Gowen filed an action in state court, asserting state law claims to recover disability benefits and other damages against Assurity Life Insurance Company and Gowen’s insurance agent. Assurity removed the case to the federal district court, relying on federal question jurisdiction under ERISA. Gowen filed a motion to remand.
In opposition to the motion to remand, Assurity showed that Gowen was part owner of a family business, that Assurity issued disability policies to Gowen and to other family members, that all of the family members were employees of the business, and that the business paid the premiums for their policies.
In denying the motion to remand, the district court conducted a thorough analysis of issues respecting the removal of an action involving an ERISA plan.
First, the court discussed the general rule that for purposes of removal, a federal question must appear on the face of the well-pleaded complaint. The court noted, however, the “narrow exception” which allows removal even when a federal question does not appear on the face of the complaint and “where the preemptive force of a federal statute [such as ERISA] is so extraordinary that it converts an ordinary state law claim into a statutory federal claim.”
The court discussed the two types of ERISA preemption, complete and defensive. Complete preemption creates the basis for removal; defensive preemption does not.
Complete preemption derives from ERISA § 502(a), 29 U.S.C. § 1132(a), which “converts an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.” Thus, state law claims seeking relief available under § 502(a) are recharacterized as ERISA claims. This requires the court to consider (1) whether the plaintiff could have brought his claim under § 502(a), and (2) whether no other legal duty supports the plaintiff’s claim.
On the other hand, defensive preemption arises from ERISA § 514(a), 29 U.S.C. § 1144(a), which expressly preempts any state law claim that “relates to” an ERISA plan.
The court analyzed whether the claims against Assurity were completely preempted by ERISA. The court noted that for complete preemption it must consider whether (1) there was an ERISA plan, (2) Gowen had standing to sue under ERISA, (3) Assurity was an ERISA entity, and (4) Gowen sought relief available under § 502(a).
The court considered first whether an ERISA plan was involved in Gowen’s claim. The court noted that for a plan to exist, there must be (1) a “plan,” (2) established or maintained, (3) by an employer, (4) to provide its participants or their beneficiaries, (5) disability benefits.
A plan exists whenever there are intended benefits, intended beneficiaries, a source of financing, and a procedure to apply for and collect benefits. The court determined that Gowen was an intended beneficiary of disability benefits financed by his employer, and that the disability policy provided the procedure to apply for and collect benefits.
The court determined that the employer had established and maintained a plan to provide Gowen and other employees with disability benefits. Therefore, the court held that the disability policy was part of an ERISA plan. The court also determined that, as a participant in the plan, Gowen had standing to sue under ERISA. The court held that, as an entity exercising discretionary authority in the administration of the plan, Assurity was a plan fiduciary and was, therefore, an ERISA entity.
Finally, the court concluded that Gowen’s claim that Assurity misled him into procuring a five-year disability policy when he bargained for a ten-year policy was “in essence a claim to recover benefits due to plaintiff under the terms of the plan.” Thus, the court determined that Gowen could have brought his claim under ERISA § 502(a).
The court next considered whether Assurity had an independent legal duty supporting Gowen’s claim. The court determined that the potential state law liability asserted by Gowen resulted entirely from the rights and obligations established by his ERISA-regulated disability policy. Consequently, Gowen had no independent action against Assurity.
Therefore, the court determined, the claims against Assurity were completely preempted by ERISA. As a result, the court had federal question jurisdiction over Gowen’s claims, and removal was proper as to Assurity.
The court observed, however, that ERISA does not extend to state law tort claims brought against non-ERISA entities, such as the insurance agent. The agent relied on ERISA preemption under § 514(a). However, the court observed that the agent’s arguments were an example of “defensive preemption,” which did not create federal question jurisdiction. Nevertheless, the court exercised supplemental jurisdiction over the claims against the agent, because they were joined with the removable claims against Assurity.
Therefore, the court had jurisdiction over all of Gowen’s claims, and his motion to remand the case to state court was denied.
Click here to view the full June 2013 Edition of the ERISA and Life Insurance News.