A local
Chamber of Commerce is not an employer for ERISA purposes because its
membership rolls extend beyond employers to sole proprietors, the 2nd U.S.
Circuit Court of Appeals noted. Therefore, the health plan it offered to
Chamber members was not an ERISA plan, and state-law claims against the Chamber
plan´s insurer were not preempted, the court ruled. The case is Marcella v. Capital District Physicians´
Health Plan, Inc., 2002 WL 1174547 (2nd Cir., June 5, 2002).
However,
the court noted that an employer plan still could have existed if evidence
showed that the plaintiff had coverage through an employer "plan" or
arrangement with the Chamber. In this case, however, the plaintiffs´
relationship fell within a safe harbor from the U.S. Department of Labor (DOL)
that excludes from the definition of "ERISA plan" arrangements under which,
among other things, an employer does not include contribute to the arrangement.
Carol Marcella sold real estate as an independent contractor through Prudential Realty, which was a member of the local Chamber of Commerce. Capital District Physicians´ Health Plan, Inc. (CDPHP) has a contract with the Chamber to provide HMO coverage to Chamber members and their employees. The Chamber was the named policyholder, was responsible for collecting and sending premiums to CHPHP and determined the plan´s eligibility terms, subject to CDPHP´s approval. In October 1995, she started her own business and joined the Chamber in her individual business capacity. After that point, her view was that her health coverage was by virtue of her own Chamber membership, not Prudential´s.
After
being diagnosed with a brain tumor, Marcella decided to have surgery at an
out-of-network hospital, which CHPHP refused to approve. She took out a loan to
pay for the surgery herself, and sought reimbursement from CDPHP, which denied
the claim on the ground that any out-of-network surgery must be preapproved.
Ultimately,
Marcella sued CDPHP for various state-law claims. CDPHP removed the case to
federal district court based on ERISA preemption. Marcella´s motion to remand
the case to state court was rejected by a magistrate judge, who found that:
(1) the Chamber plan was an ERISA
plan; and
(2) because Marcella´s CDPHP
application listed Prudential as her "employer" and she became a CDPHP member
through her affiliation with Prudential, she was estopped from asserting that
she was not a Prudential employee and therefore a valid participant in the
Chamber plan.
A federal
district court then ruled that the state-law claims were preempted by ERISA.
Marcella appealed.
The
essence of Marcella´s argument apparently was that because her health coverage
came through her individual chamber membership - not from Prudential as an
employer/Chamber member - no ERISA plan issues were involved. CDPHP countered
that Marcella only was able to participate in its health plan because of her
association with Prudential. Therefore, to the court, the key issue was whether
the Chamber plan was an ERISA plan. It concluded that under either Marcella´s
or CDPHP´s argument, Marcella was not an ERISA plan participant. In reaching this conclusion, the court analyzed
the following statutory and regulatory language:
(1) ERISA´s definition of an
"employee benefit plan," which must be "established or maintained by an
employer."
(2) DOL regulations that create a
safe harbor for the type of plan that does not
qualify under ERISA by providing that an "employee welfare benefit plan" and
"welfare plan" does not include a group or group-type
insurance program offered by an insurer to employees or members of an employee
organization, under which:
·       Â
no contributions are made by an employer or employee
organization,
·       Â
program participation is completely voluntary for employees
or members;
·       Â
the sole functions of the employer or employee organization
regarding the program are - without endorsing the program - permitting the
insurer to publicize the program to employees or members, collecting premiums
through payroll deductions or dues checkoffs and remitting them to the insurer,
and
·       Â
the employer or employee organization receives no cash or
other consideration in connection with the program, other than reasonable
compensation, excluding any profit, for administrative services for payroll
deductions or dues checkoffs. (See ¶711 of the Guide.)
(3) ERISA´s definition of an
"employer," which among other things, does include "a group or association of
employers acting for an employer in such capacity."
(4) ERISA´s definition of
"employee," which excludes sole proprietors.
(5) DOL opinion letters 98-08A
(Oct. 9, 1998), 95-01A (Feb. 13, 1995) and 94-07A (Mar. 14, 1994) - which
generally concluded that when an organization´s membership is not limited to
employers, it is not an employer for ERISA purposes.
While the
court noted that the Chamber clearly established and maintained the CDPHP plan,
it found that the Chamber was not an employer for ERISA purposes. Here, the key
was that the Chamber´s membership went beyond just employers to include sole
proprietorships without employees, as well
as individuals such as Marcella, who could not be considered an employer
because she had no employees.
"The plain
language of the statute would, therefore, seem to preclude finding that the
Chamber is ´a group or association of employers,´ because not all members of
the Chamber are employers," the court found.
The court
stated that its reasoning was further supported by the three DOL opinion
letter. Even though the letters were not "formally promulgated as regulations,"
the court found that they can be used as guidance because they are the views of
the agency charged with enforcing ERISA.
Accordingly,
the court concluded that Chamber Plan was not an ERISA plan. It did add a caveat however, that the plan - or
rather, the terms of the CDPHP policy to Chamber members - could form part of an ERISA plan if a Chamber
member that is an employer chooses to provide its employees with access to that
plan.
To that
end, it is clear that no ERISA plan existed if Marcella´s plan participation
was through her own business, because DOL regulations and 2nd Circuit case law
provide that a sole proprietor is not an "employee" for ERISA purposes. If
Marcella´s plan participation was through her association with Prudential, then
the possibility existed that Prudential was an "employer" under ERISA,
according to the court. However, the court found it unnecessary to address that
issue because even if Marcella was Prudential´s employee, Prudential did not
"maintain or establish" the plan to "provide benefits" for its employees as
provided for under the DOL regulations. Among other things, the court noted
that Prudential offered no proof that it did not meet the four regulatory
factors noted earlier that point to a non-ERISA plan.
Therefore,
the court concluded that Marcella´s claims were not preempted by ERISA, and
reversed and remanded the district court´s decision with instructions to return
the case to state court.
The court
has affirmed DOL opinions on when an association may or may not be an ERISA
plan.
The court
only touched on the situation when the coverage could be part of an ERISA plan.
Here, the case met all of the safe harbor criteria. The coverage still could
have met the test for an ERISA plan without Prudential´s contributions if other
conditions were present, such as Prudential employees participating in the plan
because of Prudential. But that was not discussed. The insurance application
was filled in with Prudential as Marcella´s employer, but she denied filling in
that information.
Generally,
whether an ERISA plan exists even under association coverage must be determined
based upon the particular facts of a situation.