Johnson v. Watts Regulator Co.Johnson v. Watts Regulator Co.
I. BACKGROUND
Plaintiff-appellee James Johnson worked as a forklift operator at the Webster Valve division of defendant-appellant Watts Regulator Co. (Watts) in Franklin, New Hampshire. While so employed, plaintiff elected to participate in a group insurance program made available to Watts’ employees by defendant-appellant CIGNA Employee Benefit Company d/b/a Life Insurance Company of North America (CIGNA). Under the program plaintiff received insurance protection against accidental death, dismemberment, and permanent disability. He paid the premium through a payroll deduction plan. Watts, in turn, remitted the premium payments to CIGNA.
On June 15, 1990, while a participant in the program, plaintiff sustained a severe head injury in a motorcycle accident. He remained disabled for the ensuing year, and, having crossed the policy‘s temporal threshold, he applied for benefits on July 17, 1991. CIGNA turned him down, claiming that he
Plaintiff then sued Watts and CIGNA in a New Hampshire state court. Postulating the existence of an ERISA-related federal question, the defendants removed the action to the district court. Following an evidentiary hearing, the district court ruled that ERISA did not pertain. See Johnson v. Watts Regulator Co., No. 92-508-JD, 1994 WL 258788 (D.N.H. May 3, 1994). Nevertheless, the court denied plaintiff‘s motion to remand, noting diverse citizenship and the existence of a controversy in the requisite amount. See
II. THE ERISA ISSUE
The curtain-raiser question in this case involves whether the program under which Johnson sought benefits is subject to Title I of ERISA. Confronting this issue requires that we interpret and apply the Secretary‘s safe harbor regulation,
A. The ERISA Difference.
From the earliest stages of the litigation, a controversy has raged over the relationship, if any, between ERISA and the group insurance program underwritten by CIGNA. This controversy stems from perceived self-interest: if ERISA applies, preemption is triggered, see
We are uncertain which of these boggarts has captured the minds of the protagonists in this case. But exploring that question does not strike us as a prudent use of scarce judicial resources. Given the marshalled realities the parties agree
B. Standard of Review.
The question of whether ERISA applies to a particular plan or program requires an evaluation of the facts combined with an elucidation of the law. See, e.g., Kulinski v. Medtronic Bio-Medicus, Inc., 21 F.3d 254, 256 (8th Cir. 1994) (explaining that the existence of an ERISA plan is a mixed question of fact and law); Peckham v. Gem State Mut., 964 F.2d 1043, 1047 n.5 (10th Cir. 1992) (similar). For purposes of appellate review, mixed questions of fact and law ordinarily fall along a degree-of-deference continuum, ranging from plenary review for law-dominated questions to clear-error review for fact-dominated questions. See In re Extradition of Howard, 996 F.2d 1320, 1327-28 (1st Cir. 1993). Plenary review is, of course, nondeferential, whereas clear-error review is quite deferential. See id.
Both standards are in play here. The interpretation of a regulation presents a purely legal question, sparking de novo review. See, e.g., Strickland v. Commissioner, Me. Dep‘t of Human Serv., 48 F.3d 12, 16 (1st Cir. 1994); Liberty Mut. Ins. Co. v. Commercial Union Ins. Co., 978 F.2d 750, 757 (1st Cir. 1992). Once the meaning of the regulation has been clarified, however, the “mixed” question that remains the regulation‘s applicability in a given case may require factfinding, and if it does, that factfinding is reviewed only for clear error. To that extent, the existence of an ERISA plan becomes primarily a question of fact. See Wickman v. Northwestern Nat‘l Ins. Co., 908 F.2d 1077, 1082 (1st Cir.), cert. denied, 498 U.S. 1013 (1990); Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 492 (9th Cir. 1988), cert. denied, 492 U.S. 906 (1989).
C. Statutory and Regulatory Context.
Congress enacted ERISA to protect the interests of participants in employee benefit plans (including the interests of participants’ beneficiaries). See
An integral part of the statutory scheme is a broadly worded preemption clause that, in respect to covered employee benefit plans, sets to one side “all laws, decisions, rules, regulations, or other State action having the effect of law, of any State.”
For an employee welfare benefit plan or program to come within ERISA‘s sphere of influence, it must, among other things, be “established or maintained” by an employer,1 an employee organization, or both. See
To address this very requirement, the Secretary of Labor, pursuant to
(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.
The safe harbor dredged by the regulation operates on the premise that the absence of employer involvement vitiates the necessity for ERISA safeguards. In theory, an employer can assist its work force by arranging for the provision of desirable coverage at attractive rates, but, by complying with the regulation, assure itself that, if it acts only as an honest broker and remains neutral vis-a-vis the plan‘s operation, it will not be put to the trouble and expense that meeting ERISA‘s requirements entails. Failure to fulfill any one of the four criteria listed in the regulation, however, closes the safe harbor and exposes a group insurance program, if it otherwise qualifies as an ERISA program, to the strictures of the Act. See Qualls v. Blue Cross of Cal., Inc., 22 F.3d 839, 843 (9th Cir. 1994); Fugarino v. Hartford Life & Accident Ins. Co., 969 F.2d 178, 184 (6th Cir. 1992), cert. denied, 113 S. Ct. 1401 (1993); Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 241 n.6 (5th Cir. 1990); Kanne, 867 F.2d at 492.
In the instant case, the first, second, and fourth criteria are not in dispute. Plaintiff paid the premium without the employer‘s financial assistance; the decision to purchase the coverage was his and his alone; and Watts received no forbidden
But as the regulation itself indicates, remaining neutral does not require an employer to build a moat around a program or to separate itself from all aspects of program administration. Thus, as long as the employer merely advises employees of the availability of group insurance, accepts payroll deductions, passes them on to the insurer, and performs other ministerial tasks that assist the insurer in publicizing the program, it will not be deemed to have endorsed the program under
This case falls between these extremes, and requires us to clarify the standard for endorsement under
This conclusion is bolstered by the Department‘s stated rationale to the effect that a communication to employees2
The interpretation of the safe harbor regulation by the agency charged with administering and enforcing ERISA is entitled to substantial deference. See Berkshire Scenic Ry. Museum, Inc. v. ICC, 52 F.3d 378, 381-82 (1st Cir. 1995); Keyes v. Secretary of the Navy, 853 F.2d 1016, 1021 (1st Cir. 1988). Here, moreover, the respect usually accorded an agency‘s interpretation of a statute is magnified since the agency is interpreting its own regulation. See Arkansas v. Oklahoma, 503 U.S. 91, 112 (1992); Puerto Rico Aqueduct & Sewer Auth. v. United States EPA, 35 F.3d 600, 604 (1st Cir. 1994), cert. denied, 115 S. Ct. 1096 (1995). So long as the agency‘s interpretation does not do violence to the purpose and wording of the regulation, or
In this instance, we believe that deference is due. The Secretary‘s sense of the safe harbor regulation is consonant with both the regulation‘s text and the overlying statute. And, moreover, looking at the employer‘s conduct from the employees’ place of vantage best ensures that employer neutrality remains a reality rather than a mere illusion. Phrased another way, judging endorsement from the viewpoint of an objectively reasonable employee most efficaciously serves ERISA‘s fundamental objective: the protection of employee benefit plan participants and their beneficiaries.
We rule, therefore, that an employer will be said to have endorsed a program within the purview of the Secretary‘s safe harbor regulation if, in light of all the surrounding facts and circumstances, an objectively reasonable employee would conclude on the basis of the employer‘s actions that the employer had not merely facilitated the program‘s availability but had exercised control over it or made it appear to be part and parcel of the company‘s own benefit package.
D. Analysis.
The anatomy of the court‘s determination is instructive. Based primarily on the testimony of two corporate officials Watts’ benefits administrator and Webster Valve‘s employee relations manager the court found that the company had3
The district court also examined Watts’ other activities concerning the program. Watts collected premiums through payroll deductions, remitted the premiums to CIGNA, issued certificates to enrolled employees confirming the commencement of coverage, maintained a list of insured persons for its own records, and assisted CIGNA in securing appropriate documentation when claims eventuated. Watts’ activities in this respect consisted principally of filling out the employer portion of the claim form, inserting statistical information maintained in Watts’ personnel files (such as the insured‘s name, address,
In sum, Watts performed only administrative tasks, eschewing any role in the substantive aspects of program design and operation. It had no hand in drafting the plan, working out its structural components, determining eligibility for coverage, interpreting policy language, investigating, allowing and disallowing claims, handling litigation, or negotiating settlements.
In the last analysis, the district court found that Watts’ cover letter fell short of constituting an endorsement. The court pointed out that neither the letter nor the brochure expressly stated that the employer endorsed the program. Apart from the letter, the court concluded that Watts had performed only ministerial activities, and that these activities (whether viewed alone or in conjunction with the cover letter) did not rise to the level of an endorsement.
We believe that this finding deserves our allegiance. Drawing permissible inferences from the evidence, the trial court could plausibly conclude on this scumbled record that an objectively reasonable employee would not have thought that Watts endorsed the group insurance program. Several considerations4
First, we think that endorsement of a program requires more than merely recommending it. An employer‘s publicly expressed opinion as to the quality, utility and/or value of an insurance plan, without more, while relevant to (and perhaps probative of) endorsement, will most often not indicate employer control of the plan.
Second, the administrative functions that Watts undertook fit comfortably within the Secretary‘s regulation. Activities such as issuing certificates of coverage and maintaining a list of enrollees are plainly ancillary to a permitted function (implementing payroll deductions). Activities such as answering brokers’ questions similarly can be viewed as assisting the insurer in publicizing the plan. Other activities that arguably fall closer to the line, such as the tracking of eligibility status, are completely compatible with the regulation‘s aims. Under the circumstances, the court lawfully could find that the employer‘s activities, in the aggregate, did not take the case out of the safe harbor.5 See, e.g., Brundage-Peterson, 877 F.2d at 510 (assuming that steps such as “distributing advertising brochures from insurance providers, or answering questions of its employees concerning insurance, or even deducting the insurance premiums from its employees’ paychecks and remitting them to the insurers,” do not force employers out of the safe harbor provision); du Mortier, 805 F. Supp. at 821 (holding that activities such as maintaining a file of informational materials, distributing forms to employees, and submitting completed forms to the insurer, do not transcend the boundaries of the safe harbor).
In arguing for reversal, appellants rely on Hansen v. Continental Ins. Co., a case that involved a similar situation. In Hansen, as here, participation in the plan was voluntary, and premiums were paid by the employees via payroll deduction. See Hansen, 940 F.2d at 973. The employer collected the premiums, remitted them to the insurer, and employed an administrator who accepted claim forms and transmitted them to the carrier. See id. at 974. In addition, the employees received a booklet embossed with the employer‘s corporate logo that described the plan and encouraged employee participation. The court found that the company had endorsed the plan. See id.
Despite the resemblances, there are two critical facts that distinguish Hansen from the case at bar. First, in Hansen the corporate logo was embossed on the booklet itself, see id.,
If a plan or program is the employer‘s plan or program, the safe harbor does not beckon. See, e.g., Sorel v. CIGNA, 1994 WL 605726, at *2 (D.N.H. Nov. 1, 1994) (holding that statement describing policy as employer‘s plan on first page of plan description indicates endorsement); Cockey v. Life Ins. Co. of N. Am., 804 F. Supp. 1571, 1575 (S.D. Ga. 1992) (finding that when employer presents a program to its employees as an integral part of its own benefits6
This distinction is sensible. When an objectively reasonable employee reads a brochure describing a program as belonging to his employer, he is likely to conclude that, if he participates, he will be dealing with the employer and that he will therefore enjoy the prophylaxis that ERISA ensures in such matters. When the possessive pronoun is eliminated in favor of a neutral article, however, the employee‘s perception is much more likely to be that, if he participates, he will be dealing directly with a third party the insurer and that he will therefore be beyond the scope of ERISA‘s protections.
To sum up, we are drawn to three conclusions. First, the district court did not clearly err in finding that Watts had not endorsed the group insurance program. Second, the court‘s fact-sensitive determination that the program fits within the parameters of the Secretary‘s safe harbor regulation is
III. THE DISABILITY ISSUE
Appellant asseverates that, even if New Hampshire law controls, the judgment below is insupportable. We turn now to this asseveration.
The starting point for virtually any claim under a policy of insurance is the policy itself. Here, the applicable rider promises benefits to an insured who has been injured in an accident, whose ensuing disability is “continuous” and “total” for a year, and who thereafter remains “permanently and totally disabled.” The rider defines “continuous total disability” as a disability resulting from injuries sustained in an accident, “commencing within 180 days after the date of the accident,” lasting for at least a year, and producing during that interval “the Insured‘s complete inability to perform every duty of his occupation.” If an insured meets this benchmark, he must then prove that he is “permanently and totally disabled.” Under the policy definitions, this phrase signifies “the Insured‘s complete inability, after one year of continuous total disability, to engage in an occupation or employment for which [he] is fitted by reason of education, training, or experience for the remainder of his life.”
It is against this linguistic backdrop that we inspect appellants’ assertion that the trial court erred in
A. Standard of Review.
In actions that are tried to the court, the judge‘s findings of fact are to be honored unless clearly erroneous, paying due respect to the judge‘s right to draw reasonable inferences and to gauge the credibility of witnesses. See Cumpiano, 902 F.2d at 152 (citing
There are, of course, exceptions to the rule. For example, de novo review supplants clear-error review if, and to the extent that, findings of fact are predicated on a mistaken view of the law. See, e.g., United States v. Singer Mfg. Co., 374 U.S. 174, 195 n.9 (1963); RCI N.E. Servs. Div. v. Boston Edison Co., 822 F.2d 199, 203 (1st Cir. 1987). This does not mean, however, that the clearly erroneous standard can be eluded by the simple expedient of creative relabelling. See Cumpiano, 902 F.2d at 154; Reliance Steel, 880 F.2d at 577. For obvious reasons, we will not allow a litigant to subvert the mandate of
B. Analysis.
Appellants make two main arguments in regard to plaintiff‘s disability claim. First, in an effort to skirt
Appellants’ second contention posits that the district court misperceived the facts, and that plaintiff was not sufficiently disabled to merit an award of benefits. This contention also lacks force. The district court had adequate grounds for deciding that plaintiff was totally and permanently disabled. The evidence showed that plaintiff sustained a devastating brain injury, and that, throughout the year following his accident, a number of physicians found his disability to be continuous. By and large, plaintiff‘s condition did not improve significantly during that year (or thereafter, for that matter).
We need not cite book and verse. The court made detailed findings, crediting the conclusions of four doctors who judged plaintiff to be severely impaired, both mentally and physically.7 The court also credited an evaluation performed by Sherri Krasner, a speech and language pathologist, and the testimony of a vocational rehabilitation counselor, Arthur Kaufman, who offered an opinion that plaintiff was unable to work without constant supervision. Kaufman stated that he did not know of a job suitable for a person in plaintiff‘s condition.8
Another wave of appellants’ evidentiary attack targets the district court‘s finding that plaintiff‘s disability is permanent. In this respect, appellants rely mainly on the physicians’ recommendations for rehabilitative therapy as indicative of the potential for recovery. The district court, however, found appellants’ inference unreasonable in light of the dim prospects for significant recovery, the duration of plaintiff‘s inability to work, and the policy‘s failure to require vocational rehabilitation as a precondition to the receipt of benefits. These are fact-dominated issues, and the trial court is in the best position to calibrate the decisional scales. See Cumpiano, 902 F.2d at 152. Having examined the record with care, we have no reason to suspect that a mistake was committed. See, e.g., Duhaime v. Insurance Co., 86 N.H. 307, 308 (1933) (explaining that, to be permanently disabled, an insured need not be in a condition of “utter hopelessness“).
IV. CONCLUSION
We need go no further. ERISA does not apply to the group insurance program at issue here. Moreover, the district court‘s factual findings survive clear-error review. Consequently, the court‘s resolution of the case stands.
Affirmed.