Alexander L. MENKES; Stephen Wolfe, individually and on behalf of all others similarly situated, Appellants v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation; Qinetiq North America Operations, LLC, a Delaware corporation; Qinetiq North America, Inc., a Delaware corporation; Westar Aerospace & Defense Group, Inc., a Nevada corporation; Does 1-100, presently known individuals, partnerships, companies and/or other entities, inclusive.
No. 13-1408.
United States Court of Appeals, Third Circuit.
Argued: Dec. 10, 2013. Filed: Aug. 6, 2014.
762 F.3d 285
Andrew P. Bell, Esq. (Argued), Michael A. Galpern, Esq., Locks Law Firm, LLC, Cherry Hill, NJ, for Appellants.
Before: McKEE, Chief Judge, FUENTES, and CHAGARES, Circuit Judges.
OPINION
CHAGARES, Circuit Judge.
Putative class plaintiffs Alexander L. Menkes and Stephen Wolfe appeal the District Court‘s dismissal of their complaint for failure to state a claim. This appeal requires us to determine whether certain supplemental insurance coverage is governed by the Employee Retirement Income Security Act of 1974 (“ERISA“),
I.
We take the following facts from the plaintiffs’ complaint, documents to which it referred and upon which it relied, and the plaintiffs’ proposed amended complaint, which we must accept as true for the purposes of a motion to dismiss. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009). The plaintiffs were employed by defense contractor defendant Qinetiq1 to work on a military base in Kirkuk, Iraq in 2008. As employees, the plaintiffs were automatically enrolled in Qinetiq‘s Basic Long Term Disability, Basic Life, and Accidental Death and Dismemberment insurance policies (the “Basic Policies“). It is undisputed that Qinetiq offered this insurance coverage pursuant to ERISA. These policies were established pursuant to a single group contract with the Prudential Insurance Company of North America, and Qinetiq paid the premiums for each of these policies on behalf of its employees.
Both plaintiffs also purchased supplemental insurance coverage to augment their basic benefits. Both purchased what the plaintiffs term “Supplemental Long Term Disability” (“Buy Up LTD“) coverage, and Menkes purchased “Supplemental Accidental Death & Dismemberment” (“Supplemental AD & D“) coverage (collectively, the “Supplemental Coverage“).2 The plaintiffs paid additional premiums out of their own funds for this Supplemental Coverage in return for enhanced benefits should they sustain a covered injury.
The Supplemental Coverage operated pursuant to the exact same benefit terms, rules, exclusions, and claim procedures as
As is relevant to this appeal, each Booklet informed the plaintiffs of the policies’ respective war exclusion policies. The Long Term Disability Booklet provided that “[y]our plan does not cover a disability due to war, declared or undeclared, or any act of war.” App. 531. The Accidental Death and Dismemberment Booklet provided that loss is not covered if it results from “[w]ar, or any act of war. ‘War’ means declared or undeclared war and includes resistance to armed aggression.” App. 594. These war exclusion clauses applied to both the Basic Policies and the Supplemental Coverage because, again, each type of coverage was governed by a single set of documents with a single set of rules and exclusions.
The plaintiffs were not otherwise uninsured for injuries they incurred on account of war or acts of war. As part of its government contract, Qinetiq also obtained insurance for its employees as required by the Defense Base Act (“DBA“),
Menkes filed a claim under his Long Term Disability policy for three injuries he received while in Iraq: (1) a back injury, (2) a positive tuberculosis (“TB“) test, and (3) post-traumatic stress disorder (“PTSD“). Prudential denied his claim for all three injuries. It used the war exclusion provision to deny benefits only for his PTSD injury. It declined to compensate him for his back injury because it determined that his injury did not sufficiently impair his ability to pursue his regular occupation. It declined to compensate him for his claimed TB because he subsequently had a negative TB test and showed no signs of being affected by any TB symptoms. Menkes filed only a single claim for benefits owed to him under his Long Term Disability policy—he does not allege that he filed one claim for benefits under the Basic Policy and another for benefits under the Supplemental Coverage. Menkes filed another claim for benefits under his DBA policy for these same injuries. Although ICSP and Qinetiq disputed the extent of his injuries, the parties ultimately agreed to settle that claim.
Wolfe does not allege that he suffered any injury or ever filed any claim for benefits under either one of the Prudential policies or the DBA policy.
The District Court dismissed the suit in its entirety. It held that the Supplemental Coverage was governed by ERISA and could not be unbundled from the Basic Policies. Viewing the Basic Policies and Supplemental Coverage as closely related component parts of a single plan, it held that all of the plaintiffs’ state law claims were expressly preempted by ERISA‘s broad preemption clause,
The District Court also denied the plaintiffs’ motion for leave to amend their complaint as futile. The plaintiffs submitted a proposed amended complaint in which they: (1) deleted any reference to the New Jersey TCCWNA, (2) deleted all references to the term life insurance policies, and (3) added a state law breach of fiduciary duty claim. The court addressed these proposed revisions in its opinion and held that the proposed amended complaint was substantially similar to the original. The plaintiffs timely appealed.
II.
The District Court exercised jurisdiction pursuant to the Class Action Fairness Act,
Our review of the District Court‘s grant of a motion to dismiss based on ERISA preemption is plenary. Pryzbowski v. U.S. Healthcare, Inc., 245 F.3d 266, 268 (3d Cir.2001). To survive a motion to dismiss pursuant to
We review the denial of a motion for leave to amend for abuse of discretion. Lum v. Bank of Am., 361 F.3d 217, 223 (3d Cir.2004).
III.
The plaintiffs contend that the District Court erred in concluding that their state law claims were preempted by ERISA
A.
ERISA applies to “any employee benefit plan if it is established or maintained . . . by any employer engaged in commerce.”
One of the touchstones of a plan that is governed by ERISA is the “establishment and maintenance of a separate and ongoing administrative scheme,” which the plan administrator must set up in order to determine eligibility for benefits. Shaver, 670 F.3d at 476 (citing Angst v. Mack Trucks, Inc., 969 F.2d 1530, 1538 (3d Cir.1992)). This feature derives from the Supreme Court‘s decision in Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987), in which the Court held that ERISA preemption was designed “to afford employers the advantages of a uniform set of administrative procedures governed by a single set of regulations,” in situations where there exists an “ongoing administrative program to meet the employer‘s obligation.” An administrative scheme “may arise where the employer, to determine the employee‘s eli-
Given the circumstances outlined in the plaintiffs’ complaint, Qinetiq “established and maintained” the Supplemental Coverage within the meaning of ERISA. It is undisputed that the Supplemental Coverage was governed by the same Booklets and SPDs as the Basic Policies. These documents quite clearly outlined the intended benefits (see App. 512-13, 571-73, describing the amount and frequency of benefit payments), the class of beneficiaries (see App. 512, 517-18, 575-76, describing who is eligible to become insured), the source of financing (see App. 513, 573, informing employees that Qinetiq paid all of the premiums for the basic Long Term Disability and basic Accidental Death and Dismemberment policies, but that employees must contribute to receive other coverage), and the procedures for receiving benefits (see App. 553-56, 621-24, detailing each policy‘s “claim procedures“).
The portion of the SPDs that details “claim procedures” indicates that there existed a comprehensive administrative scheme for determining eligibility for benefits after an employee filed a claim. The SPDs each promised that Prudential would notify a claimant regarding a determination of eligibility for benefits within forty-five days of filing a claim. The criteria for eligibility were exhaustively set out in the Booklets. If a claim were denied, Prudential promised to inform the employee in writing of the specific reason for the denial, whether the denial could be cured, and the procedures for appealing the denial. This administrative scheme clearly evidences Qinetiq‘s “intention to provide benefits on a regular and long-term basis.” Gruber, 159 F.3d at 789. Qinetiq therefore “established and maintained” the Basic Policies and Supplemental Coverage, which operated as a single plan, within the meaning of ERISA.
B.
Although the Basic Policies indisputably were governed by ERISA, the plaintiffs argue that the Supplemental Coverage ought to be “unbundled” and analyzed separately. They contend that if the Supplemental Coverage is viewed separately, then the Supplemental Coverage is not a welfare benefit plan that is governed by ERISA because of a regulatory safe harbor that excludes certain “programs.” See
All of the characteristics of the Basic Policies and Supplemental Coverage indicate that they are not two separate sources of coverage, but two parts of one broader benefits plan. All of the Basic Policies and Supplemental Coverage were governed by a single group contract between Qinetiq and Prudential. All of the information regarding benefit terms, rules, exclusions, and claim procedures for the Basic Policies and Supplemental Coverage were the same and contained in the same documents; Qinetiq did not issue separate Booklets and SPDs for the Supplemental Coverage. If an employee wanted to know, for example, the procedure for filing a claim, he would look in only one place, and then file only one claim. Purchasing the Supplemental Coverage merely bestowed a higher level of benefits pursuant to the same terms.
Accordingly, we hold that the Supplemental Coverage cannot be unbundled from the Basic Plans. In so holding, we join every Court of Appeals to have considered whether to unbundle closely related components of an employer‘s broader ERISA benefits plan and declined to do so. For example, in Gross v. Sun Life Assurance Co. of Canada, 734 F.3d 1 (1st Cir. 2013), the plaintiff‘s employer paid all of its employees’ premiums for life and accidental death and dismemberment insurance, but employees paid all of their own premiums for optional long term disability coverage. Id. at 4. After the plaintiff‘s insurance company denied her coverage under the long term disability policy, she brought numerous state law claims against the carrier responsible for the long term disability policy. The district court held that her claims with respect to the long term disability policy were preempted and the Court of Appeals for the First Circuit affirmed. The Court of Appeals viewed the long term disability policy as part of a “comprehensive employee benefit plan” that the employer offered its employees. Id. at 7. The court noted that the employer offered all three policies pursuant to the same group contract with its insurer, and the benefits, rules, exclusions, and claim procedures were covered by the same plan documents. Id. at 8. It held that because a “‘plan’ under ERISA may embrace one or more policies,” there was “no justification for isolating the long-term disability policy from [the employer‘s] insurance package.” Id.; see also Sgro v. Danone Waters of N. Am., Inc., 532 F.3d 940, 943 (9th Cir.2008) (“So long as [the employer] pays for some benefits, ERISA applies to the whole plan, even if employees pay entirely for other benefits.“); Postma v. Paul Revere Life Ins. Co., 223 F.3d 533, 538 (7th Cir.2000) (“For purposes of determining whether a benefit plan is subject to ERISA, its various aspects ought not be unbundled.“); Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d 460, 463 (10th Cir.1997) (refusing to sever optional insurance coverage that “was a feature of the Plan, notwithstanding the fact that the cost of such coverage had to be contributed by the employee“); Glass v. United of Omaha Life Ins. Co., 33 F.3d 1341, 1345 (11th Cir.1994) (“The Elect Life feature is part and parcel of the whole group insurance plan and thus ERISA governs it.“).
Because the Supplemental Coverage cannot be unbundled from the Basic Policies here, the regulatory safe harbor cannot save the plaintiffs’ state law claims. See Gross, 734 F.3d at 10 (“Our rejection of [the plaintiff‘s] assumption that [the employer] provided multiple, independent plans is fatal to her safe harbor argument.“); accord Sgro, 532 F.3d at 942-43; Gaylor, 112 F.3d at 463; Glass, 33 F.3d at 1345. The safe harbor provides that “a group or group-type insurance program offered by an insurer to employees or
- 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; and
- 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.
It is undisputed that Qinetiq paid the premiums for the Basic Policies and that it automatically enrolled the plaintiffs in basic coverage merely because they were employees. The plaintiffs thus fail to meet the first two of the four criteria that must all apply in order for the safe harbor to carve out a “program” from ERISA‘s otherwise expansive “uniform regulatory regime.” Aetna Health Inc. v. Davila, 542 U.S. 200, 208 (2004).
IV.
Having concluded that ERISA governs the Supplemental Coverage, we must now examine whether the specific causes of action asserted by the plaintiffs are preempted by ERISA‘s “expansive preemption provisions.” Id. ERISA possesses “extraordinary pre-emptive power.” Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 65 (1987). Congress hoped that consolidating regulation and decisionmaking with respect to covered plans in the federal sphere would promote uniform administration of benefit plans and avoid subjecting regulated entities to conflicting sources of substantive law. Travelers Ins., 514 U.S. at 657. Congress intended to “minimize the administrative and financial burden” imposed on regulated entities, Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990), and to expand employers’ provision of benefits in light of the more “predictable set of liabilities,” Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 379 (2002).
Two variants of ERISA preemption are relevant to this appeal. The first is express preemption under ERISA
Some of the plaintiffs’ claims also implicate conflict preemption.6 Congress intended for the causes of action and remedies available under ERISA
The plaintiffs’ claims fall into three broad categories: (1) common law fraud, misrepresentation, and violation of the New Jersey CFA; (2) breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty; and (3) punitive damages.7 In the circumstances presented here, ERISA preempts all three sets of claims.8
A.
The plaintiffs’ claims for common law fraud, misrepresentation, and violation of the New Jersey CFA relate to the plaintiffs’ ERISA plan because they are premised on the existence of the plan and require interpreting the plan‘s terms. In order to state a claim for common law
Resolving these allegations would require a court to assess the defendants’ “representations in light of the plaintiffs’ benefits and rights under the plans.” Iola, 700 F.3d at 84. When the plaintiffs decided to pay additional premiums to enroll in the Supplemental Coverage, they (rightly or wrongly) thought that the policies would cover them in a certain set of circumstances. The war exclusions reduced the set of covered circumstances. Determining whether the coverage was of negligible value involves determining the set of covered circumstances, which involves reference to the war exclusion, which is part of the policy. “This type of analysis—concerning the accuracy of statements . . . to plan participants in the course of administering the plans—sits within the heartland of ERISA,” and ERISA expressly preempts these claims. Id. Courts have routinely held that claims like these that sound in fraud are expressly preempted by ERISA. See Pilot Life, 481 U.S. at 47 (fraudulent inducement claim preempted by ERISA); Iola, 700 F.3d at 84 (claims for misrepresentations about commissions and size of reserve fund preempted because they were premised on the existence of the ERISA plans); Berger v. Edgewater Steel Co., 911 F.2d 911, 923 (3d Cir.1990) (misrepresentation claim premised on a deceptive statement in a letter regarding plan amendments preempted because the letter related to the ERISA plan).9
The plaintiffs attempt to circumvent this barrier by arguing that their claims relate to an unstated policy or practice of automatically denying claims based on the war exclusion clauses even in situations where the exclusions should not apply. However, this is still a claim that is about the benefits owed and is expressly preempted by ERISA. The plaintiffs ignore that proving this claim will require reference to plan documents to determine what each policy covers, and then examining Prudential‘s claims administration processing and procedures in light of the plan‘s contours. In essence, they allege that Prudential was consistently making improper benefit determinations. Where liability is predicat-
B.
The plaintiffs’ claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty10 are likewise expressly preempted because they also relate to the administration of the ERISA plans. To prove breach of contract, a contract must have existed. See Sheet Metal Workers Int‘l Ass‘n Local Union No. 27, AFL-CIO v. E.P. Donnelly, Inc., 737 F.3d 879, 900 (3d Cir.2013). The plaintiffs specifically allege that the contracts that the defendants purportedly breached were the insurance policies they purchased. See App. 50 (Complaint ¶ 171). The defendants owed the plaintiffs fiduciary duties only on account of these agreements.
These claims again relate to the improper denial of benefits because of the war exclusion clause. Claims involving denial of benefits or improper processing of benefits require interpreting what benefits are due under the plan. Because these claims explicitly require reference to the plan and what it covers, they are expressly preempted. See Pilot Life, 481 U.S. at 47-48 (breach of contract claim expressly preempted); accord Pane v. RCA Corp., 868 F.2d 631, 635 (3d Cir.1989).
C.
The plaintiffs’ claim for punitive damages is conflict preempted by ERISA‘s exclusive civil remedy scheme in
For the foregoing reasons, we will affirm the order of the District Court dismissing the plaintiffs’ complaint for failure to state a claim and denying leave to file an amended complaint.
UNITED STATES of America, Appellant in No. 13–1936 v. Raymond A. NAPOLITAN, Appellant in No. 13–1863.
Nos. 13-1863, 13-1936.
United States Court of Appeals, Third Circuit.
Appeal No. 13–1863 Submitted under Third Circuit LAR 34.1(a) on May 14, 2014.
Appeal No. 13-1936 Argued on May 14, 2014.
Filed: Aug. 6, 2014.
Aetna Health, 542 U.S. at 209. Furthermore, this kind of relief may well be available under ERISA