This is the first of a two-part column. The second part will be published on Thursday.
A new ruling from the 3rd U.S. Circuit Court of Appeals raises a number of interesting issues regarding the limits of coverage under the Employee Retirement Income Security Act as well as how occupation-specific disability is analyzed.
In Part 1 of this column, the ERISA issue will be discussed. Part 2 will focus on the disability insurance issue.
The case of McCann v. Unum Provident, 2018 WL 5117113 (3d Cir., Oct. 5, 2018), began many years ago when Dr. Kevin McCann, an interventional radiologist, who purchased a supplemental disability income insurance policy from Provident Life and Accident Insurance Co.
He initially qualified to receive benefits under the policy, but those benefits were discontinued following a determination that McCann was a diagnostic radiologist rather than an interventional radiologist.
McCann purchased the Provident policy while he was in a fellowship program at Henry Ford Hospital in Michigan. The hospital offered all of its employees a base, noncontributory, long-term disability insurance plan, but also offered a voluntary supplemental disability program.
Under that program, fellows such as McCann purchased the policy through a broker and paid 100 percent of the premiums but received a 15 percent discount on account of their association with the hospital.
McCann maintained his coverage after he completed his fellowship and began working at a clinic in Ohio as an interventional radiologist. As the years went on, McCann developed major health problems: obstructive sleep apnea, a dilated, ascending aortic root aneurysm, hypertension and obesity.
The cumulative impact of his maladies led McCann to cease working and apply for benefits in 2008. After receiving the claim, Provident requested information from McCann’s employer about his job duties and learned he worked an average of 60 hours a week performing interventional radiology (approximately 20 hours), diagnostic radiology (approximately 28 hours), fluoroscopy (approximately an hour), night call (approximately 10 hours) and paperwork (approximately one to two hours).
Provident also obtained billing codes for the services McCann performed. Provident concluded that McCann’s condition precluded him from “working in a stressful occupation, such as interventional radiology” and the claim was approved.
McCann’s claim underwent ongoing review and consideration and a vocational assessment of the services he had performed led Provident to conclude that McCann “reasonably spent the majority of his time reading films and dictating interpretive reports. Interventional procedures appear to have been performed on an occasional basis.”
A concurrent medical review found McCann capable of returning to work as a diagnostic radiologist and explained that the prior determination was based on an “incorrect understanding of [McCann’s] occupation.”
McCann then filed suit under ERISA but also asserted that the supplemental policy should not have been deemed governed by that law. The U.S. District Court concluded that the ERISA law applied and found Provident’s determination was correct and upheld Provident’s termination of benefits. McCann appealed to the 3rd Circuit.
The court began by explaining that “ERISA pre-empts parallel state law remedies – here, the breach-of-contract claim Dr. McCann has raised against Provident” as well as his entitlement to a jury trial. ERISA applies to health, life or disability insurance “obtained through (1) a plan, fund or program (2) that is established or maintained (3) by an employer (4) for the purpose of providing benefits (5) to its participants or beneficiaries.” See 29 U.S.C. Section 1002(1); Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982) (en banc).
The main question presented was whether McCann’s coverage was “established or maintained” by his prior employer.
The Labor Department promulgated a “safe harbor” regulation on this issue (29 C.F.R. Section 2510.3-1(j)), which exempts benefit plans from ERISA when all four of the following criteria are met:
- No contributions are made by an employer or employee organization.
- Participation in the program is completely voluntary for employees or members.
- 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.
- 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.
The question the court had to resolve was whether McCann’s prior employer made “contributions” to or “endorsed” the program since he met the other criteria. The court concluded that allowing the program to be publicized to employees was not enough, but “endorsement exists where there is some showing of material employer involvement in the creation or administration of a plan.”
On the facts presented, the court considered the issue a close question, but found relevant the fact that Henry Ford Hospital had encouraged its residents to enroll in the disability program and recommended the residents purchase the coverage offered by Provident. From those facts, the court determined, “A reasonable employee could conclude the hospital was endorsing the plan from this language.”
The court thus concluded the safe harbor could not be met because McCann would have considered the disability insurance to be a benefit of his employment. Nonetheless, McCann was no longer an employee of Henry Ford Hospital when his disability arose.
He had no association with that hospital for more than a decade before becoming disabled, so the question is whether the insurance he had paid for without any involvement by his prior employer for more than 10 years fell under ERISA.
Although there have not been any recent cases, several rulings have come to the conclusion that once the employment relationship ends, ERISA’s purposes also come to a conclusion and claims under policies that were originally employer-sponsored are not governed by ERISA. See Demars v. CIGNA Corp., 173 F.3d 443 (1st Cir. 1999); Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872 (9th Cir. 2001), the converted policy is not covered by ERISA. Also see Chami v. Provident Life & Accident Insurance Co., 188 F.Supp.2d 1084 (N.D. Ind. 2002) (same); Arancio v. Prudential, 247 F.Supp.2d 333 (S.D. N.Y. 2002)(same); Owens v. Unum Life Insurance Co., 285 F.Supp.2d 778 (E.D. Tex. 2003) (same); Roehrs v. Minnesota Life Insurance Co., 390 F.Supp.2d 886 (D. Ariz. 2005) (same); Ziperski v. First Unum Life Insurance Co., 2006 U.S.Dist.LEXIS 3116 (S.D. N.Y. 2006) (same); Weichand v. Guardian Life Insurance Co., 2007 U.S.Dist.LEXIS 55346 (M.D. Pa. 2007) (employer became defunct years before dispute arose and responsibility for policy transferred to employee at time of disability); and Pittman v. Standard Insurance Co., 2009 U.S.Dist.LEXIS 5325 (E.D. La. 2009). The 8th Circuit’s ruling in Painter v. Golden Rule Insurance Co., 121 F.3d 436 (8th Cir. 1997) reached a contrary conclusion, though.
Since the 3rd Circuit never addressed the fact that McCann had no ongoing association with Henry Ford Hospital, and no mention was made of any of the cases addressing post-employment benefit claims under policies maintained individually by former employees, the court’s finding is surprising.
ERISA focuses on the relationship between employer and employee and once that relationship ends, the protections of ERISA are no longer necessary.
This article was initially published in the Chicago Daily Law Bulletin.