Wolk v. UNUM Life Ins Co

Opinions of the United

1999 Decisions States Court of Appeals

for the Third Circuit

6-30-1999

Wolk v. UNUM Life Ins Co

Precedential or Non-Precedential:

Docket 98-3542

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Filed June 30, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-3542

JANICE BOWERS WOLK,

Appellant,

v.

UNUM LIFE INSURANCE OF AMERICA

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

(D.C. Civil No. 96-cv-00356)

(District Judge: Honorable Robert J. Cindrich)

ARGUED FEBRUARY 19, 1999

BEFORE: GREENBERG, LEWIS, and BRIGHT,*

Circuit Judges.

(Filed June 30, 1999)

DEBRA S. TODD (ARGUED)

Todd & Associates

112 Washington Place

Chatham Towers Professional Suites,

Suite 1-C

Pittsburgh, PA 15219

Attorney for Appellant

_________________________________________________________________

* Honorable Myron H. Bright, Senior Circuit Judge for the United States

Court of Appeals for the Eighth Circuit, sitting by designation.

WILLIAM J. ROGERS (ARGUED)

Thomson, Rhodes & Cowie

Two Chatham Center, Suite 1010

Pittsburgh, PA 15219-3499

Attorney for UNUM Life Insurance

of America

OPINION OF THE COURT

LEWIS, Circuit Judge.

In this appeal, we must determine whether the term

"beneficiary," as defined under the Employee Retirement

Income Security Act ("ERISA"), 29 U.S.C. S 1002(8),

includes partner-employers who are designated to receive

benefits under an "employee welfare benefit plan."1 We

conclude that it does. Accordingly, we will affirm the

judgment of the District Court.

I.

Janice Bowers Wolk is an attorney and former corporate

tax partner at the Pittsburgh law firm of Eckert, Seamans,

Cherin & Mellot ("Eckert Seamans" or "thefirm"). Since

1978, Eckert Seamans has provided its employees with

disability insurance coverage under a group long term

insurance policy issued by UNUM Life Insurance Company

of America ("UNUM"). Originally, the policy did not provide

disability coverage for the firm's partners. However, on

December 21, 1990, Eckert Seamans replaced the existing

policy with a new policy that continued disability coverage

_________________________________________________________________

1. ERISA defines an "employee welfare benefit plan" as:

any plan, fund, or program which was . . . or is . .. established

or

maintained by an employer . . . for the purpose of providing for

its

participants or their beneficiaries, through the purchase of

insurance or otherwise, (A) medical, surgical, or hospital care or

benefits, or benefits in the event of sickness, accident,

disability,

death or unemployment . . . .

29 U.S.C. S 1002(1).

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for the firm's employees and added coverage for the firm's

partners (the "1990 Policy").2

In May 1990, Wolk was diagnosed with chronic fatigue

syndrome -- a debilitating illness that causes extreme

fatigue, general flu-like symptoms and difficulty with

concentration. Through 1992, Wolk's condition deteriorated

to the point where she could no longer function as a

partner at the firm. As a result, Wolk terminated her

partnership effective March 31, 1993.

Shortly thereafter, Wolk applied to UNUM for disability

benefits pursuant to the 1990 Policy. UNUM approved

Wolk's application and commenced disability payments

effective April 1, 1993. The payments continued without

incident until March 23, 1995, at which time, UNUM

informed Wolk that it had determined that she was no

longer disabled and that it would terminate her benefits

effective March 27, 1995.

On February 27, 1996, Wolk filed suit against UNUM in

the United States District Court for the Western District of

Pennsylvania. The complaint alleged a variety state-law

claims, including breach of contract, bad faith, and breach

of good faith and fair dealing.3 That same day, UNUM

notified Wolk that it was reversing its decision to deny her

_________________________________________________________________

2. Under the 1990 Policy, partners and the executive director of the firm

were designated as Class One of the defined eligible classes. Associates

and certain other professional employees were designated as Class Two.

All other employees were designated as Class Three. Partners paid the

entire cost of their disability insurance coverage. No contribution was

required from the firm's Class Two and Class Three employees.

3. More specifically, Wolk alleges that UNUM terminated her benefits

without providing any prior indication of its intention, or of a need for

additional information or testing concerning her condition. Wolk also

maintains that despite her repeated requests, UNUM failed to adequately

explain the reason for the termination of benefits. Further, she asserts

that UNUM engaged in a consistent pattern of bad faith, which included

its failure to conduct a good faith investigation into the facts of her

claim. Finally, Wolk contends that UNUM "unnecessarily dragged out the

`investigation' of her claim causing her to go without the disability

benefits to which she was entitled for fourteen months, and to incur

substantial attorneys' fees in her struggle to compel UNUM to reinstate

her benefits." Appellant's Brief at 12.

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benefits. On May 22, 1996, UNUM resumed Wolk's

disability payments and issued her a check for back benefits.4

Presently, Wolk receives all monthly benefits from UNUM,

as well as disability benefits from the Social Security

Administration.

On December 6, 1996, UNUM filed a motion for summary

judgment on the grounds that ERISA preempted Wolk's

state-law claims. On March 31, 1998, the District Court

granted UNUM's motion for summary judgment, finding

that partner-employers who share coverage under a

common disability insurance policy with employees are

"beneficiaries" as defined in ERISA. Thus, the District Court

held that Wolk's state-law claims against UNUM were

subject to ERISA's preemptive provisions. In so holding, the

District Court granted Wolk leave to amend her complaint

to assert an ERISA cause of action. On June 22, 1998, the

District Court granted Wolk's motion to certify its March

31, 1998 order for interlocutory appeal pursuant to 28

U.S.C. S 1292(b), and we granted leave to appeal.

We have jurisdiction over this appeal pursuant to 28

U.S.C. S 1292(b). We review a District Court's grant of

summary judgment de novo. See Antol v. Perry, 82 F.3d

1291, 1294-95 (3d Cir. 1996).

II.

Before we turn to the dispute, it is important to note the

areas of agreement between Wolk and UNUM. First, the

parties agree that the 1990 Policy is an "employee welfare

benefit plan" as defined in ERISA, 29 U.S.C.S 1002(1).

Second, it is undisputed that Wolk, in her complaint,

alleges that UNUM unlawfully deprived her of benefits to

which she was entitled under the 1990 Policy. Third, the

parties acknowledge that ERISA provides the exclusive

remedy for those covered by an ERISA plan who seek to

_________________________________________________________________

4. UNUM delivered a check to Wolk in the amount of $59,374.39,

representing benefits from March 27, 1995 through May 27, 1996, less

offsetting Social Security disability benefits. On June 20, 1996, UNUM

issued Wolk a check in the amount of $3,197.50, representing interest

on her back benefits at the rate of six percent.

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enforce their rights under such a plan. See 29 U.S.C.

S 1144(a).

However, the parties diverge on the question of whether

Wolk, as a partner-employer of Eckert Seamans, is

authorized to bring a civil action under ERISA. Wolk argues

that because a law firm partner is an employer, not an

employee, she cannot be a "participant" or"beneficiary" of

an ERISA plan, and thus is not eligible to file suit under

ERISA. Therefore, she maintains that she is entitled to

pursue her common law remedies without reference to, or

reliance on, ERISA.

In opposition, UNUM contends that Wolk's partnership

status, though relevant to the question of whether she is a

"participant" under the 1990 Policy, does not affect her

status as a "beneficiary" under the plan. Thus, because

Wolk receives benefits under the 1990 Policy, UNUM

asserts that she must be subject to ERISA when pursing

claims against the insurer.

We have not ruled on the limited question of whether a

partner-employer who shares coverage with employees

under an "employee welfare benefit plan" qualifies as a

"beneficiary" with standing to bring suit under ERISA.

However, we believe ERISA's plain statutory language

provides a clear answer.

A.

We must begin our analysis with an examination of

ERISA's statutory language because " `absent a clearly

expressed legislative intention to the contrary, that

language must ordinarily be regarded as conclusive.' "

Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S.

827, 835 (1990) (quoting Consumer Product Safety Comm'n

v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980)); see also

Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197,

202 (3d Cir. 1998) ("[w]here the statutory language is plain

and unambiguous, further inquiry is not required, except in

the extraordinary case where a literal reading of the

language produces an absurd result.").

Under ERISA, "[a] civil action may be brought-- (1) by a

participant or beneficiary -- (B) to recover benefits due to

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him under the terms of his plan, to enforce his rights under

the terms of the plan, or to clarify his rights to future

benefits under the terms of the plan." 29 U.S.C.

S 1132(a)(1)(B). ERISA defines the term "participant" as "any

employee or former employee of an employer . . . who is or

may become eligible to receive a benefit of any type from an

employee benefit plan." 29 U.S.C. S 1002(7). A "beneficiary"

is a "person designated by a participant, or by the terms of

an employee benefit plan, who is or may become entitled to

a benefit thereunder." 29 U.S.C. S 1002(8) (emphasis

added).

To reiterate, it is undisputed that the 1990 Policy

qualifies as an employee benefit plan under ERISA. It also

is undisputed that partners of Eckert Seamans are

designated to receive benefits under the 1990 Policy --

indeed, Wolk applied for, and is currently receiving, benefits

from UNUM pursuant to the 1990 Policy. Applying the plain

language of the statue to these facts, Wolk fits squarely

within the second category of ERISA's definition of a plan

"beneficiary." Thus, we conclude that Wolk is a

"beneficiary" under the 1990 Policy.

We also find it significant that all of the Courts of Appeal

that have analyzed the term "beneficiary" in a similar

context have adopted this plain language interpretation.

See, e.g., Engelhardt v. Paul Revere Life Ins. Co., 139 F.3d

1346, 1351 (11th Cir. 1998) ("[physician's] claim for

benefits under the policy confirms his status as a plan

beneficiary."); Prudential Ins. Co. v Doe, 76 F.3d 206, 208

(8th Cir. 1996) (shareholders of corporation were

"beneficiaries" of ERISA plan because they were designated

to receive benefits by the terms of the employee benefit

plan); Peterson v. American Life & Health Ins. Co., 48 F.3d

404, 409 (9th Cir. 1995) (partner was "beneficiary" under

ERISA because "any person designated to receive benefits

from a policy that is part of an ERISA plan may bring a civil

suit to enforce ERISA"); Harper v. American Chambers Life

Ins. Co., 898 F.2d 1432, 1434 (9th Cir. 1990) (partner

insured by policy that is part of an ERISA plan has

standing to sue under ERISA as a "beneficiary").5

_________________________________________________________________

5. Although Wolk cites to a number of Court of Appeals decisions where

the court held that an employer did not have standing to sue under

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Wolk contends that it would be contrary to the "clearly

expressed legislative intention" of Congress for us to apply

a plain language interpretation to section 1002(8). In

particular, Wolk argues that such an interpretation is: (1)

inconsistent with the use of the term "beneficiary" in the

other provisions of ERISA; and (2) conflicts with ERISA's

fundamental requirement that no plan asset may inure to

the benefit of an employer. We disagree.

With respect to her first argument, Wolk maintains that

the term "beneficiary" is used throughout ERISA to refer to

persons who are designated by participants to receive

benefits. See, e.g., 29 U.S.C. S 1001(b) (declaring it the

policy of ERISA to protect "the interests of participants in

employee benefit plans and their beneficiaries"); 29 U.S.C.

S 1002(1) (defining "employee welfare benefit plan" as a plan

that is established or maintained "for the purpose of

providing for its participants or their beneficiaries")

(emphasis added in all). According to Wolk:

[i]f UNUM's interpretation were correct, the language

would read that an ERISA plan must provide for "its

participants or its beneficiaries." The only logical

reconciliation of these provisions is that the language

of the statute (referring to those designated to receive

_________________________________________________________________

ERISA, we believe these cases are distinguishable. More specifically,

unlike the cases cited above, none of the decisions cited by Wolk

engaged in an in-depth analysis of the term "beneficiary," nor did they

address the same factual situation at issue here. See, e.g., Meredith v.

Time Ins. Co., 980 F.2d 352, 358 (5th Cir. 1993) (insurance plan

purchased by sole proprietor, covering only herself and her spouse, did

not constitute "employee welfare benefit plan"); Fugarino v. Hartford Life

and Accident Ins. Co., 969 F.2d 178, 185-86 (6th Cir. 1992) (health

insurance plan whose sole beneficiaries were company's owners cannot

qualify as an "employee benefit plan" under ERISA; nor can employers

qualify as "participants" of an ERISA plan); Kwatcher v. Massachusetts

Service Employees Pension Fund, 879 F.2d 957, 959-60 (1st Cir. 1989)

(ERISA's anti-inurement provision prohibits payments to employer from

qualified pension plan); Giardono v. Jones , 867 F.2d 409, 411-12 (7th

Cir. 1989) (sole proprietor cannot be "participant" of ERISA plan);

Peckham v. Board of Trustees of the Int'l Brotherhood of Painters, 653

F.2d 424, 426-27 (10th Cir. 1981) (ERISA's anti-inurement provision

prohibits employers from participating in employee pension benefit

plans).

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benefits "by the terms of an employee benefit plan") is

meant to encompass nothing more than a designation

supplied by the terms of the employee benefit plan in

lieu of a designation by the employee/participant. .. .

Therefore, the plain reading of the statute would

indicate that Congress understood "beneficiaries" to be

individuals designated by participants, or supplied by

operation of law in the absence of such designation.

Appellant's Reply Brief at 5.

We fail to see how Wolk's interpretation is the"only

logical reconciliation" of ERISA's use of the term

"beneficiary." At most, it is just another way that ERISA's

definition of a plan "beneficiary" might be satisfied -- since

persons designated by operation of law are, by definition,

"designated by the terms of the plan." The fact that

"beneficiary" is used in other provisions of ERISA to refer to

the beneficiaries of a participant does not necessarily mean

that the term was only intended to refer to such persons.

In defining the term, Congress was careful to include a

category for the designees of a participant as well as a

category for those designated by the terms of an ERISA

plan. See 29 U.S.C. S 1002(8). Were we to limit the second

category to those designated by operation of law, we would

be overstepping our bounds as a court of law. See Mohasco

Corp. v. Silver, 447 U.S. 807, 826 (1980) (stating that

courts must "respect the compromise embodied in the

words chosen by Congress. It is not our place simply to

alter the balance struck by Congress in procedural statutes

by favoring one side or the other in matters of statutory

construction."). If Congress did not intend the phrase "by

the terms of an employee benefit plan" to mean what it

says, it is for Congress alone to correct. See Connecticut

Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992) ("We

have stated time and again that courts must presume that

a legislature says in a statute what it means and means in

a statute what it says there.").

Moreover, there is second compelling reason for adopting

a plain language interpretation of section 1002(8). As

several courts of appeals have noted, "[t]o hold otherwise

would create the anomaly of requiring some insureds to

pursue benefit claims under state law while requiring

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others covered by the identical policy to proceed under

ERISA. Such a scenario would frustrate Congress's intent

of achieving uniformity in the law governing employment

benefits." Peterson, 48 F.3d at 409; see also Prudential, 76

F.3d at 210; Madonia v. Blue Cross & Blue Shield of

Virginia, 11 F.3d 444, 450 (4th Cir. 1993). We believe this

rationale provides a logical explanation for why Congress

chose to include persons designated "by the terms of an

employee benefit plan" in the definition of"beneficiary."

Accordingly, Wolk's argument is inadequate to overcome

the statute's plain language. See Mertens v. Hewitt Assoc.,

508 U.S. 248, 261-62 (1993) ("vague notions of a statute's

`basic purpose' are . . . inadequate to overcome the words

of its text. . . . This is especially true with legislation such

as ERISA, an enormously complex and detailed statute that

resolved innumerable disputes between powerful competing

interests . . . ." (citations omitted)).

We also do not believe that the 1990 Policy invokes the

concerns of ERISA's anti-inurement provision. See 29

U.S.C. S 1103(c)(1). ERISA's anti-inurement provision is

directed at plan assets -- i.e., "assets accumulating in trust

and pension funds." Engelhardt, 139 F.3d at 1351. In

Prudential, the court described the purpose of the anti-

inurement provision as follows:

the legislative history involving the [anti-inurement

provision] indicates congressional concern over the

wrongful diversion of trust assets and the

administrative integrity of benefit plans. Section

1103(c)(1) and 29 U.S.C. S 1104(a) deal withfiduciary

duties for plan administrators and employers. Congress

included these provisions in order to make the law of

trusts applicable to the plans and to eliminate such

abuses as self-dealing imprudent investing, and

misappropriation of plan funds.

Prudential, 76 F.3d at 209 (internal citations omitted).

However, the present case does not implicate these

concerns. The 1990 Policy was administered exclusively by

UNUM. The extent of Eckert Seamans involvement was the

processing of paperwork and the payment of premiums for

its employees. UNUM made all of the substantive decisions

regarding the eligibility or ineligibility of beneficiaries for

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disability benefits, and paid all of the recovery benefits out

of its own funds. In short, Eckert Seamans did not exercise

the type of control over the funds used to pay out disability

benefits under the 1990 Policy that gives rise to the

concerns of the anti-inurement provision. Accordingly, we

do not believe ERISA's anti-inurement provision is an

appropriate basis for deviating from the plain language of

the statute.

III.

Because there is nothing in ERISA to advise against

applying the plain language of section 1002(8) to Wolk's

claims, we hold that Wolk is a "beneficiary" with standing

to bring suit under ERISA. As a result, Wolk's state-law

claims against UNUM, which derive from the 1990 Policy,

are preempted by section 1144(a). Accordingly, the District

Court's order granting summary judgment in favor of

UNUM and allowing Wolk to amend her complaint to assert

a cause of action under ERISA will be affirmed.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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