Clark v. Unum Group et al

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
EDWARD CLARK,
Plaintiff,
vs.
UNUM GROUP and THE PAUL REVERE
LIFE INSURANCE COMPANY,
Defendants.
4:20-CV-04013-KES
ORDER DENYING DEFENDANTS’
MOTION FOR PARTIAL SUMMARY
JUDGMENT
Plaintiff, Edward Clark, filed suit against Unum Group and The Paul
Revere Life Insurance Company alleging claims of bad faith and aiding and
abetting bad faith, breach of contract and interference with contract, and
alternative claims under the Employee Retirement Income Security Act of 1974
(ERISA), 29 U.S.C. ch. 18. Docket 1. Defendants move for partial summary
judgment on Clark’s state-law claims and to strike his jury demand. Docket 13.
Clark opposes the motion, or in the alternative, requests additional time for
discovery. Docket 20. For the following reasons, the court denies defendants’
motion for partial summary judgment.
BACKGROUND
The parties’ dispute concerns a long-term disability policy issued by Paul
Revere to Clark in 2001 while Clark was employed by Sanford Health Systems.1
1 Sanford Health Systems was known as Sioux Valley Health Systems when
Clark began working there in 2001. Docket 18 at 2 n.1. To reduce the
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Docket 18 ¶¶ 1-2. In October 2015, Clark suffered a bilateral pulmonary
embolism and began to regularly experience fatigue and shortness of breath.
Docket 1 ¶¶ 29-31, 39. His condition led to difficulty maintaining his prior
occupation as an acute care physician, and he submitted a claim for benefits
under the long-term disability policy. Id. ¶¶ 44, 46. Because of issues settling
his claim, Clark filed suit against Paul Revere and Unum alleging state-law bad
faith and breach of contract claims and alternative claims under ERISA. Docket
1 ¶¶ 83-113.
Defendants move for summary judgment on Clark’s state-law claims,
asserting they are preempted by ERISA. Docket 11 at 6-16. The parties dispute
nearly every fact relating to whether the state-law claims are preempted by
ERISA. See Docket 18.
STANDARD OF REVIEW
Summary judgment is proper “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986) (“[A] party seeking summary judgment always bears the initial
responsibility of . . . demonstrat[ing] the absence of a genuine issue of material
fact.”).
Once the moving party meets its initial burden, the nonmoving party
must establish “that a fact . . . is genuinely disputed” either by “citing to
possibility of confusion, the court will refer to Clark’s employer as Sanford
Health Systems, regardless of what it was called at the time.
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particular parts of materials in the record,” or by “showing that the materials
cited do not establish the absence . . . of a genuine dispute[.]” Fed. R. Civ. P.
56(c). “The nonmoving party may not ‘rest on mere allegations or denials, but
must demonstrate on the record the existence of specific facts which create a
genuine issue for trial.’ ” Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th
Cir. 2005) (quoting Krenik v. Cnty. of Le Sueur, 47 F.3d 953, 957 (8th Cir.
1995)). For purposes of summary judgment, the facts and inferences drawn
from those facts are “viewed in the light most favorable to the party opposing
the motion.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655
(1962)).
DISCUSSION
ERISA’s civil enforcement scheme preempts state-law causes of action in
determining rights under an ERISA plan. See Pilot Life Ins. Co. v. Dedeaux, 481
U.S. 41, 52-55 (1987). Thus, plaintiffs are precluded from bringing state-law
claims regarding plans governed by ERISA. See id. “The existence of an ERISA
plan is a mixed question of fact and law . . . .” Kulinski v. Medtronic Bio-
Medicus, Inc., 21 F.3d 254, 256 (8th Cir. 1994). Courts perform a two-step
analysis to determine whether a plan is governed by ERISA. Berry v. Provident
Life & Accident Ins. Co., No. 4:05-cv-04139-KES, 2007 WL 9772747 at *2
(D.S.D. Mar. 6, 2007). First, the court determines whether the plan falls within
ERISA’s safe-harbor provision, 29 C.F.R. § 2510.3-1(j). If a plan does not fall
within the safe-harbor provision, the court must determine whether the
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scheme at issue qualifies as an “employee benefit plan” that was “established
or maintained” by an employer. Berry, 2007 WL 9772747 at *2 (citing Nw.
Airlines, Inc. v. Fed. Ins. Co., 32 F.3d 349, 354 (8th Cir. 1994)).
I. 	Whether a Genuine Issue of Material Fact Exists as to the Plan’s
Satisfaction of the ERISA Safe-Harbor Provision
First, the court addresses whether there is any dispute of material fact as
to the plan falling under ERISA’s safe-harbor provision, 29 C.F.R. § 2510.3-1(j).
The safe-harbor provision states that ERISA does not govern a group or group-
type insurance plan offered by an insurer to employees or members when:
(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). For the safe-harbor provision to apply to a plan, it
must meet all four of the provision’s requirements. Dam v. Life Ins. Co. of N.
Am., 206 Fed. App’x 626, 627 (8th Cir. 2006). Because ERISA preemption is a
defense, the defendant bears the burden of showing that a plan does not meet
the safe-harbor requirements. Berry v. Provident Life & Accident Ins. Co, 2007
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WL 1795837 at *4 (D.S.D. June 19, 2007) (citing Merrick v. Nw. Mut. Life Ins.
Co., 2001 WL 34152095 at *7 (N.D. Iowa 2001). Here, defendants do not
dispute that the second and fourth requirements are satisfied by the plan.
Docket 11 at 7-10. Thus, the court discusses the first and third requirements.
A. 	Does a genuine issue of fact exist as to whether Sanford
contributed to the plan?
1. 	Whether Sanford directly contributed to Clark’s plan
The first prong of the ERISA safe-harbor provision requires that the
employer make no contributions to the plan. 29 C.F.R. § 2510.3-1(j)(1).
Defendants assert that Sanford was responsible for paying 100% of Clark’s
premium. Docket 14 ¶ 12; Docket 18 ¶ 12. In support of its argument,
defendants point to an application for coverage that Clark signed on May 23,
2001. Docket 11-4 at 4. The form stated that 100% of requested coverage
would be paid for by the employer. Id. Clark also acknowledged in the
application that premiums Sanford paid on his behalf would be included in his
taxable income. Id. at 13. A February 5, 2007, agreement between Sanford and
Unum states that Sanford’s obligation under the plan is “[t]o pay in full the
required premiums (100% Employer Pay) for such policies and to remit such
payments to [Unum] when due.” Docket 11-2 at 1 (emphasis in original).
Clark asserts that Sanford did not contribute to the plan. A letter from a
Paul Revere underwriting consultant states that Sanford withdrew from the
plan as of December 3, 2008. Docket 19-6. And a form dated December 17,
2016, that was filled out by Sanford as part of Clark’s initial claim for disability
indicates that Sanford did not, “as employer, pay any portion of [Clark’s]
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Individual Disability insurance premiums[.]” Docket 19-5 at 5. Clark asserts
that this form indicates that Sanford deducted Clark’s premiums from his pay,
rather than paying the premiums itself, and that Clark did not pay any portion
of the premium with pretax dollars. Docket 18 ¶ 12; Docket 19-5 at 5. Finally,
an “Action Plan” regarding Clark’s disability claim stated that his plan was
“without ER sponsorship,” that “[t]here [were] no indications that an ER-
sponsored plan exist[ed]” and that Sanford is not involved in payment of
Clark’s premiums. Docket 19-4. That document also states, however, that it
“appear[ed] the premiums were paid through the ER” and that “it appear[ed]
appropriate to consider this claim under ERISA.” Id. Clark also points to a
portion of his application for coverage that states that employer sponsorship is
20%, not full payment as defendants assert. Docket 11-4 at 8.
Viewing the evidence in the light most favorable to Clark, the non-moving
party, a genuine factual issue exists as to whether Sanford contributed to
Clark’s disability plan. While defendants point to evidence that the parties
agreed when Clark initially took out the policy that Sanford would pay the cost
of premiums, Clark provided evidence that more recently, Sanford withdrew
from sponsorship of the plan and that Sanford did not pay any portion of
Clark’s individual disability insurance premiums. These facts give rise to a
genuine issue of material fact as to whether Sanford contributed to the plan.
2. 	Whether the discount Clark received on his plan through
Sanford is a “contribution” to the plan
Defendants assert that a discount Clark received on his premium is
evidence that Sanford contributed to the plan. Docket 11 at 3-4; see also
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Docket 18 ¶¶ 8-10; Docket 11-4 at 20. Defendants assert that this 20% “Select
20 Annual Premium” discount was available when the employer paid 50% or
more of the individual premium. Docket 11 at 3-4; see also Docket 11-2 at 4.
As discussed above, a genuine issue of material fact exists as to whether
Sanford actually paid any part of Clark’s premiums. But defendants assert that
even if Sanford paid no portion of the premiums themselves, the discount alone
is a “contribution” under the first prong of the safe-harbor provision. Docket 11
at 9.
Defendants point to three district court decisions holding that a
negotiated discount alone constitutes a “contribution,” and urges this court to
adopt the same rule. Id. See Bommarito v. Nw. Mut. Life Ins. Co., 2018 WL
3537118, at *4 (E.D. Cal. July 23, 2018) (“By facilitating discounted premiums
through a multi-life premium discount, XCEL ‘contributed’ to the program,
regardless of whether it actually paid for the premiums or not.”); Henderson v.
Paul Revere Life Ins. Co., 2013 WL 1875151 (N.D. Tex. May 6, 2013) (“Courts in
the Fifth Circuit and elsewhere have held that, even when employees pay their
own premiums, an employer nevertheless ‘contributes’ for purposes of the safe-
harbor provision if the employees benefit from a rate structure or premium
discount the employer was able to negotiate in obtaining group benefits.”);
Healy v. Minn. Life Ins. Co., 2012 WL 566759, at *5 (W.D. Mo. Feb. 21. 2012)
(“[T]he 10% discount attributed to Plaintiff by virtue of [employer’s] agreement
to transmit Plaintiff’s premium payments on the Policy is a ‘contribution’ ”
sufficient to remove the policy from the safe-harbor provision’s protection).
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Clark notes that courts have also found that a discount alone is not a
“contribution” under the safe-harbor provision and argues that this court
should adopt that approach. In Gooden v. Unum Life Insurance Company, the
court found that when a discount is merely a standard offer from the insurance
company and not negotiated by the employer on behalf of employees, the
discount is not a “contribution” under the first safe-harbor criterion. 181 F.
Supp. 3d 465, 471-72 (E.D. Tenn. 2016). Another court also found that
discounts generally are de minimis contributions that do not by themselves
constitute “contributions.” See Letner v. Unum Life Ins. Co. of Am., 203 F. Supp.
2d 1291, 1300-01 (N.D. Fla. 2001) (a 15% discount obtained through employer
was a de minimus and indirect contribution that did not constitute employer
contribution).
The court declines to adopt a rule that any discount, whether negotiated
or offered as a matter of course, is a “contribution” under the safe-harbor
provision. In Healy, the only district court decision within the Eighth Circuit,
the court found that the discount was “a benefit [the plaintiff] could not have
received as an individual” and thus was a contribution on the part of his
employer. 2012 WL 566759, at * 5. This court, however, disagrees that a
discount offered by an insurance company to a company’s employees is
automatically a “contribution” by the employer. That rule would consume some
of the protections under the “sole function” prong of the safe-harbor provision,
which allows employers to deduct premiums from payroll and have other
involvement with plans while still falling under the safe-harbor provision. See
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29 C.F.R. § 2510.3-1(j); Gooden, 181 F. Supp. 3d at 475 (“There is no reason
why the combination of two permissible actions—payroll deduction by the
employer and a group discount from the insurer—would remove an insurance
policy from the safe harbor.”). The court finds the analysis in Gooden
persuasive. 181 F. Supp. 3d at 471-75. The Gooden court held that “a non-
negotiated group discount that applies only because premiums are paid
through payroll deduction is not a ‘contribution’ under the first” safe-harbor
criterion. Id. at 471-72. But it left open the question of whether a negotiated
discount is a “contribution.” Id. at 474.
Here, defendants assert that Clark’s discount was issued because
Sanford paid 50% or more of Clark’s premium. Docket 11 at 4; see also Docket
11-2 at 4. But genuine issues of fact exist as to whether Sanford paid any of
Clark’s premium. Defendants refer to the discount as “negotiated” by Sanford.
Docket 11 at 8. But defendants do not point to evidence in the record showing
the discount is “negotiated.” The evidence of the discount itself appears to be
standard marketing material provided by Unum Group when it educates
employers on various available plans. See Docket 11-2 at 4. Absent evidence
that the discount was negotiated by Sanford for Clark’s benefit, without
reaching the question of whether negotiated discounts constitute a
“contribution,” the court finds summary judgment inappropriate on the
question of whether Sanford “contributed” to the plan because of the 20%
discount alone.
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B. 	Does a genuine issue of material fact exist as to whether
Sanford exceeded the sole function requirement?
The third prong of ERISA’s safe-harbor provision requires that:
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[.]
29 C.F.R. § 2510.3-1(j)(3). Defendants argue that Sanford’s function exceeded
the “sole function” requirement because it endorsed the plan as an “Employer
Sponsored Multilife Agreement.” Defendants point to an agreement between
Unum and Sanford executed on February 5, 2007, that refers to “a Multilife
Employer Sponsored plan of individual disability insurance.” Docket 11-2 at 1.
Clark argues that nothing in that agreement establishes that it applied to
Clark’s policy. Docket 18 ¶ 12. Clark also argues that the letter from a Paul
Revere underwriting consultant states that Sanford withdrew from that
agreement as of December 3, 2008. Docket 18 ¶ 12; Docket 19-6. The
Employer Sponsored Multilife Agreement allows for termination by either party
with 30-day written notice. Docket 11-2 at 1.
Defendants also point to the same evidence it relied on to support its
argument under the first prong of the safe-harbor test—that Clark agreed when
he applied for the disability policy that 100% of requested coverage would be
paid for by the employer. Docket 11 at 9-10; Docket 11-4 at 4. Defendants’
argument that the evidence shows there is no genuine issue of material fact as
to whether Sanford’s role exceeded the “sole function” requirement fails. Clark
raised a genuine issue of material fact as to whether, if his policy fell under the
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Employee Sponsored Multilife Agreement, that agreement was terminated and
no longer applied to Clark’s policy when he filed his disability claim. Thus,
material issues of disputed fact exist on the issue of whether the policy falls
under ERISA’s safe-harbor provision.2
II. 	Whether the Plan is an “Employee Benefit Plan” that was
“Established or Maintained” by Sanford
Next, the court addresses whether the plan qualifies as an “employee
benefit plan” that was “established or maintained” by an employer. Berry, 2007
WL 9772747 at *2 (citing Nw. Airlines, Inc., 32 F.3d at 354). To determine
whether a plan is an “employee benefit plan” established or maintained by an
employer under ERISA, courts determine “from the surrounding circumstances
[whether] a reasonable person could ascertain the intended benefits,
beneficiaries, source of financing, and procedures for receiving benefits.”
Johnston v. Paul Revere Life Ins. Co., 241 F.3d 623, 629 (8th Cir. 2001) (quoting
Harris v. Ark. Book Co., 794 F.2d 358, 360 (8th Cir. 1986). Here, there is a
genuine issue of material fact as to who paid for Clark’s plan. Thus, a genuine
issue of material fact exists as to whether a reasonable person can ascertain
the source of financing for the plan. Even if Clark had not raised a genuine
2 Defendants also assert that Sanford unilaterally handled all aspects of
administering the policy and that Clark was unaware of the policy’s existence
when he claimed disability. Docket 11 at 10. Defendants do not cite to
materials in the record supporting this claim. Thus, the court does not
consider that claim as summary judgment evidence. See Fed. R. Civ. P.
56(c)(1)(A).
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issue of material fact as to whether the plan falls under ERISA’s safe-harbor
provision, summary judgment would be inappropriate here.
CONCLUSION
Clark showed that there is a genuine issue of material fact as to whether
the plan at issue is governed by ERISA. The issue of ERISA preemption is a
mixed question of law and fact. See Berry, 2007 WL 9772747 at *2. In similar
circumstances, the court has held evidentiary hearings to resolve mixed
questions of law and fact. See, e.g., id. at *3. The court will hold a hearing to
determine the threshold issue of whether Clark’s plan is governed under
ERISA, but it can only do so after discovery on this issue is completed. Thus, it
is
ORDERED that defendants’ motion for partial summary judgment
(Docket 13) is denied. It is
FURTHER ORDERED that an evidentiary hearing will be held in this
matter to determine whether the plan is governed under ERISA and state-law
claims are preempted after discovery is completed.
DATED February 19, 2021.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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