Casselman v. American Family Life Assurance Co.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-2370
KENNY CASSELMAN,
Plaintiff - Appellant,
versus
AMERICAN FAMILY LIFE ASSURANCE COMPANY OF
COLUMBUS,
Defendant - Appellee.
No. 04-2378
JOHN P. ETHRIDGE,
Plaintiff - Appellant,
versus
AMERICAN FAMILY LIFE ASSURANCE COMPANY OF
COLUMBUS,
Defendant - Appellee.
Appeals from the United States District Court for the District of
South Carolina, at Charleston. C. Weston Houck, Senior District
Judge. (CA-03-3859-12-2; CA-03-3953-2-12)
Argued: May 25, 2005 Decided: June 24, 2005
___________
Before LUTTIG and SHEDD, Circuit Judges, and Eugene E. SILER, Jr.,
Senior Circuit Judge of the United States Court of Appeals for the
Sixth Circuit, sitting by designation.
Affirmed in part, reversed in part, and remanded by unpublished
opinion. Judge Luttig wrote the opinion, in which Judge Shedd and
Senior Judge Siler joined.
ARGUED: William Stuart Duncan, Georgetown, South Carolina, for
Appellants. David Wright Overstreet, CARLOCK, COPELAND, SEMLER &
STAIR, L.L.P., Charleston, South Carolina; Patrick Connors DiCarlo,
ALSTON & BIRD, Atlanta, Georgia, for Appellee. ON BRIEF: Raymond
C. Fischer, DUNCAN, CROSBY & MARING, L.L.C., Georgetown, South
Carolina, for Appellants. Thomas S. Carlock, CARLOCK, COPELAND,
SEMLER & STAIR, L.L.P., Atlanta, Georgia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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LUTTIG, Circuit Judge:
Plaintiffs-appellants Kenny Casselman and John Ethridge filed
suit in federal district court against defendant-appellee American
Family Life Assurance Company (AFLAC), seeking insurance coverage
for injuries under a policy they purchased from AFLAC. The
district court granted partial summary judgment to AFLAC on the
ground that ERISA preempted plaintiffs’ claims. The district court
also granted summary judgment to the defendant on the ground that
plaintiffs’ claims were not covered by the insurance policy and
defendant’s refusal to pay those claims was not in bad faith. For
the reasons that follow, we affirm the district court’s holding
that plaintiffs’ claims are preempted by ERISA, but reverse its
grant of summary judgment on the question of coverage and bad
faith.
I.
Casselman and Ethridge were employees of Georgetown Steel
Corporation (GSC). In the early 1990s, the Steelworkers Union
requested that the company permit hourly employees to purchase
supplemental insurance on a pre-taxed basis. J.A. 427. GSC
agreed, but required the employees to select two companies to offer
these plans, which the union did. J.A. 427-28. In 1995, AFLAC
became one of the companies whose policies were offered to hourly
employees. J.A. 428.
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Casselman and Ethridge each purchased an AFLAC supplemental
insurance policy with a sickness rider and an off-the-job accident
disability rider. J.A. 159-60; 242-43. After they had purchased
the insurance policies, each was injured in a separate accident
that occurred while at work. J.A. 436. Casselman slipped and
fell, rupturing a disk in his back. J.A. 188. The ruptured disk
injured the sciatic nerve, causing problems with Casselman’s leg
and foot that precluded his return to work. J.A. 185. Casselman’s
doctor alleges that Casselman has a lumbar disc disorder. J.A.
309. Ethridge hurt his knee in a fall. J.A. 248-51. His doctor
submitted an affidavit that Ethridge suffered degenerative
arthritis of the right knee and a right knee disorder. J.A. 311.
Both men represent that their now disabling health problems did not
afflict them until after their on-the-job falls. J.A. 218-19, 253.
The plaintiffs sued AFLAC for coverage of their disabling
injuries under the sickness rider they had purchased from AFLAC,
alleging that these injuries fell under the policy’s definition of
sickness. They also alleged that AFLAC had acted in bad faith by
not paying their claims. The defendant sought partial summary
judgment on the grounds that ERISA preempted plaintiffs’ claims and
sought summary judgment on the question of coverage. The district
court granted both of these motions.
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II.
On appeal, we review the district court’s grant of summary
judgment de novo. Higgins v. E.I. Du Pont de Nemours & Co., 863
F.2d 1162, 1167 (4th Cir. 1988). Summary judgment is appropriate
only if the moving party demonstrates that “no genuine issue of
material fact exists and that the moving party is entitled to
judgment as a matter of law.” Kimmell v. Seven Up Bottling Co.,
993 F.2d 410, 412 (4th Cir. 1993).
A.
The district court did not provide any reasoning for its
conclusion that ERISA preempted plaintiffs’ claims. Both parties
agree that the correctness of the district court’s determination
depends entirely on whether the AFLAC plan falls within a safe
harbor exception removing certain plans from ERISA coverage.
The safe harbor exception provides as follows:
(j) Certain group or group-type insurance programs. For
purposes of Title I of the Act and this chapter, the
terms “employee welfare benefit plan” and “welfare plan”
shall not include a group or group-type insurance program
offered by an insurer to employees or members of an
employee organization, under which
(1) No contributions are made by an employer or employee
organization;
(2) Participation [in] the program is completely
voluntary for employees or members;
(3) The sole functions of the employer or employee
organization with respect to the program are, without
endorsing the program, to permit the insurer to publicize
the program to employees or members, to collect premiums
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through payroll deductions or dues checkoffs and to remit
them to the insurer; and
(4) The employer or employee organization receives no
consideration in the form of cash or otherwise in
connection with the program, other than reasonable
compensation, excluding any profit, for administrative
services actually rendered in connection with payroll
deductions or dues checkoffs.
29 C.F.R. § 2510.3-1(j). AFLAC maintains that GSC exceeded the
limited employer role outlined in (1), (3), and (4), thereby
removing the plan from the reach of the safe harbor provision.
Because the employer served functions other than those outlined in
(3), the safe harbor is inapplicable and we need not reach AFLAC’s
remaining arguments.
Courts applying the safe harbor exception have emphasized that
employers can only assume a very limited role with respect to the
plan if the third prong is to be satisfied. See Butero v. Royal
Maccabees Life Ins. Co., 174 F.3d 1207, 1213 (11th Cir. 1999) (“The
regulation explicitly obliges the employer who seeks its safe
harbor to refrain from any functions other than permitting the
insurer to publicize the program and collecting premiums.”)
(emphasis in original); Hansen v. Continental Ins. Co., 940 F.2d
971, 977 (5th Cir. 1991) (similar). Here, it is clear that the
limited functions outlined in the regulation -– permitting
publicizing of the program, collecting premiums, and remitting them
to the insurer –- were exceeded by the company.
The plan administrator testified in a deposition that GSC
“chose to exclude salaried employees from participation in the
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plan,” J.A. 344, an exclusion reflected in the plan documents.
J.A. 407. Notwithstanding the Union’s request for coverage
specifically for hourly employees, plaintiffs present no evidence
to contradict the administrator’s representation that the employer
selected the type of employees who would be eligible for the
program. Although the Union selected the plans that would be
offered based on a vote of its membership, J.A. 428, the employer
reviewed those plans, and the plan administrator testified that
“[i]f they had come in here with somebody that was marginal or, you
know, less than having a good company rating, we would have advised
them that we didn’t have much confidence in this carrier.” J.A.
366. To ensure that AFLAC was a “reputable and well thought of
insurance company,” GSC engaged a consulting firm to investigate
AFLAC. J.A. 387.
Both determining eligibility criteria and selecting the
insurance company have been found relevant to the determination of
whether the safe harbor is applicable. See Butero, 174 F.3d at
1213 (recognizing, in holding the safe harbor inapplicable, that
the employer picked the insurer and deemed certain employees
ineligible to participate). Given the unequivocal language of the
regulation limiting functions of the employer to the enumerated
tasks, we conclude that the employer exceeded the bounds of the
permissible interaction with the program under the safe harbor.
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The plaintiffs urge a contrary conclusion by focusing on a
Department of Labor Advisory Opinion interpreting section 2510.3-
1(j), which describes an employer as “endorsing” a program within
the meaning of (j)(3) if “the employer or employee organization
expresses to its employees or members any positive, normative
judgment regarding the program.” Op. Dep’t of Labor 94-25a (1994),
1994 ERISA LEXIS 29, at *7. Plaintiffs argue that GSC did not
endorse the program under this definition, and thus that the safe
harbor applies. But the Advisory Opinion’s discussion of
endorsement does not purport to be a definition of section 2510.3-
1(j)(3) in its entirety, but only an explanation of what
constitutes “endorsement.” Contrary to plaintiff’s apparent
reading of section (j)(3), under the plain terms of that section,
an employer can violate (j)(3) by exceeding the specifically
enumerated permissible activities, even if such extra activity does
not involve “endorsement.” In fact, the advisory opinion held that
the safe harbor was not only inapplicable because the employer had
endorsed the program at issue, but also because the employer had
exceeded the specific function limitations of section 2510.3-
1(j)(3). Id. at *8. The advisory opinion thus does not impact our
conclusion that the employer’s functions exceeded those permitted
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by the safe harbor exception, regardless of whether such functions
entailed “endorsement.”1
The group insurance program under which the plaintiffs
purchased their insurance is thus an ERISA plan. And “when the
validity, interpretation or applicability of a plan term governs
the participant’s entitlement to a benefit or its amount, the claim
for such a benefit falls within the scope of” ERISA’s coverage
provision, 29 U.S.C. § 1132(a), which provides “the exclusive
vehicle for actions by ERISA-plan participants and beneficiaries
asserting improper processing of a claim for benefits.” Singh v.
Prudential Health Care Plan, Inc., 335 F.3d 278, 291 (4th Cir.
2003). Plaintiffs’ claims clearly depend upon the interpretation
of the language of the plan, specifically of the term “sickness.”
These claims are thus preempted under ERISA and the district court
properly granted partial summary judgment in favor of the defendant
with respect to ERISA preemption.
1
Although a plan that satisfies the provisions of the safe
harbor is necessarily excluded from coverage under ERISA, an
insurance plan that does not fall within the safe harbor may still
fail to qualify as a plan covered by ERISA. See Butero, 174 F.3d
at 1214; Hansen, 940 F.2d at 976-77. But plaintiffs do not argue
that the plan fails to qualify as an ERISA plan at all, but only
that it is excepted from ERISA coverage by the safe harbor
exception.
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B.
We do not dismiss a claim that is preempted by ERISA, but
rather “treat it as a federal claim under [29 U.S.C. § 1132].”2
Darcangelo v. Verizon Communications, Inc., 292 F.3d 181, 195 (4th
Cir. 2002). We have held that “the plain language of an ERISA plan
must be enforced in accordance with ‘its literal and natural
meaning.’” United McGill Corp. v. Stinnett, 154 F.3d 168, 172 (4th
Cir. 1998). Looking to the literal meaning of the terms in the
AFLAC policy purchased by plaintiffs, it is clear that the district
court erred in granting summary judgment to the defendant.
The policy purchased by plaintiffs provides that “[i]f you
[plaintiffs] are Totally Disabled due to Sickness, we will pay you
one-thirtieth of the benefit shown in the Policy Schedule for each
day you remain disabled.” J.A. 124. “Sickness” is defined as “a
disease or disorder first manifested more than 30 days after your
Effective Date of coverage and while coverage is in force.” J.A.
109.
The defendant urges that any disorder that is caused by a
workplace fall is necessarily outside the rider’s definition of
“sickness.” But the sickness rider places no limitations on the
permissible causes of a disorder that can constitute “sickness.”
Plaintiffs allege that they now suffer from long-term physical
2
To the extent the claims seek remedies that fall outside the
scope of 29 U.S.C. § 1132(a), however, those claims are rejected as
preempted. Singh, 335 F.3d at 290.
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problems, namely lumbar disc disorder and right knee disorder. The
ordinary meaning of “disorder,” as it appears in the policy’s
definition of “sickness,” encompasses those problems regardless of
their direct cause. The ordinary meaning of “disorder” is “a
derangement of function: an abnormal physical or mental condition:
sickness, ailment, malady.” Webster’s Third New Int’l Dictionary
652 (1986). Each plaintiff clearly alleges that he suffers from a
debilitating condition which is both a derangement of function and
an abnormal physical condition, and thus each plaintiff suffers
from “sickness” under the policy definition, at least for the
purpose of defeating defendant’s motion for summary judgment. By
defining “sickness” in terms of “disorder” and without regard to
cause, the policy forecloses defendant’s narrow definition of
sickness and encompasses the plaintiffs’ physical disorders arising
from their on-the-job accidents.
To counteract the policy’s language, AFLAC focuses on the fact
that the plaintiffs selected a sickness rider and failed to select
an on-the-job disability rider, which also would clearly have
covered their claims. But the fact that the plaintiffs did not
select the on-the-job rider is irrelevant, given that the sickness
rider that they did select provides, by its terms, coverage for the
disorders for which they seek payment.
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CONCLUSION
For the reasons stated herein, the judgment of the district
court that the plaintiffs’ claims are preempted by ERISA is
affirmed. The district court’s grant of summary judgment in favor
of defendants on the plaintiffs’ claims for coverage and bad faith
refusal to pay is reversed, and the case is remanded for further
proceedings consistent with this opinion.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
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