Summary
The First Circuit affirmed a judgment awarding disability benefits to James Johnson under a group insurance program offered to employees of Watts Regulator Company. The court held that the program fell within the ERISA safe harbor because Watts did not endorse or control it, so New Hampshire contract law governed the benefits claim. The court also upheld the district court’s factual finding that Johnson was permanently and totally disabled.
Topics
Practice areas
Questions Presented
- Whether the group insurance program was excluded from ERISA as a safe-harbor program under 29 C.F.R. § 2510.3-1(j).
- What standard governs whether an employer endorsed a group insurance program under the safe-harbor regulation.
- Whether the district court clearly erred in finding that Watts had not endorsed the program and that the program qualified for the safe harbor.
- Whether the district court clearly erred in finding Johnson totally and permanently disabled under the insurance policy.
Holdings
- A group insurance program falls within the Secretary of Labor's safe harbor when the employer satisfies the regulation's criteria, including acting neutrally and performing only permitted ministerial functions; failure to satisfy a criterion does not automatically establish ERISA coverage but requires further evaluation under conventional ERISA-plan tests.
- An employer endorses a group insurance program when, considering all surrounding facts and circumstances, an objectively reasonable employee would conclude from the employer's actions that the employer did more than facilitate the program's availability by exercising control over it or making it appear to be part of the company's own benefit package.
- The district court did not clearly err in finding that Watts had not endorsed the group insurance program and that the program qualified for the safe harbor.
- The district court did not clearly err in finding that Johnson was totally and permanently disabled and therefore entitled to benefits under the policy.
Key quotations
“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.” (at 1139)
“In the difference between "our plan" and "a plan" lies the quintessential meaning of endorsement.” (at 1141)
Factual background
James Johnson, a forklift operator at Watts Regulator Company's Webster Valve division, participated in a voluntary group insurance program offered to employees by CIGNA and paid for through payroll deductions. After suffering a severe brain injury in a motorcycle accident, Johnson remained disabled for more than a year and applied for benefits. CIGNA denied the claim on the ground that Johnson retained residual capacity to work. The district court found Johnson continuously, totally, and permanently disabled under the policy and awarded benefits.
Procedural history
Johnson sued Watts and CIGNA in New Hampshire state court after CIGNA denied his disability-benefits claim. Defendants removed the action to the United States District Court for the District of New Hampshire. The district court determined that ERISA did not apply, denied remand based on diversity jurisdiction, conducted a bench trial under New Hampshire law, found Johnson totally and permanently disabled, and entered judgment for him. The First Circuit affirmed.