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RUTTENBERG v. UNITED STATES LIFE INSURANCE COMPANY

April 28, 2003

ANDREW RUTTENBERG, PLAINTIFF, VS. UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK D/B/A UNITED STATES LIFE, A SUBSIDIARY OF AMERICAN GENERAL CORPORATION, DEFENDANT


The opinion of the court was delivered by: Joan Humphrey Lefkow, United States District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff, Andrew Ruttenberg ("Ruttenberg"), filed a two-count complaint against defendant, United States Life Insurance Company in the City of New York d/b/a United States Life ("United States Life"). According to the complaint, Ruttenber was a market maker engaged in trading financial instruments on the Chicago commodity and financial exchanges until February 12, 2001 when he ceased working due to asthma and vocal cord dysfunction. Ruttenberg made a claim for disability benefits under a group insurance policy (no. G225239) (the "Plan") issued by United States Life on February 1, 2001, for the benefit of market makers affiliated with SMW Trading Company ("SMW"). United States Life denied the claim. Ruttenberg filed the instant federal diversity action against United State Life, alleging breach of contract (Count I) and vexatious refusal to pay pursuant to 215 ILCS 5/155 (Count II). On August 21, 2002, the court, sua sponte, dismissed Ruttenberg's complaint without prejudice for lack of subject matter jurisdiction. On September 10, 2002, the court granted Ruttenberg's motion for leave to file an amended complaint (alleging the same counts as the original complaint), which he filed tat same day, and the parties agreed to an administrative remand of Ruttenberg's claim for long-term disability benefits so that United States Life's administrator, Disability Reinsurance Management Services, Inc. ("RMS"), could address the claim. RMS determined that Ruttenberg did not meet the definition of disability and no benefits could be issued under the group insurance policy. RMS also informed Ruttenberg's counsel of the right to appeal that determination. United States Life has now moved, under Rule 12(b)(6), Fed.R. Civ. P., to dismiss Ruttenberg's state law claims as pre-empted by and/or not exhausted under the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § 1001 et seq., and to strike Ruttenberg's jury demand. As stated below, United States Life's motion is granted in part and denied in part.

DISCUSSION

The question for the court to determine on this motion is whether the group insurance policy trough which Ruttenberg was covered is an "employee welfare benefit plan" under ERISA. If it was such a plan, Ruttenberg's state law claims are preempted by ERISA and he was required to exhaust any administrative remedies. If the group insurance policy was not an employee welfare plan, Ruttenberg may proceed on his state law claims. The statutory definition of an "employee welfare benefit plan," is "any plan, fund, or program . . . established or maintained by an employer or by an employee organization . . . for the purpose of providing for its participants or their beneficiaries, trough the purchase of insurance or otherwise, medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment [etc.]."*fn1 29 U.S.C. § 1002 (1)(A); Brundage-Peterson v. Compcare Health Servs. Ins. Corp., 877 F.2d 509, 509 (7th Cir. 1989). Five elements are required to establish an employee welfare benefit plan: (1) a plan fund or program, (2) established or maintained (3) by an employer or by an employee organization, or by both (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment, or vacation benefits, (5) to participants or their beneficiaries. Ed Miniat, Inc. v. Globe Life Ins. Co., 805 F.2d 732, 738 (7th Cir. 1987). The Department of Labor has promulgated regulations clarifying when an employee welfare benefit plan does not exist. See 29 C.F.R. § 2510.3-1(j). The regulations state that an employee welfare benefit plan would not include a plan 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 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.
(Id.)

In its August 21 minute order, the court asked for additional evidence as to who pays the premiums on the Plan at issue here. Some of the evidence submitted by United States Life (including an affidavit) cannot be considered on this motion to dismiss. See In the Matter of Wade, 969 F.2d 241, 249 (7th Cir. 1992). The court on this motion to dismiss considers the amended complaint and any documents attached or incorporated by reference, including the Certificate of Insurance issued to Ruttenberg (which was attached to Ruttenberg's original complaint and incorporated by reference into his amended complaint). See Tierney v. Vahle, 304 F.3d 734, 737 (7th Cir. 2002). Moreover, the court can consider new factual assertions by Ruttenberg "by affidavit or brief" so long as they do not contradict his compliant. Hrubec v. National R.R. Passenger Corp., 981 F.2d 962, 963-64 (7th Cir. 1992).

United States Life argues that the Plan at issue is an "employee welfare benefit plan" because SMW, as the employer, makes contributions for most of the employees under the Plan and because of SMW's administrative involvement, specifically that SMW created the group insurance contract and designated which employees were eligible to enroll. Ruttenberg, in response, argues that (1) the Plan is not an ERISA plan because it was not "established or maintained" by SMW and (2) because he is an independent trader (given "Class 3 status under the Plan") who alone pays all of his premiums, he is not an employee of SMW and, therefore, not a participant or beneficiary in an employee welfare benefit plan.

The court rejects Ruttenberg's first claim that this Plan is outside of ERISA, as it is clear that the Plan is "established or maintained" by SMW and that the safe harbor provisions do not apply. To prevail on Ruttenberg's claim that this plan is outside of the reach of ERISA, "employer neutrality is essential." Turnoy v. Liberty Life Assurance Co. of Boston, No. 02 C 6066, 2003 WL 223309, at *3 (N.D. Ill. Jan. 30, 2003), citing Russo v. B & B Catering, Inc., 209 F. Supp.2d 857, 860 (N.D. Ill. 2002). Only a "minimal level of employer involvement is necessary to trigger ERISA." Russo, 209 F. Supp.2d at 860.

In Brundage-Peterson, the Seventh Circuit examined the two extremes of welfare benefits plans. On the one hand, an employer could offer no welfare benefit plan and leave the employee to shop around for his or her own health insurance, although "the employer could take a few steps beyond this and still remain outside the scope of [ERISA] — such steps as distributing advertising brochures from insurance providers or answering questions of its employees concerning insurance, or even deducting the insurance premiums from its employees' paychecks and remitting them to the insurers." 877 F.2d at 510. On the other end of the extreme was an employer "who provides welfare benefits directly to its employees. . . ." Id. The situation presented here is somewhere in between, as was the case in Brundage-Peterson. The court there found that the employer had created an ERISA plan because

An employer who creates by contract with an insurance company a group insurance plan and designates which employees are eligible to enroll in it is outside the safe harbor created by the Department of Labor regulation. This is especially clear when in addition, as was done here, the employer helps defray the employee's insurance cost. . . .
Id. at 511.

This is precisely the situation present here. SMW contractually created a group insurance plan, acting as the "Participating Employer," and SMW specifically designated which employees were eligible to enroll in the plan, with the same limitation on enrollment as in Brundage-Peterson: "the eligibility requirement of being an employee of more than thirty days' standing. . . ." Id. at 510. Additionally, SMW funded the plan for most of its employees (Classes 1, 2 and 4). While true that the particular class of employees to which Ruttenberg belongs received no funding, this does not negate the fact that contributions are made by the employer to the Plan itself. These undisputed facts compel the court to conclude that this Plan is, in fact, an employee welfare benefit plan implicating ERISA.

Moving on, Ruttenberg's claim that he is an independent trader and not an "employee" of SMW, is problematic. The Certificate of Insurance given to Ruttenberg (and incorporated by reference into his amended complaint) specifically states,

Employee Eligibility

Eligible Classes of ...


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