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March 24, 2004.

IRA SHYMAN, Plaintiff,

The opinion of the court was delivered by: JOAN GOTTSCHALL, District Judge


Plaintiff Ira Shyman, a floor trader with the Chicago Board of Trade, brought this diversity action against defendant UNUM Life Insurance Company of America ("UNUM"), the underwriter of his group disability insurance policy, alleging breach of contract and unreasonable denial of insurance benefits under Illinois law. UNUM contends that Shyman's policy is governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., so his claims in this case must be resolved according to the terms and provisions of ERISA. Before the court are the parties' cross-motions for summary judgment and UNUM's motion to strike portions of Shyman's Local Rule 56.1 statement of facts. For the reasons that follow, UNUM's motion to strike is denied and the cross-motions for summary judgment are granted in part and denied in part.


  Ira Shyman was an independent floor trader at the Chicago Board of Trade who cleared his trades through Shatkin, Arbor, Karlov & Co. ("Shatkin"). UNUM underwrites a Page 2 group disability policy (the "Policy") that is available to employees of Shatkin, as well as independent traders, such as plaintiff, who are affiliated with Shatkin. In 1999, based on a chronic problem with headaches, plaintiff applied for long-term disability benefits under the Policy and was found to be disabled as of November 21, 1998. UNUM paid plaintiff benefits through May 31, 1999. Plaintiff contends that, as of October 1999, he again qualified for long-term disability benefits. His subsequent requests for benefits, however, have been denied.

  Plaintiff relied on diversity jurisdiction in bringing the present action. The complaint does not contain adequate allegations as to diversity. It is alleged that plaintiff is a citizen of Illinois and that defendant is a citizen of Maine. However, there are no express allegations regarding defendant's place of incorporation or principal place of business. Nevertheless, defendant does not dispute that it is a Maine citizen for purposes of diversity or that there is complete diversity of citizenship. Reported cases support both that defendant is a Maine corporation and that its principal place of business is located in Maine. See Owens v. UNUM Life Ins. Co. of America, 285 F. Supp.2d 778, 779 (E.D. Tex. 2003); McCall v. UNUM Life Ins. Co. of America, No. 3:01-CV-1151-M, 2001 WL 1388013, at *4 (N.D. Tex. Nov. 6, 2001); Schneider v. UNUM Life Ins. Co. of America, 149 F. Supp.2d 169, 175 (E.D, Pa. 2001); Ehrhart v. UNUM Life Ins. Co. of America, No. 99 C 1340, 1999 WL 498597, at *1 (N.D. Ill. July 2, 1999). There is complete diversity of jurisdiction and the amount in controversy exceeds $75,000. To the extent the claims are properly denominated as being state law claims, there is adequate jurisdiction.

  In his complaint, plaintiff indicates that his claims are brought pursuant to Illinois law. Count I is a claim for breach of contract. Count II is a claim that insurance benefits have been Page 3 vexatiously and unreasonably denied in violation of the Illinois Insurance Code, 215 ILCS 5/155. Defendant contends that the Policy is a benefit plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 5 1001 et seq. Defendant contends that Count I should be treated as a claim for the denial of benefits governed by 29 U.S.C. § 1132(a)(1)(B). Defendant contends the Count II claim for violation of the Illinois Insurance Code is preempted by ERISA. Presently pending are cross-motions for summary judgment. Defendant has also moved to strike portions of plaintiff's Local Rule 56.1 statement filed in support of his summary judgment motion.

  On a motion for summary judgment, the entire record is considered with all reasonable inferences drawn in favor of the nonmovant and all factual disputes resolved in favor of the nonmovant. Turner v. J. V.D.B. & Associates, Inc., 330 F.3d 991, 994-95 (7th Cir. 2003); Palmer v. Marion Count, 327 F.3d 588, 592 (7th Cir. 2003); Abrams v. Walker, 307 F.3d 650, 653-54 (7th Cir. 2002). The burden of establishing a lack of any genuine issue of material fact rests on the movant. Outlaw v. Newkirk, 259 F.3d 833, 837 (7th Cir. 2001); Wollin v. Gondert, 192 F.3d 616, 621-22 (7th Cir. 1999). The nonmovant, however, must make a showing sufficient to establish any essential element for which he or it will bear the burden of proof at trial, Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Binz v. Brandt Constr. Co., 301 F.3d 529, 532 (7th Cir. 2002); Traylor v. Brown, 295 F.3d 783, 790 (7th Cir. 2002). The movant need not provide affidavits or deposition testimony showing the nonexistence of such essential elements. Celotex, 477 U.S. at 324. Also, it is not sufficient to show evidence of purportedly disputed facts if those facts are not plausible in light of the entire record. See NLFC, Inc. v. Devcom Mid-America, Inc., 45 F.3d 231, 236 (7th Cir. 1995); Covalt v. Carey Canada, Inc., 950 F.2d 481, 485 (7th Cir. 1991); Collins v. Associated Pathologists, Ltd., 844 F.2d 473, 476-77 (7th Cir. 1988). Page 4

  Defendant contends that plaintiff's claims fall under ERISA and are subject to arbitrary and capricious review. Under arbitrary and capricious review, review of a plan's decision is generally limited to evidence or information that was before the reviewing body. Hess v. Hartford Life & Accident Ins. Co., 274 F.3d 456, 462 (7th Cir. 2001); Perlman v. Swiss Bank Corp. Comprehensive Disability Protection Plan, 195 F.3d 975, 982 (7th Cir. 1999); Sisto v. Ameritech Sickness & Accident Disability Benefit Plan, No. 01 C 8262, 2003 WL 22472022, at *2 (N.D. Ill. Oct. 31, 2003); Bahnaman v. Lucent Tech., Inc., 219 F. Supp.2d 921, 925 (N.D. Ill. 2002). Although the parties' motions are summary judgment motions, the motions actually seek administrative review of the decision to deny benefits, with the composition of the administrative record being the essential uncontested fact. Evidence outside the administrative record is appropriate to consider only to the extent it goes to procedural issues, such as whether the Policy is an ERISA benefit plan or whether arbitrary and capricious review applies, Cf. Perlman, 195 F.3d at 982; Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 619 (6th Cir. 1998); Sisto, 2003 WL 22472002, at *2; Eriksen v. Metropolitan. Life Ins. Co., 39 F. Supp.2d 864, 866 n.2 (E.D. Mich. 1999). On the other hand, if plaintiff is correct in contending either (a) that his claims are not governed by ERISA or (b) that even if governed by ERISA, his claims are not subject to arbitrary and capricious review, there would be straightforward application of the summary judgment standard to all aspects of plaintiff's claims and the court would not be limited to considering only the evidence that was presented in administrative proceedings. See Casey v. Uddeholm Corp., 32 F.3d 1094, 1098-99 n.4 (7th Cir. 1994); Robyns v. Reliance Standard Life Ins. Co., No. IP 98-1241-CH/K, 2003 WL 21850820, at *5 (S.D. Ind. July 10, 2003); Bowman v. Reliance Standard Life Ins. Co., No. 02 C 6188, 2003 WL 1524476, at *5 (N.D. Ill. Mar. 21, 2003). Page 5

  Before addressing the merits, defendant's motion to strike will be briefly addressed. Defendant contends that certain paragraphs of plaintiff's Local Rule 56.1(a)(3) statement*fn1 should be stricken because they are (a) too lengthy, (b) unsupported by the cited references, (c) argumentative, and/or (d) the facts contained therein are not material. Defendant contends that the Seventh Circuit has repeatedly held that strict compliance with Local Rule 56.1 is required. That is not exactly true. What the Seventh Circuit has held is that it is within the district court's discretion as to how strictly to enforce a local rule such as Local Rule 56.1. See Metropolitan Life Ins. Co, v. Johnson, 297 F.3d 558, 562 (7th Cir. 2002); Bordelon v. Chicago Sch. Reform Bd. of Trustees, 233 K3d 524, 527 (7th Cir. 2000); United States, Dept. of Navy v. Norden Enter., LLC, No. 01 C 8968, 2004 WL 42318, at *3 (N.D. Ill, Jan. 6, 2004); Menasha Corp. v. News America Mktg. In-Store, Inc., 238 F. Supp.2d 1024, 1029 (N.D. Ill. 2003), aff'd, 354 F.3d 661 (7th Cir. 2004); Alek v. Univ. of Chicago Hosp., No. 99 C 7421, 2002 WL 1332000, at *2 (N.D. Ill. June 17, 2002); Traum v. Equitable Life Assurance Soc'y of United States, 240 F. Supp.2d 776, 780 (N.D. Ill. 2002); Oghorn v. United Food & Commercial Workers, Local No. 881, No. 98 C 4623, 2000 WL 1409855, at *2-3 (N.D. Ill. Sept. 25, 2000); Gabriel v. City of Chicago, 9 F. Supp.2d 974, 975 n.2 (N.D. Ill. 1998). Here, no paragraph is found to be so lengthy, disjointed, or argumentative that defendant cannot respond. No paragraph will be stricken. To the extent any factual assertion contained in any of the Local Rule 56.1 statements is unsupported, the factual assertion will not be credited. To the extent any factual assertion is not material, it will not affect the outcome of today's ruling.


  A. Existence of Plan

  The first issue to consider is whether, on uncontested facts, it can be conclusively determined that the Policy is or is not an ERISA plan. Plaintiff contends the Policy is not an Page 6 ERISA plan because it is not established and maintained as such and/or otherwise falls within the safe harbor set forth in 29 C.F.R. § 2510.3-1(j). Even if the Policy is an ERISA plan as regards Shatkin employees, plaintiff contends that his claim falls outside ERISA because he is an independent contractor permitted to participate in the Policy, not an employee of Shatkin.

  An "employee welfare benefit plan," as defined by 29 U.S.C. § 1002(1), contains five elements: "(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, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits, (5) to participants or their beneficiaries." Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732, 738 (7th Cir. 1986). Accord Postma v. Paul Revere Life Ins. Co., 223 F.3d 533, 537 (7th Cir. 2000); Dwyer v. UNUM Life Ins. Co. of America, No. 03 C 1118, 2003 WL 22844234, at *2 (N.D. Ill. Dec. 1, 2003).

  Labor Department regulations provide a "safe harbor" excluding certain group-type insurance programs from the definition of employee welfare benefit plan. If all the following criteria are satisfied, the program falls outside the definition of employee welfare benefit plan.

(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.
29 C.F.R. § 2510.3-1G). Page 7

  The parties agree that defendant is an employer and that the Policy is available to employees of defendant, as well as to certain non-employees affiliated with defendant. The parties also agree that plaintiff is an independent contractor affiliated with defendant, not an employee. Thus, four of the five elements of the definition of an employee welfare benefit plan are satisfied. Plaintiff, however, contends that the "established or maintained" element is not satisfied. And as to the safe harbor elements, defendant contends that the third element is not satisfied because the Policy is endorsed by Shatkin.

  Plaintiff argues that there are three separate bases for finding the Policy not to be an employee welfare benefit plan: (a) the Policy was not established by defendant; (b) the Policy is not maintained by defendant; and (c) the safe harbor. The "established or maintained" requirement is to be considered together with the safe harbor requirement. See Postma, 223 F.3d at 537; Turnoy v. Liberty life Assurance Co. of Boston, No. 02 C 6066, 2003 WL 223309, at *3 (N, D. Ill. Jan. 30, 2003). The safe harbor essentially sets forth a minimal level of employer involvement that is below the minimum threshold necessary to constitute "established or maintained." See Brundage-Peterson v. Compcare Health Servs. Ins. Corp., 877 F.2d 509, 511 (7th Cir. 1989). Moreover, plaintiff misreads the plain language of the statutory definition which requires only that the plan be "established or maintained" by the employer, not that it be both established and maintained. Russo v. B & B Catering, Inc., 209 F. Supp.2d 857, 861 (N.D. Ill. 2002). This element can be satisfied by the employer establishing the plan even if the employer delegates the administration (maintenance) of the plan to others, Brundage-Peterson, 877 F.2d at 511.

  The Seventh Circuit has held that the definition of employee welfare benefit plan is to be construed broadly. Id; Dwyer, 2003 WL 22844234, at *2; Turnoy, 2003 WL 223309, at *3; Russo, 209 F. Supp.2d at 860; Goodson v. American United Life Ins. Co., No. IP:02-0197-C-T/K, 2002 WL 1354715, at *3 (S.D. Ind. May 2, 2002). Only a minimal level of employer involvement is necessary to satisfy the "established or maintained" requirement. Russo, 209 F. Supp.2d Page 8 at 860; Ruttenberg v. United States Life, No. 01 C 8200, 2003 WL 21003719, at *2 (N.D. Ill. May 1, 2003) ("Ruttenberg I"), reconsideration denied, 2004 WL 421989, at *7 (N.D. Ill. Feb. 19, 2004) ("Ruttenberg II"); Turnoy, 2003 WL 223309, at *3. It is enough that an employer contracts with an insurance company to provide a group policy and designates which employees are eligible for enrollment. Brundage-Peterson, 877 F.2d at 511. See also Turnoy, 2003 WL 223309, at *3 ("If an employer favors one or more plans over allowing covered persons to shop in the open market, or if an employer defines eligibility or performs other administrative functions, ERISA may be implicated."); Russo, 209 F. Supp.2d at 860 ("If the arrangement favors a finite set of plans over employees shopping in the open market, the favored plans are considered to have been established by the employer."). In order to fall within the safe harbor, it is essential that the employer maintain neutrality. Thompson v. American Home Assurance Co., 95 F.3d 429, 436-37 (6th Cir. 1996); Johnson v. Watts Regulator Co., 63 F.3d 1129, 1133-34 (1st Cir. 1995); Ruttenberg I, 2003 WL 21003719, at *2; Turnoy, 2003 WL 223309, at *3; Russo, 209 F. Supp.2d at 860.

  It is undisputed that the Policy incorporates Shatkin in its name and that Shatkin made the decision that the Policy would apply to two specified classes: full-time permanent employees and active traders. Jeanne Aleksiewicz was a Shatkin vice president who was in charge of obtaining insurance plans for employees and affiliates. She was also designated as Shatkin's contact regarding the Policy. Aleksiewicz used insurance broker Jeffrey Roche to seek a new group disability insurance carrier after a prior carrier decided to discontinue its program for Shatkin. Terms were negotiated with defendant and it was decided that the Policy would be an appropriate benefit to offer to Shatkin's employees and affiliated traders.

  Under the terms of the Policy, Shatkin is designated as the Plan Administrator and as the agent for legal process. The Policy also contains provisions referring to the applicability of ERISA and rights under ERISA. The Policy provides that forms and plan documents can be obtained from the Plan Administrator and there is some evidence that forms were Page 9 requested through Shatkin. Defendant also presents evidence of a draft memorandum it was planning to send out in which it expressly endorsed the Policy and recommended it to its employees and affiliated traders. However, no evidence is presented that Shatkin actually distributed the memorandum to any employee or trader.*fn2 Defendant provides uncontested evidence that, when plaintiff applied for benefits, Aleksiewicz completed the employer's statement and job analysis, provided information regarding plaintiff's past earnings, and provided assistance in calculating whether his earnings satisfied the 80% test. However, it is not conclusively established that Shatkin provided any more information than it would have provided if contacted by an entirely independent insurance company with which an employee or trader had a disability policy. Further, nobody at Shatkin actually makes the decision of whether or not plaintiff or other claimants qualified for benefits. Though the Policy denominates Shatkin as the Plan Administrator, decisions as to awarding benefits are entirely in the hands of defendant, not Shatkin.

  Affiliated traders paid all the premiums under the Policy. For employees, Shatkin paid all or part of the premiums. The employee or trader portion was collected by Shatkin and forwarded to defendant. Claims were initially filed with Shatkin and forwarded to defendant. Shatkin did not receive any fee for collecting and forwarding premiums and claim forms.

  While Shatkin's involvement with the administration of the Policy was minimal, it was involved in establishing the Policy and did not satisfy the essential requirement of neutrality. Shatkin sought out the insurance provider and selected one it believed to be Page 10 appropriate for its employees and affiliated traders. Shatkin also decided who would be eligible for the Policy, limiting eligibility to full-time employees and affiliated traders. Moreover, this was the only disability policy offered to employees and traders through Shatkin. That is more than enough to constitute establishment of a plan that brings the Policy outside the safe harbor. Brundage-Peterson, 877 F.2d at 511; Dwyer, 2003 WL 22844234, at *2.*fn3 The facts that the Policy uses Shatkin's name in its title, lists Shatkin as the Policyholder, allows Shatkin (as Policyholder) to cancel the Policy, and allows Shatkin to amend the Policy, also support that Shatkin did not maintain neutrality. See Sanfilippo v. Provident Life & Casualty Ins. Co., 178 F. Supp.2d 450, 457 (S.D.N.Y. 2002). Additionally, although Shatkin does not pay any portion of the premium for affiliated traders, its payment ...

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