining whether a “plan” exists by inquiring whether “a reasonable person could ascertain the intended benefits, the class of beneficiaries, the source of financing and procedures for receiving benefits”; and determining whether the employer “established or maintained” the plan with the intent of providing benefits to its employees.

Hale noted that the ERISA safe harbor says an insurance policy does not qualify as an “employee welfare benefit plan” subject to ERISA if the employer makes no contribution to the policy; employee participation in the policy is completely voluntary; the employer’s sole functions are, without endorsing the policy, to permit the insurer to publicize the policy to employees, collect premiums through payroll deductions and remit them to the insurer; and the employer receives no consideration in connection with the policy other than reasonable compensation for administrative services actually rendered in connection with payroll deduction. He added that a policy is exempt under ERISA only if all four of the “safe harbor” criteria are satisfied.

Hale turned to prior case law that found in one case that an employer “contributed” when it paid for AD&D policies but not the long-term disability policy at issue. He also cited another case in which a court found an optional, employee-paid disability insurance was not severable from mandatory disability insurance paid for by the employer. Hale also pointed out that one court emphasized that subjecting employees to different state and federal regulations under the same plan would frustrate the purpose of ERISA pre-emption. Therefore, he found the employer in the present case “contributed to” the supplemental AD&D policy.

Turning to whether a benefits plan existed and whether the employer established and maintained a plan in the case of the supplemental AD&D policy, Hale said the fact that the policy is listed directly below the basic AD&D policy in the employee benefits guide indicates that the supplemental AD&D policy is part of the employee benefits package. In addition, he found that the documents provided to the plaintiff outlining the policy indicate that the “intended benefits” are supplemental AD&D benefits, and the “beneficiaries” are full-time employees. Individual employees act as the “source of financing” in paying for the policy, and the “procedures for receiving benefits” are outlined in both the SPD and the policy LINA issued to the plaintiff. Therefore, Hale found, an ERISA “plan” exists.

Finally, Hale noted that the 6th U.S. Circuit Court of Appeals has found that an employer established an ERISA plan by merely “obtaining coverage” for its employees. The plaintiff argued that LINA fails to prove that her employer established and maintained the plan because the actual owner of the policy is listed as “Trustee of the Group Insurance Trust for Employers in the Services Industry.” However, Hale pointed out that the plaintiff’s employer is listed as the “policyholder” and “subscriber” in the SPD. In addition, he said the court has previously found that listing a “Trustee of the Group Insurance Trust” as the policyholder was not sufficient to defeat a finding that an employer established and maintained a plan.

Adding that the employer negotiated the terms of the supplemental AD&D policy with LINA as part of its employee benefits plan, Hale found that the employer established and maintained an ERISA plan.

He denied the plaintiff’s motion to remand the case to state court.