On September 16, 2010, the United States District Court for the Southern District of California (Judge Berry Ted Moskowitz presiding) granted partial summary judgment in favor of Defendants Unum Life Insurance Company, Provident Life and Accident Insurance Company, Starwood Hotels and Resorts Long Term Disability Plan, and Voluntary Workplace Disability Plan (collectively "Defendants"). This was an ERISA disability case, in which plaintiff asserted a claim for breach of the implied covenant of good faith and fair dealing, seeking extra-contractual and punitive damages and a jury trial.
Plaintiff Ruben Gonzales ("Plaintiff") worked as a sales team manager for Starwood Hotels and Resorts ("Starwood") until June 8, 2007 following an operation for stenting to address his coronary artery disease. Plaintiff submitted a claim for short term disability benefits under the Voluntary Workplace Disability Plan (the "VW Plan") and a claim for long term disability benefits under a separate plan sponsored by Starwood. Plaintiff's request for benefits under both the short term and long term disability plans was denied. Plaintiff appealed the denial under both plans unsuccessfully and never received a response to his second appeal.
Plaintiff sued Defendants seeking benefits and compensation for Defendants' alleged breach of the implied covenant of good faith and fair dealing arising out of the denial of benefits under the VW Plan. Defendants filed a motion for partial summary judgment claiming the state law cause of action for breach of the implied covenant of good faith and fair dealing was preempted because it duplicates, supplements or supplants the ERISA civil enforcement remedy and conflicted with the congressional intent to make the ERISA remedy exclusive. Instead of challenging the five basic elements used to establish an ERISA plan, Plaintiff opposed on grounds the VW Plan does not qualify as an employee welfare benefit plan because the VW Plan was not in writing and a form 5500 used by employee benefit plans to satisfy annual reporting requirements under Title I and Title IV of ERISA and under the Internal Revenue Code, was not filed. The Court explained that an ERISA plan requires nothing more than arranging for a group type insurance program and the Court found that is exactly what Starwood did. The Court held a written instrument is not a prerequisite to ERISA coverage and Plaintiff provided no case law to support the argument that a 5500 form must be filed to establish an ERISA plan.
A plan may still be excluded from ERISA, if a plan meets all four of the so-called "safe harbor" regulation requirements, even if the program otherwise qualifies for inclusion in the ERISA statutory scheme. An employer's failure to satisfy even one of the safe harbor requirements conclusively demonstrates that an otherwise qualified group insurance plan is an employee welfare benefit plan under ERISA. As part of the Court's ERISA preemption analysis, the Court explained the VW Plan met each of the "safe harbor" regulation requirements, except the third element requiring 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.
In this case, Starwood's sole function went beyond the safe harbor requirement because Starwood helped create the plan and monitor it through semi-annual audits. The Court held the VW Plan was not exempt from ERISA by the safe harbor regulation because Plaintiff's state law claim for breach of the implied covenant of good faith and fair dealing arose out of Plaintiff's claim for benefits under the VW Plan. The Court granted Defendants' partial motion for summary judgment, preempting Plaintiff's state law claims.
Defendants moved to strike Plaintiff's demand for extra-contractual and punitive damages and Plaintiff's jury trial request. The Court agreed with Defendants because ERISA precludes those types of damages and a jury trial.
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This opinion may be cited as precedent now. The result in this case could change, however, if a subsequent petition for rehearing or review by the Ninth Circuit Court of Appeals is granted.
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