Preempting ERISA Preemption - II

By David G. Wirtes, Jr. and Stewart G. Springer

With our first article on this topic, we discussed several avenues to explore when attempting to avoid preemption by ERISA in the insurance fraud/bad faith context. With this second article, we offer practical suggestions regarding discovery techniques. The suggestions we offer have application in those types of cases where ERISA preemption may be a close call; where, for example, a small mom-and-pop operation is solicited for the purchase of private major medical coverage for its employees and it pays for the insurance with checks from its business account.

When your client is employed by a Fortune 500 type employer which purchases insurance benefits for its employees, chances are that your client's claim will be preempted. With smaller employers, your scrutiny should be more intense, always bearing in mind the statutory exceptions from ERISA coverage, the regulatory exceptions, and the definitional requirements for covered "benefits" and "plans."

When you have very small employers (with, ordinarily, twenty employees or fewer), your scrutiny of preemption issues must be the greatest. Focus on the plain facts surrounding the solicitation and sale. Did the employer provide a benefit to his employees or did the employees themselves actually make the purchase while coincidentally on the job? Always direct your discovery towards meeting a recognized exception from coverage or towards disproving the requisite elements for coverage.

REQUESTS FOR ADMISSIONS

Insurers must act quickly under the removal statutes. We've seen knee-jerk removal petitions filed alleging federal question jurisdiction through ERISA preemption when the insurance transaction bears little or no factual relationship to the insured's employment. Aggressive defense attorneys may be opting to err on the side of caution by removing the case first and worrying about sustaining their burden of proof on ERISA issues later.

No technique works better at forcing the controversy to a timely and resolute end than the use of thorough and sifting requests for admissions. File these immediately upon receipt of the removal papers. You will quickly narrow and refine the question of preemption to a few factual issues which may then be addressed through depositions. More importantly, through aggressive and prompt action, you may force the defendants into committing to positions through their responses, which, upon further reflection, they may regret later. First consider whether you can use requests for admissions to establish that your case falls within the safe harbor regulations promulgated by the Department of Labor. Consider the following examples:

Please Admit:

1. That plaintiff's (employer) (employee organization) made no contributions to the putative "plan" within the meaning of 29 C.F.R. Section 2510.3-l(j).

2. That participation in the putative "plan" was completely voluntary for (employees) (members), including (plaintiff) within the meaning of 29 C.F.R. Section 2510.3(j);

3. That the plaintiff's (employer) (employee organization) did not endorse any plan within the meaning of 29 C.F.R. Section 2510.3- I ti);

4. That the plaintiff's (employer) (employee organization) did not receive any consideration or payments For any administration of any plan within the meaning of 29 C.F.R. Section 2510.3-l(j).

Recent case law suggests that meeting just some of the safe harbor criteria is enough to then require judicial scrutiny of more than merely the Donovan v. Dillingham factors. 6 For example, in Hansen v. Continental Ins. Co., the court held that just because a "plan" exists, does not necessarily mean that the plan is an "ERiSA plan". A reviewing court must also examine the intent of the employer—it must be shown that the employer had ~a purpose to provide benefits to its employees" and there must be some meaningful degree of participation by the employer in the. creation or administration of the plan.8 So, next focus your requests for admissions on proving or disproving common statutory elements of ERISA plans. Structure your requests so that you can make out a strong argument that the employer's participation was minimal or nonexistent. For example, the following requests for admissions are helpful on this point.

Please Admit:

5. That there was no trustee for any alleged ERISA "plan" (within the meaning of 29 U.S.C. Section 1103);

6. That there was no trust for any alleged ERISA "plan" (within the meaning of 29 U.S.C. Section 1103);

7. That the (employer) (employee organization) maintained no trust funds for any alleged ERISA "plan" (within the meaning of 29 U.S.C. Section 1103);

8. That there was no "plan sponsor" for any alleged ERISA "plan" (within the meaning of 29 U.S.C. Section 1002(1 6)(B));

9. That there was no administrator for any alleged ERISA "plan" (within the meaning of 29 U.S.C. Section 1002(1 6)(A));

10. That no one employed at (employer} (employee organization) was designated as any administrator for the putative "plan".

11. That none of the (employees) (members) had any administrative responsibilities towards the putative "plan ";

12. That none of (employer's) {employee organization's) officers or employees were considered fiduciaries to the "plan," (within the meaning of 29 U.S.C. Section 1002( 1 4)(A));

13. That none of (employer's) (employee organization's) officers or employees had any fiduciary duties to the putative "plan" (within the meaning of 29 U.S.C. Section 1 104);

14. That there is no document purporting to establish or maintain any "plan" prepared by the (employer) (employee organization);

15. That there is no written instrument purporting to establish or maintain any "plan. prepared by the (employer) (employee organization) which provides for one or more named fiduciaries to jointly or severally have authority to control and manage the operation and administration of the "plan" (within the meaning of 29 U.S.C. Section 1 102);

16. That there is no written instrument which provides a procedure for establishing and carrying out a funding policy and method consistent with the objectives of the plan and the requirements of 29 U S.C. Section 1001, et seq., (within the meaning of 29 U.S.C. Section 1 1 02(2)(b)( 1 ));

17. That there is no written instrument purporting to establish or maintain any "plan" which specifies procedures for providing adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant (within the meaning of 29 U.S.C. Section 1 133(1 ));

18. That there is no written instrument purporting to establish or maintain any "plan" which sets forth in writing procedures which afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim (within the meaning of 29 U.S.C. Section 1133(2));

19. That no fiduciary to this purported "plan" is bonded (within the meaning of 29 U.S.C. Section 1112);

20. That there is no summary plan description for this purported "plan" (within the meaning of 29 U.S.C. Section 1022(a)(1));

21. That neither the plaintiff nor any other participant in the purported "plan" has been provided with a copy of a summary plan description (within the meaning of 29 U.S.C. Section 1022(a)(1));

22. That the purported summary plan description does not conform with the requirements for style, format and content required by the regulations (within the meaning of 29 C.F.R. Section 2520.102-1, 2 and 3);

23. That no reports, financial statements or other documents were ever f~led by (employer) (employee organization) with the Secretary of Labor (within the meaning of 29 U.S.C. Section 1023);

24. That no reports, financial statements or other documents were ever filed by (employer) (employee organization) with the Secretary of the Treasury (under Intemal Revenue Service Code Section 6057-6059);

25. That the (employer) (employee organization) did not maintain a copy of the Department of Labor's interpretative bulletin relating to the ERISA Guidelines and the Special Reliance Procedure (within the meaning of 29 C.F.R. Section 2509.75- 10).

Because the employer's intent appears to be gaining importance in the context of judicial scrutiny of whether the putative ~plan" is in reality an ERISA plan, your requests for admissions should also focus on the circumstances surrounding the original purchase of or subscription to the insuring agreerr,ent.

Please Admit:

26. That (Plaintiff) did personally apply for the purchase of this insurance;

27. That (employer) (employee organization) did not complete or submit any (participatinB employer's) (participating employee organization's) application;

28. That (salesperson-agent) never spoke with any of (employer's) (employee organization s) executive officers or managers at any time concerning the sale/subscription to the insurance;

29. That it was not a condition of the sale/subscription to this insurance that plaintiff's co-employees purchased and/or subscribed to this insurance;

30. That it was not a condition of the sale/subscription to this insurance that plaintiff's (employer (employee organization) purchase and/or subscribe to this insurance;

31. That the only underwriting criteria all involved with acceptance or rejection of plaintiff's application were health/risk-rating criteria;

32. That (salesperson/agent) knew nothing of ERISA at the time of this sale;

33. That (salesperson/agent) had received no education or training from (insurer) (multiple employer tnust) regarding ERISA;

34. That (salesperson/agent) made no oral representations regarding ERISA or of any consequences of this sale (subscription) to insurance being deemed an ERISA ~employee welfare benefit plan~ at the time of any communications with (plaintiff) (employer) (employee organization);

35. That "ERISA" is not mentioned anywhere in any of the sales brochures, policy applications or policy documents shown or delivered to (plaintiff) (plaintiff's coemployees) (employer) (employee organization);

36. That (employer) (employee organization) had no intention to establish or maintain any employee welfare benefit plan (within the meaning of 29 U.S.C. Section 1001, et seq.);

37. That (insurer) (multiple employer trust) (multiple employer welfare arrangement) never intended to comply with nor in fact complied with any laws or regulations governing implementation or maintenance of employee welfare benefit plans within the meaning of ERISA;

38. That (insurer) (multiple employer trust) (multiple employer welfare arrangement) purposefully intended to avoid and in fact avoided compliance with the statutory and regulatory requirements for implementation and maintenance of ERISA employee welfare benefit plans in the course of marketing and selling the insurance made the basis of this litigation.

INTERROGATORIES

You should insist on receipt of answers to interrogatories before taking any Rule 30(b)(6) depositions of the insurer's, employers'and plans' representatives. Taking 30(b)(6) depositions of well-rehearsed professionals without knowing ahead of time what factual issues exist can be disastrous. Narrow the issues. Learn what the defendant is relying upon to sustain its burden of proof on the ERISA preemption issue. Use the answers to these interrogatories when carefully thinking through your series of potent leading questions for the depositions.

1. Please state with specificity how the insurance from which the plaintiff's claims arise is an employee-welfare benefit plan regulated by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1 002(3).

(A) In your answer to this interrogatory, please state with specificity the following:

(1.) How an "employee welfare benefit plan" was "established or maintained" by any employer?

(2.) How an "employee welfare benefit plan. was "established or maintained" by any employee organization?

2. Describe each and every act or event undertaken or participated in by (employer) (employee organization), to establish and/or maintain an employee welfare benefit plan.

(A) Please state with specificity any and all responsibilities (employer) (employee organization) had for administration of the purported employee welfare plan; and,

3. Please list all communications of which defendant is aware, (whether written or verbal) between plaintiff's (employer) (employee organization) and the alleged employee welfare plan sponsor, plan trustee, plan administrator, plan fiduciary, and/or the defendant, which confirm, memorialize or otherwise recognize the existence of an ERISA "plan" and/or the (employer's) (employee organization's) responsibilities under the plan.

4. Has (employer) (employee organization) made any contributions to the alleged employee welfare benefit plan within the meaning of 29C.F.R. ~ 2510.3-1 (j)?

(A) If so, please itemize all such contributions.

5. To your knowledge, is participation in the employee welfare benefit plan completely voluntary for participants of this purported plan within the meaning of 29 C.F.R. 2510.3- 1 (j)?

(A) If participation is not completely voluntary for participants, then please state each and every fact upon which you rely in making this contention.

6. Has (employer) (employee organization) ever endorsed this purported employee welfare benefit plan?

(A) If so, piease state with specificity each and every time, event, and instance that (employer) (employee organization) endorsed the employee welfare benefit plan; and, please provide photocopies of any writings which confirm, memorialize or otherwise represent any such endorsement.

7. Does (employer) (employee organization) receive any money or consideration in connection with the administration of this purported employee welfare benefit plan?

(A) If so, please state with specificity the purpose or purposes for which it receives money or other consideration; and

(B) Please state with specificity each instance during the past two (2) calendar years when it received such cash or other consideration and the purpose thereof.

8. Does (employer) (employee organization) collect premiums through payroll deductions of its employees for the employee welfare benefit plan?

(A) If so, please state with specificity how any such deductions are calculated;

(B) how accounted for by the plan;

(C) how funds or monies deducted are transmitted for deposit to or with this plan;

(D) how any such deductions are remitted to the plan; and,

(E) Are any such payroll deductions mandatory for plaintiff or plaintiff's co-employees?

9. Who is or are the sponsor(s) for this purported employee welfare benefit plan?

(A) Please state such person's(s) name, address and telephone number and;

(B) Please state how this person(s) was so designated.

10. Who is or are the administrator(s) for this purported employee welfare benefit plan?

(A) Please state such person(s) name, address and telephone number and;

(B) Please state how this per~son(s) was so designated.

11. Who is or are the trustee(s) for this purported employee welfare benefit plan?

(A) Please state such person(s) name, address and telephone number and;

(B) Please state how this person(s) was so designated.

12. Who is or are the fiduciary(ies) for this purported employee welfare benefit plan?

(A) Please state such person's(s) name, address and telephone number and;

(B) Please state how this person(s) was so designated.

13. Please state whether any annual reports and/or financial statements of this purported employee welfare benefit plan were ever provided to:

(A) The plaintiff herein, or,

(B) to (employer) (employee organization), or,

(C) to any other employees of (employer) (employee organization); or,

(D) to the Department of Labor; or,

(E) to the Department of Treasury; or,

(F) to the Pension Benefit Guaranty Association.

14. If any answer to the preceding interrogatory was in the affirmative, please provide a true and correct copy of any such annual report and/or financial statement; identifying the date, place and purpose of provision of such report or statement;

15. Were any plan brochures submitted to the plaintiff (employer) (employee organization) prior to the purchase of the insurance which contained language expressing that insurance coverage was being provided under an employee welfare benefit plan within the meaning of ERISA?

(A) If so, please provide a description of any such brochure, and attach a tnue and correct copy of such brochure to your answers hereto.

16. Did any policy of insurance (Certificate of Coverage) issued to the plaintiff (employer) (employee organization) contain any language indicating that the insurance was being provided under an employee welfare benefit plan within the meaning of ERISA?

(A) If so, please attach a specimen copy of any such policy to your answers to these interrogatories and highlight with a colored marker any and all such language.

17. Please describe what steps, if any, were taken by (employer) (employee organization) (insurer) (multiple employer trust) (multiple employer welfare arrangement) to ensure that the employment benefit(s) at issue in this lawsuit were part of an employee welfare benefit plan (employee pension benefit plan) subject to ERISA, 29 U.S.C. Section 1001, et se..

(A) For each event so identified, please state the name, address, telephone number and title or role of each person involved; and,

(B) Describe the circumstances which resulted in such step(s) being taken.

18. Describe with specificity (salesperson/agent) training and education concerning ERISA.

19. Describe with specificity the circumstances surrounding (salesperson/agent) sale and marketing of this insurance to:

(A) The plaintiff herein;

(B) Plaintiff's co-employees, if any; and,

(C) (employer) (employee organization).

20. Was it (employer's) (employee organization's) intention to establish or maintain an employee welfare benefit plan?

(A) If so, state with specificity each and every act, event or occurrence done or participated in by (employer) (employee organization), which supports your affirmative response to this interrogatory.

REQUESTS FOR PRODUCTION

It is best to file comprehensive requests for production early in the discovery phase rather than duces tecum requests attached to deposition notices. These cases can be document intensive. Very often because of airline scheduling or other reasons, you simply won't have time to digest and comprehend the documents if you see them for the first time when the deponent is sitting across the table from you. In a recent case, the documents from the agent's training manual disclosed express instnuctions from the insurer to its agents to avoid, at all costs, the creation of group insurance plans which would be subject to ERISA when marketing the insurance in question. The training manual tracked the Department of Labor's Safe Harbor provisions in educating the agents about things to avoid when making the sale. Unfortunately, these documents were buried in huge reams of documents which were produced at the deposition of the agent in response to a decus tecum request. But for gracious good luck while sifting through the documents during the deposition, a tremen- - dous opportunity to score factual points may have been lost. The lesson is simple—get the documents before the deposition.

Please Produce:

1. Each and every file which in any way pertains to the incident made the basis of this suit, including any and all correspondence, notes, memoranda, summary plan descriptions, declarations of tnust, applications for coverage, subscription agreements, policies of insurance, certificate of coverage, claim forms, written statements, medical records, medical reports or other documents of any description whatsoever maintained by the defendant, its employees and/or agents, and any of its offices, whether at the home office, claims office, underwriting office, or any regional or local office of the said defendant. Plaintiff respectfully requests the defendant to note from which office each file produced in response to this request originated from.

2. Any and all correspondence, notes, memoranda, printed handouts, brochures, training instructions, training manuals, reference manuals, employees guidelines, underwriting criteria, course material or any other documents of any description whatsoever used in the training of those persons who sold or otherwise marketed the insurance made the basis of plaintiff's complaint.

3. Any reports, financial statements, or other documents produced and/or delivered to the United States Department of Labor, the United States Department of Treasury or the Pension Benefit Guaranty Association pursuant to any statutory and/or regulatory obligations under the Employers Retirement Income Security Act of 1 974;

4. Each and every claims file, including any and all correspondence, memoranda, claims forms, claims reviews, written statements, claims handling policies and/or procedures, or other documents of any description whatsoever, maintained by the defendant in any of its claims offices, whether at the home office or any regional local office for the said defendant, relating in any manner to claims filed by or on behalf of plaintiffs or plaintiff. Plaintiff respectfully requests the defendant to note from which office each claims file produced in response to this request originated from.

5. Each and every underwriting file, including any and all correspondence, memoranda, forms, written statements, participating employers' applications, participating employee applications, underwriting criteria, administration guidelines, underwriting evaluations criteria, trust agreements, summary plan descriptions, master plan descriptions, and any other documents of any description whatsoever, maintained by the defendant, its agents and/or employees in any of its offices, whether at the home office or any regional office, relating in any manner to the insurance made the basis of plaintiff's complaint. Plaintiff respectfully requests the defendant to note from which office each underwriting file produced in response to this request originated from.

6. All medical records, medical reports, or other documents of any description whatsoever, concerning the care and/or treatment of plaintiff.

7. For each document you fail or refuse to produce based in whole or in part upon an objection that such document or documents are protected from disclosure by the attorney-client privilege or the work product doctrine, please produce a list containing the following:

1. A description of each such document;
2. the location of each such document;
3. the author or maker of each such document;
4. the addressee or recipient of each such document;
5. the date each such document was made or created;
6. the nature of each such document; and
7. the basis for your objection to production.

DEPOSITIONS

There are at least four witnesses who may help resolve the ERISA preemption issue and who should probably be examined in an ERISA preemption case. These are the salesperson or agent who sold or marketed the insurance; a Rule 30(b)(6) designee from the underwriting department; a Rule 30(b)(6) designee from the claims department; and, the administrator of the putative plan. Whether you use requests for production early in the discovery period or opt for attaching duces tecum requests to deposition notices, you must ultimately gain access to every material and relevant document you can.

The depositions of these witnesses should be used to show wholesale noncompliance with the requirements of ERISA's statutes and regulations. Emphasis should be placed on the employer's lack of any knowledge of the ramifications of having "established or maintained" an "employee welfare benefit plan." We have found that these factors can be established through showing that the agent knew nothing of ERISA at the time of the sale and that he accordingly didn't explain to any purchasers or their employer what any requirements (or consequences) of ERISA might be. Similarly, we have repeatedly encountered underwriting and claims personnel who know nothing of the statute and are easily perplexed by the statutory lingo.

CONCLUSION

All told, plaintiff's discovery should be geared towards showing that ERISA is most often an "afterthought". ERISA is involved typically for the first time when the insurer or employer receives the summons and complaint in your lawsuit. Well schooled defense attorneys will remove a case to federal court alleging ERISA preemption in practically every situation involving insurance in the workplace.

At least until we receive additional clarification from the United States Supreme Court - or until the Eleventh Circuit has a significant change of heart - plaintiffs' lawyers must continue with aggressive litigation of these issues. As long as Taggart~ remains binding precedent in this circuit, plaintiffs have a slim life line to hang onto, at least in the small "mom and pop" employer situation. But Taggart, like Hansen and the other few bastions of civility in this area of the law, require exhaustive evidentiary showings to overcome the clear judicial predispositions towards findings of preemption by ERISA. Hopefully the few suggestions outlined herein will help you work your way through the thicket.

ENDNOTES

'Associate, Cunningham, Bounds, Yance, Crowder S Brown, Mobile, Alabama.

Associate, Emond 6Vines. Birmingham, Alabama.

Srr, Wirtes 6 Spnnger. Preempting ERISA Preemption', Ala. Tnal Law, 1.. Summer, 1991, p. 15.

428 U.S C. Section 1 446/b, pnovides:

The notice of removal of a civil action or proceeding shall be filed within thirty (30~ days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based. or within thirty days affer the senvice of summons upon the defendant if such initial pleading has then been filed in court and is not required to be servffd on the defendant, whichever period is shorter.

If the case stated by the initial pleading is not removable, a notice of removal may be fiiffd within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order, or other paper from which it may first be ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by Section 1332 of this title more than one year after commencement of the action

29 C F R. 2510 3-1 I jl. Remember, if your facts meet each of thffe regulatory criteria. then your situation is excluded from the definition of employee welfarr knefi'plan as a matter of law

ln Donovan v. Dillingham. 688 F 2d 1367. 1372111th Cir 19821 len bancl the Eleventh Circuit established a four-part test for determining whether a plan exists. Under Donovan, a plan exists if a reasonable person can ascertain the'intended benefits. the intended beneficiaries, the source of financing, and the procedure to apply for and collect benefits '

Hansen v, Continenial Ins Co, 940 F 2d 971 15th Cir 1 9q 1 ); Cf, MD Physirians & Assodates. Inc. v State bd. of Insuraner, 957 F 2d 178 i5th Cir 19921: Longoria v Cearley. 7q6FSupp 9971W.D Tex. 19921

Hansen v Continental Ins. Co, 940 F 2d 971, 977-78 15th Cir 1991 i

Taggarl Corp v I if/ & Healih Benefils Admin . 617 F 2d 120815th Cir. 19801, cert denied. 450 U.S. 1030.68 L Ed 2d 225. 101 S.Ct 1739 H 9811 In Bonner v City ol Rrirhard,661 F.2d 1206111thCir 198111enfianel,the Eleventh Circuit Court of Appeals adopted as binding prff=dent the decisions of the former Fifth Circuit. decided prior to October I, 1981