The opinion of the court was delivered by: JOAN GOTTSCHALL, District Judge
MEMORANDUM OPINION AND ORDER
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
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
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
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
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).
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).
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
II. APPLICABILITY OF ERISA
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
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
(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
29 C.F.R. § 2510.3-1G).
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
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
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
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 ...