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The Wagner Law Group

The Wagner Law Group is a nationally recognized practice in the areas of ERISA and employee benefits, estate planning, employment, labor and human resources and investment management.

 

 

Established in 1996, The Wagner Law Group is dedicated to the highest standards of integrity, excellence and thought leadership and is considered to be amongst the nation's premier ERISA and employee benefits law firms. The firm has eight offices across the country, providing unparalleled legal advice to its clients, including large, small and nonprofit corporations as well as individuals and government entities worldwide. The Wagner Law Group's 35 attorneys, senior benefits consultant and seven paralegals combine many years of experience in their fields of practice with a variety of backgrounds. Nine of the attorneys are AV-rated by Martindale-Hubbell and six are Fellows of the American College of Employee Benefits Counsel, an invitation-only organization of nationally recognized employee benefits lawyers.  Five of the firm's attorneys have been named to the prestigious Super Lawyers list for 2018, which highlights outstanding lawyers based on a rigorous selection process. The Wagner Law Group is certified as a woman-owned and operated business by the Women's Business Enterprise National Council. 

 

 

 

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Individual Policies May Create ERISA-Covered Plan 

 

September 26, 2018

 

 

 

 

The federal district court for the Eastern District of California has ruled, in Bommarito v. Northwestern Mutual Life, that a group of individual insurance policies are an ERISA-covered plan because of the employer's actions regarding the purchase of the policies.

 

 

Facts.  An owner-employee purchased an individual long term disability ("LTD") policy and later initiated a claim on the policy.  The insurer initially paid the claim but then ceased payments, and demanded a refund of benefits paid, stating that the owner-employee was not, in fact, disabled.  The owner then sued under state law for breach of contract and breach of the implied obligation of good faith and fair dealing.  The insurer responded by saying that the individual contract was part of an ERISA-covered plan and, therefore, these state law claims were preempted by ERISA.


Law.  ERISA preempts most state laws that relate to ERISA-covered employee benefit plans, except for state laws that regulate insurance, banking, or securities. 


Notwithstanding the above, under ERISA's safe harbor provision, an insurance policy will not be considered ERISA-covered if the policy satisfies the following four criteria:

 

  1. No contributions are made by the employer or employee organization.
  2. Participation in the program is voluntary.
  3. The sole functions of the employer with respect to the program are, without "endorsing" the program, to permit the insurer to publicize the program, to collect premiums through payroll deduction, and to remit them to the insurer.
  4. The employer receives no consideration in connection with the policy other than reasonable compensation for administrative costs it incurs.

Decision.  The court said that, "In determining whether a plan, fund or program (pursuant to a writing or not) is a reality a court must determine whether from the surrounding circumstances [if] a reasonable person could ascertain the intended benefits, beneficiaries, source of financing, and procedures for receiving benefits."   No single act alone is sufficient to constitute the establishment of a plan, fund, or program.  For example, "the purchase of insurance does not conclusively establish a plan, fund, or program, but the purchase is evidence of the establishment of a plan, fund, or program."

 

 

The court then went on to note that an employer "can establish an ERISA plan rather easily. Even if an employer does no more than arrange for a 'group-type insurance program,' it can establish an ERISA plan, unless it is a mere advertiser who makes no contributions on behalf of its employees."

 

 

 

In this case, the court ruled that the employer had sufficient involvement to create an ERISA-covered plan.  The owner, as employer, had signed a form specifying the eligible class of employees, and stating that the employer would pay all or part of the premium, as well as recommend the individual LTD polices to eligible employees through an endorsement letter.  Also, although individual policies were involved, the employer had made initial contact with the insurer and had facilitated discounted premiums which meant it had "contributed" to the program, regardless of whether it actually paid the premiums or not. 

 

 

 

Accordingly, the court concluded that, although this plan was created through the issuance of a number of individual insurance policies, an ERISA-covered plan was created because, from the surrounding circumstances, a reasonable person could ascertain sufficient employer involvement as well as the intended benefits, the class of beneficiaries, the source of financing, and procedures for receiving benefits.  Therefore, the court ruled in favor of the insurer.

 

 

 

 

 

 

 

 

 

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This Newsletter is provided for information purposes by The Wagner Law Group to clients and others who may be interested in the subject matter, and may not be relied upon as specific legal advice.  This material is not to be construed as legal advice or legal opinions on specific facts. Under the Rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.