Lee v. Liberty Nat’l Life Ins. Co., 2009 WL 3316371 (S.D. Ga. 2009)
An employee’s spouse sued the insurer of her cancer insurance policy in state court after it refused to pay for medical treatment she had received. The insurer removed the case to federal court, arguing that her claim was preempted by ERISA. The spouse argued that the case belonged in state court because the policy fit within the regulatory safe harbor that excepts from ERISA certain voluntary insurance arrangements. At issue was whether the policy, which was offered through a cafeteria plan, fell outside the voluntary plan safe harbor because the employer had endorsed it.
Noting that under the ERISA safe harbor, an employer’s involvement is restricted to permitting the insurer to publicize the program and collecting premiums without “endorsing” the plan, the court ruled that the policy was not within the safe harbor.
According to the court, the employer had endorsed the plan so as to make it fall outside ERISA’s safe harbor because it didn’t “maintain sufficient neutrality” with the insurer. The court said that the employer had endorsed the policy by (1) acting as plan administrator, (2) offering the policy as the only pre-tax benefit through a cafeteria plan, and (3) using plan documents that mentioned ERISA. The court also pointed out that the employer chose 32 hours a week as the amount employees would need to work to qualify for the insurance and that deciding key terms, such as the number of hours for eligibility, bars an employer from using the safe harbor. Having decided that the policy did not fall within the voluntary plan safe harbor, the court next considered whether the policy was an ERISA plan established or maintained by an employer. Considering several factors, the court concluded that the policy was an ERISA plan in that the employer named itself as plan administrator, decided the number of hours for eligibility, offered the plan on a tax-favored basis, and informed participants of their rights under ERISA.
Comments