Michael Nathans v. UNUM Life Insurance Company of America

Opinion

CV 20-4977-RSWL-MRW x ORDER re: Plaintiff’s Plaintiff, Motion for Summary v. Adjudication [20] UNUM LIFE INSURANCE Defendant. Plaintiff Michael Nathans (“Plaintiff”) brings this Action [1] against Defendant Unum Life Insurance Company of America (“Defendant”), alleging state law claims for breach of contract and breach of the implied covenant of good faith and fair dealing. The Action arises out of Plaintiff’s claim for benefits under a disability insurance policy issued by Defendant. Currently before the Court is Plaintiff’s Motion for Summary Adjudication (the “Motion”), in which Plaintiff seeks a determination that the subject disability policy is governed by

California law, not ERISA.

Plaintiff argues threefold in his Motion: (1) his original policy was either not part of an ERISA plan or met the “safe harbor” criteria for exemption from ERISA coverage; (2) his removal from a group plan rendered ERISA inapplicable; and (3) his policy’s lapse and subsequent reinstatement rendered ERISA inapplicable. See generally Pl.’s Mem. in Supp. of Mot. for Summ. Adjudication (“Mot.”), ECF No. 20-1; Pl.’s Reply in Supp. of Mot. for Summ. Adjudication, ECF No. 22. The Court finds Plaintiff’s second argument both compelling and dispositive. Having reviewed all papers submitted pertaining to this Motion, the Court NOW FINDS AND RULES AS FOLLOWS: the Court GRANTS the Motion. A. Factual Background 1. Background In 1994, Plaintiff worked in the offices of law firm Duran Loquvam, Lehman & Roberts (“DLL&R”). Pl.’s Statement of Uncontroverted Facts (“Pl.’s SUF”) ¶ 1, ECF No. 20-2. The parties dispute whether Plaintiff was a lessee of office space at DLL&R or an employee of DLL&R. Id. ¶ 1; Statement of Genuine Disputes of Material Facts & Def.’s Statement of Undisputed Facts (“Def.’s Resp. to SUF”) ¶ 1, ECF No. 21-2. While Plaintiff worked in the office of DLL&R, one of the DLL&R partners, John Duran, suggested to Plaintiff that he speak to insurance agent Thomas Isenhour. Pl.’s SUF ¶ 1; Def.’s Resp. to SUF ¶

1. Plaintiff thereafter submitted an application to

Defendant for disability insurance. Pl.’s SUF ¶ 2; Def.’s Resp. to SUF ¶ 2. The application included various coverage options under the heading “INDIVIDUAL DISABILITY PLANS.” Pl.’s SUF ¶ 3; Def.’s Resp. to SUF ¶ 3. Upon completion, the application bore Plaintiff’s name and requested that Plaintiff be included on the DLL&R FlexBill arrangement (the “FlexBill”). Pl.’s SUF ¶ 2; Def.’s Resp. to SUF ¶ 2. Plaintiff also indicated in the application that the “employer” would pay the premiums. Pl.’s SUF ¶ 4; Def.’s Resp. to SUF ¶ 4. Paragraph 6 of the application’s agreement provided, “[p]ayment of all premium is my responsibility as owner of the policy. If my employer . . . collects, pays or forwards any part of the premium for this policy, they act as my agent and not as agent for [Defendant]. If [Defendant] does not receive premium as due, the policy will lapse.” Decl. of Corinne Chandler (“Chandler Decl.”) Ex. A, at 290, ECF No. 20-3. In April 1994, Defendant approved Plaintiff’s disability coverage. Pl.’s SUF ¶ 7; Def.’s Resp. to SUF ¶ 7. The premiums were discounted fifteen percent, and insurance agent Thomas Isenhour made a fifty percent commission. Pl.’s SUF ¶ 7; Def.’s Resp. to SUF ¶ 7. Defendant issued to Plaintiff policy number LAD 282504 with an effective date of March 30, 1994. Pl.’s SUF ¶ 8; Def.’s Resp. to SUF ¶ 8. Defendant’s file contains

one check from DLL&R for Plaintiff’s first premium

payment, and there is nothing in Defendant’s records indicating whether DLL&R continued to pay those premiums. Pl.’s SUF ¶ 5; Def.’s Resp. to SUF ¶ 5. While the parties do not dispute that DLL&R paid the premiums, they dispute whether Plaintiff reimbursed DLL&R for the premiums. Decl. of Michael Nathans in Supp. of Pl.’s Mot. (“Nathans Decl.”) ¶ 5, ECF No. 20-4; Def.’s Resp. to SUF ¶ 5. DLL&R principal Mr. Loquvam sent a letter dated December 14, 1994, to Defendant, requesting that Plaintiff be removed from the FlexBill. Chandler Decl. Ex. A, at 274; Def.’s Undisputed Facts (“Def.’s SUF”) ¶ 19, ECF No. 21-2. Defendant wrote to Plaintiff, offering to continue his coverage separately. Pl.’s SUF ¶ 11; Def.’s SUF ¶ 11. Thus, despite being removed from the FlexBill within eight months of the policy’s effective date, Plaintiff maintained his coverage under the same policy and was thereafter billed directly. Pl.’s SUF ¶ 11; Def.’s Resp. to SUF ¶ 11. Plaintiff paid non-discounted premiums directly to Defendant. Decl. of Fagan ¶ 19 Ex. 5; Def.’s SUF ¶ 20. DLL&R disbanded around the year 2000, and Defendant destroyed files related to the FlexBill in 2007 pursuant to its document retention policy. Pl.’s SUF ¶ 11; Def.’s Resp. to SUF ¶ 11. 2. Policy Lapse Plaintiff’s policy lapsed on June 7, 1997, for

nonpayment of premiums. Pl.’s SUF ¶ 12; Def.’s Resp. to SUF ¶ 12. The policy contained a reinstatement procedure—so long as the application was filed within six months of the first overdue payment—under which a policyholder had to (1) submit a reinstatement application with evidence of insurability, (2) submit the full amount of the overdue premium, and (3) obtain approval of the application from Defendant. Chandler Decl. Ex. B, at 7; Def.’s Resp. to SUF ¶ 13. The reinstatement provision provided that, if Defendant approved the reinstatement request, the date of coverage would be that of the approval date. Pl.’s SUF ¶ 13; Def.’s Resp. to SUF ¶ 13. Moreover, “[i]f reinstated, the policy would only provide benefits for a disabling injury that occurred after the reinstatement of the policy” and “for a disabling sickness that was first diagnosed or treated more than 10 days after reinstatement.” Pl.’s SUF ¶ 13; Def.’s Resp. to SUF ¶ 13. After Plaintiff submitted a reinstatement application and a check to Defendant’s individual disability department, Defendant approved coverage in January 1998. Pl.’s SUF ¶¶ 14-15; Def.’s Resp. to SUF ¶¶ 14-15. /// /// 3. Disability Claim & Termination of Benefits

Plaintiff claimed disability in 2018. Pl.’s

SUF ¶ 17; Def.’s Resp. to SUF ¶ 17. Plaintiff’s benefits application included an “Attorney Questionnaire,” which instructed as follows: “For Group- sponsored policies – the employer should complete this form,” and “For Individual policies – the insured should complete this form.” Chandler Decl. Ex. A, at 31; Def.’s Resp. to SUF ¶ 17. Plaintiff completed the form and was approved for benefits in 2019. Pl.’s SUF ¶¶ 17, 19; Def.’s Resp. to SUF ¶¶ 17, 19. Sometime in 2020, Defendant unsuccessfully attempted to contact Plaintiff’s physician. Pl.’s SUF ¶ 23; Def.’s Resp. to SUF ¶ 23. Defendant subsequently terminated the benefits in May 2020 and asserted for the first time that ERISA applied to the claim. Pl.’s SUF ¶ 23; Def.’s Resp. to SUF ¶ 23. B. Procedural Background Plaintiff filed his Complaint [1] on June 4, 2020. After the parties stipulated [9] to a fourteen-day extension of time to answer, Defendant filed its Answer [10] on July 15. On March 9, 2021, Plaintiff filed this Motion [20]. Defendant filed its Opposition [21] on March 16, and Plaintiff replied [22] on March 23. A. Legal Standard The standard that applies to a motion for summary judgment is the same as that which applies to a motion for partial summary judgment. See Fed. R. Civ. P.

56(a). Federal Rule of Civil Procedure 56(a) states

that a “court shall grant summary judgment” when “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.” A fact is “material” for purposes of summary judgment if it might affect the outcome of the suit, and a “genuine” issue exists if the evidence is such that a reasonable factfinder could return a verdict for the nonmovant. Anderson v. Liberty Lobby, 477 U.S 242, 248 (1986). The evidence, and any inferences based on underlying facts, must be viewed in the light most favorable to the nonmovant. Twentieth Century-Fox Film Corp. v. MCA, Inc., 715 F.2d 1327, 1328-29 (9th Cir. 1983). In ruling on a motion for summary judgment, the court’s function is not to weigh the evidence, but only to determine if a genuine issue of material fact exists. Anderson, 477 U.S. at 255. B. Discussion1 ERISA preempts state law that “relate[s] to any employee benefit plan.”2 29 U.S.C. § 1144(a). 1 Both parties filed evidentiary objections. Because the Court does not rely on the evidence to which the parties object, the Court OVERRULES those objections as moot. 2 ERISA defines an employee benefit plan to include, among other things, “any plan, fund, or program . . . established or maintained by an employer or by an employee organization . . . through the purchase of insurance . . . medical, surgical, or hospital care or benefits.” 29 U.S.C. § 1002(1); Stuart v. UNUM Life Ins. Co. of Am., 217 F.3d 1145, 1149 (9th Cir. 2000). Plaintiff asserts his claims under a disability policy

that, according to Plaintiff, is not subject to ERISA

regulation. He points to three distinct moments at which ERISA was rendered inapplicable to the subject policy: the inception of his policy (the “Initial Policy”), the removal of his policy from the FlexBill (the “Removed Policy”), and the reinstatement of his policy following lapse (the “Reinstated Policy”). Mot. 1:10-17, 14:17-23. Because the Removed Policy is dispositive, the Court limits its analysis accordingly. The undisputed facts establish that DLL&R requested the removal of Plaintiff’s policy from the FlexBill, Defendant sent Plaintiff a letter that offered to continue coverage separately, and Plaintiff thereafter remitted payment for non-discounted premiums directly to Defendant. Plaintiff paid those premiums pursuant to a contract exclusively between Plaintiff and Defendant. Chandler Decl. Ex. B, at 1-33; Def.’s Resp. to SUF ¶ 8. Courts have held that ERISA does not preempt state law claims brought under similar policies. See, e.g., Jilka v. Unum Grp., No. 18-cv-02952-JD, 2019 WL 1221058, at *2 (N.D. Cal. Mar. 15, 2019) (finding ERISA inapplicable to plaintiff’s policy where the insurer sent plaintiff a letter asking if he wanted to continue coverage and, after electing to so continue, plaintiff thereafter paid the premiums independent of his employer); DiNicola v. Unum Life Ins., No. 2:17-cv-01437 SVW (AJWx), 2017 WL 6940531, at *3 (C.D. Cal. Sept. 12, 2017) (holding that ERISA did not preempt Plaintiff’s claims where the

disability policy was “independent of the ERISA benefits

from [the employer] and [did] not place any burdens on the plan administrator or the plan”); May v. Paul Revere Life Ins. Co., No. 5:13CV28, 2013 WL 4099997, at *5 (N.D.W. Va. Aug. 12, 2013) (holding that ERISA did not preempt plaintiff’s claims in “the unique situation where insurance is dropped by the employer and resumed through an offer by the insurer”); Eberlein v. Provident Life & Accident Ins. Co., No. 06-cv-02454-REB-MJW, 2008 WL 791944, at *6-7 (D. Colo. Mar. 20, 2008) (concluding that plaintiff’s policy was not subject to ERISA where plaintiff obtained an individual policy as part of an employee benefit plan and was subsequently offered ongoing coverage by the insurer under the individual policy). Although the Ninth Circuit’s decision in Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872 (9th Cir. 2001), is not squarely decisive, the court’s reasoning is instructive here. In Waks, the Ninth Circuit held that ERISA does not preempt claims arising under a converted policy—that is, an individual policy based on conversion rights in a group plan. 263 F.3d at 875-76. To be sure, Plaintiff’s Removed Policy does not arise from conversion rights like the policy in Waks. As one court recognized, however, policies like the one at bar “much more closely resemble[] a ‘converted policy’” than continuation coverage and are therefore not sufficiently “related to” an ERISA plan. See Jilka, 2019 WL 1221058,

at *2 (citing Waks, 263 F.3d at 875) (noting that, where

plaintiff elected to separately maintain individual coverage after the employer ceased payment of premiums, “[plaintiff’s] policy much more closely resembled a ‘converted policy’ . . . that was no longer subject to ERISA”). This is because, as articulated in Waks, “[t]he contract under the [Removed P]olicy is directly between the insurer and insured. It is independent of the ERISA plan and does not place any burdens on the plan administrator or the plan.” Waks, 263 F.3d at 876. In opposition, Defendant advances the purported maxim, “once ERISA, always ERISA.” Kerton, 2005 WL 3440716, at *4. But Defendant fails to contextualize this phrase. Indeed, the court in Kerton recognized an important qualification to the “once ERISA, always ERISA” notion based on a reading of Waks: “‘once ERISA always ERISA,’ even if the policy continues after termination of the employment relationship, unless the policy is converted to an individual policy.” Kerton, 2005 WL 3440716, at *4 (emphasis added). There was no reason for the Kerton court to consider the existence of an individual policy because the plaintiff claimed benefits under the original group plan. Id. Other cases that Defendant cites are distinguishable because those courts confronted the existence or nonexistence of an ERISA plan, not the relationship between the ERISA plan and the plaintiff’s policy. See Peterson v. Am. Life & Health Ins. Co., 48 F.3d 404, 407-08 (9th Cir. 1995) (holding that

plaintiff’s policy, which was part of a group ERISA plan, remained subject to ERISA after the only covered employee was transferred to a different policy); see also Finkelstein v. Guardian Life Ins. Co. of Am., No. C 07-01130 CRB, 2007 WL 1345228, at *4-5 (N.D. Cal. May 8, 2007) (holding that ERISA preempted plaintiff’s policy despite the employer’s dissolution and plaintiff’s status as the sole insured under the subject policy); Kerton, 2005 WL 3440716, at *4 (holding that plaintiff’s disability policy was an ERISA policy despite the termination of plaintiff’s employment and the insolvency of the employer); Judith Miller, M.A., LMFCT v. Provident Life & Accident Ins. Co., No. CV99- 9464ABCRNBX, 2000 WL 1341480, at *4 (C.D. Cal. Sept. 5, 2000) (stating “that an insurance policy that was part of an established ERISA plan is governed by ERISA even if the plan is no longer maintained as an ERISA plan by the employer”). While Defendant may be correct that changes in the employment relationship or payment structure are not alone sufficient to strip the plan of ERISA’s governance, the character of the plan is immaterial here. Critically, even assuming that the DLL&R FlexBill constituted an ERISA plan, Plaintiff’s Removed Policy constituted independent coverage not sufficiently “related to” such a plan.3 Further bolstering the Court’s conclusion is that

courts routinely evaluate ERISA preemption with the backdrop of the “two central objectives of ERISA regulation: protection of employee interests, and administrative ease for employers.” Waks, 263 F.3d at 875 (citations omitted). Neither of these objectives is implicated here, as DLL&R had no connection with the Removed Policy and has been defunct since 2000. Indeed, “in this case ERISA preemption would be an absurd result because there is no ERISA plan and no administrator. . . . State law therefore cannot impose conflicting requirements on any employer or ERISA plan administrator.” Id. at 876; see also Demars v. CIGNA Corp., 173 F.3d 443, 450 (1st Cir. 1999) (“[W]hat matters for ERISA purposes is . . . the nature of the employer’s ongoing administrative and financial ties to the policy. If no such ties exist, the policy should not be subject to ERISA regulation.”). It is undisputed that Defendant removed Plaintiff’s policy from the FlexBill in 1994. Following an offer 3 Given the Court’s holding that the subject policy is not governed by ERISA, the Court need not address the parties’ arguments concerning Plaintiff’s Reinstated Policy. If the Reinstated Policy constituted new coverage, as argued by Plaintiff, ERISA would be rendered inapplicable under the above analysis. If the Reinstated Policy constituted a continuation of the coverage under the Removed Policy, the Court’s determination that the Removed Policy is not subject to ERISA controls. from Defendant to maintain coverage separately,

Plaintiff paid non-discounted premiums directly to

Defendant under a contract exclusively between Plaintiff and Defendant. Under these facts, the Court GRANTS Plaintiff’s Motion for Summary Adjudication on the issue of ERISA’s inapplicability to Plaintiff’s policy. DATED: July 20, 2021 _______/_s/_ R_on_a_ld_ S_.W__. L_e_w___________ HONORABLE RONALD S.W. LEW Senior U.S. District Judge