Can ERISA apply to the claims made on individual policies purchased with discounted premiums? YES.   

Here is a great new case that highlights the analysis to establish that ERISA applies when employees purchase individual policies, with group discounted premiums. McCann v. UNUM Provident, __ F.Supp. 2d __ (D. New Jersey January 31, 2013)  

FACTS: Dr. Kevin McCann was a resident  and employee at the hospital when he applied for an Individual Supplemental Long Term Disability policy through the Residents’ Disability Insurance Plan. (The policy was to take effect one day after McCann left the Hospital’s employment.) Residents paid all premiums, but received a 15% discount in premium and other discounts, like hospital employees.  When McCann later became disabled, and UNUM terminated benefits, he sued.  UNUM claimed that his claim was governed by ERISA because of the discounted premium and moved for summary judgment.

TRIAL COURT HELD: UNUM’s summary judgment GRANTED—Claim was governed by ERISA.

RATIONALE: 

  1. Whether an ERISA plan exists is a question of fact.  An ERISA plan exists “if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.”  Op. at 21.
  2. A reasonable person who was familiar with all of the attendant facts and circumstances could ascertain the intended benefits and beneficiaries, the source of financing, and the procedures for receiving benefits.  Op. at 21-22
  3. The hospital contributed to the plan with the discount. By offering the 15% discount, the Hospital “contributed” to the plan.  “[G]roup discounts applied to employee insurance policies, issued pursuant to an employee welfare benefit plan, constitute employer contributions.” Op. at 24-25.
  4. The hospital “endorsed” the plan.  An employer will be “deemed to have endorsed a program where an objectively reasonable employee … ‘would conclude … that the employer had not merely facilitated the program’s availability but had exercised control over it and made it appear to be part and parcel of the company’s own benefit package.’”  Op. at 26.
  5. By doing something more than merely permitting an insurer to publicize a plan or collecting premiums through payroll deductions, an employer demonstrates a sufficient degree of control over a plan to consider it part of the company’s benefits package. Op. at 27.
  6. The hospital “endorsed” the plan.  It did so by providing materials that established that the hospital  (a)“selected” Unum to provide supplemental disability insurance; (b) “referred” to the program as the Residents’ Supplemental Disability Insurance Plan”; and (c) pledged to provide an opportunity to purchase supplemental long term disability insurance. Op. at 29.
  7. The hospital “established” the plan.  Proving this can be done “rather easily” by showing that the employer did nothing more than making arrangements for a group-type insurance program.  Where multiple policies are purchased, covering a class of employees, this is significant evidence of establishment of a plan. Op. at 30-1.