Rosen v. UNUM Provident Corporation

Filing 38

MEMORANDUM OPINION Signed by Judge William M Acker, Jr on 1/21/15. (SAC )

FILED
2015 Jan-21 PM 04:22
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
LAWRENCE ROSEN, M.D.,

}
}
}
}
}
}
}
}
}
}

Plaintiff,
v.
PROVIDENT LIFE AND ACCIDENT
INSURANCE COMPANY,
Defendant.

CIVIL ACTION NO.
2:14-cv-0922-WMA

MEMORANDUM OPINION
The second amended complaint filed by Dr. Lawrence Rosen
(“Rosen”

or

Insurance

“plaintiff”)

Company

against

(“Provident”

or

Provident

Life

“defendant”),

and

Accident

contains

five

counts or theories of liability.

Count One, relying only upon

Alabama

Provident

law,

alleges

breach

by

of

a

contract

of

disability insurance that, accordingly to Rosen, entitles him to
substantial benefits until he reaches the age of 65.
invokes 18

U.S.C.

§

1962(a),

claiming

that

Rosen

Count Two
suffered

a

“racketeering injury” arising out of Provident’s alleged violation
of the above-cited provision of the Racketeer Influenced and
Corrupt Organizations Act (“RICO”). Count Three claims a different
RICO violation, this time invoking 18 U.S.C. 1962(b).

It alleges

a “racketeering injury” that flowed from the use of Provident’s
investment of racketeering income.

Count Four is a claim under

Alabama law for fraud in the forms of misrepresentations by agents
of Provident during the negotiations for Rosen’s purchase of the

coverage, misstating it, and non-disclosure of facts that Provident
was obligated to disclose.

Count Five is an Alabama law claim for

bad faith refusal to pay the benefits to which Rosen claims he is
entitled.
Contemporaneously with filing an answer, Provident filed two
purportedly partially dispositive motions.

The first, filed with

the answer on September 26, 2014, pursuant to Federal Rule of Civil
Procedure 56, seeks a partial summary judgment dismissing all of
Rosen’s claims brought under Alabama law.
RICO

claims

are

preempted

Security Act (“ERISA”).

by

the

It avers that the non-

Employee

Retirement

Income

Filed on October 27, 2014, the second

motion invokes Federal Rule of Civil Procedure 12(c) and seeks
“judgment on the pleadings”, but it tracks the language of Rule
12(b)(6) by asserting that Counts Two, Three, Four, and Five each
fails to state a claim upon which relief can be granted.

The only

explanation for Provident’s not invoking Rule 12(b)(6) and instead
invoking Rule 12(c) is that a motion under Rule 12(b)(6) must be
filed before an answer is filed.

Rosen makes no point about the

possible inappropriateness of a Rule 12(c) motion as a belated
substitute for a Rule 12(b)(6) motion, so the court will treat the
Rule 12(c) motion just as it would a Rule 12(b)(6) motion.
It appears, then, that Provident initially defends with two
affirmative propositions, one aimed at all state law claims (except
the state claim for breach of an insurance contract, which cannot

2

be dismissed with prejudice if preempted by ERISA, because it could
be restated as an ERISA claim).

The second asserted absolute

defense is that all counts, including the two RICO counts, fail to
state claims upon which relief can be granted.
If the court should grant Provident’s motion for partial
summary judgment under Rule 56 based on ERISA preemption, its
motion under Rule 12(c), as to the non-RICO claims, would be moot.
Therefore, the court must first address Provident’s Rule 56 motion
for ERISA preemption.
Pertinent Facts on the ERISA Preemption Question
As it must, the court gives non-movant, Rosen, the benefit of
the doubt as to all of the pertinent facts reflected in the
evidence before the court, no matter by which party submitted.

It

also gives Rosen the benefit of all logical inferences from that
evidence.

If there is a dispute as to a material fact, Rosen’s

version of that fact will be assumed to be correct for Rule 56
purposes.
Provident has accompanied its Rule 56 motion with substantial
evidentiary material. In its submission, it outlines the following
evidence that it says is undisputed and that entitles it to a
determination, as a matter of law, that Rosen’s claims (except his
RICO claims) are preempted by, and thus governed by, ERISA:
1.

On or about April 10, 1990, Dr. Rosen’s employer,
Northeast Alabama Urology Center, P.C. (“NEAUC”),
entered into a Salary Allotment Agreement with Provident
Life agreeing with respect to policies issued by
Provident Life “[t]o pay in full the required premiums

3

for such policies and to remit such premiums to the
insurance company when due.” (Declaration of Roxanne
Kaminski, Exhibit 1, ¶¶ 5-6, and Ex. A thereto).
2.

In consideration of NEAUC’s agreement, Provident Life
agreed “[t]o accept premiums for such policies in
accordance with published rates for policies where
premiums are so deducted and so remitted.” (Id., ¶¶ 5-6,
and Ex. A thereto).

3.

In return for NEAUC’s entering into the Salary Allotment
Agreement, NEAUC’s employees could apply for and obtain
individual disability insurance policies with a 12%
premium discount based on NEAUC’s commitment to pay the
premiums for all employed participants (Id., ¶ 5).

4.

To obtain the 12% premium discount, three or more
employees at NEAUC had to participate in the salary
allotment program. (Id., ¶ 7).

5.

Five applications were submitted from NEAUC employees.
(Id.)

6.

In conjunction with the execution of the Salary
Allotment Agreement, and the receipt of the applications
from five employees of NEAUC, Provident Life assigned
“Risk Number” 77866 to NEAUC.

7.

In May, 1990, Provident Life issued and delivered five
policies to employees at NEAUC including Dr. Rosen.
(Id., ¶ 7, and Exs. B and C thereto).

8.

The policies were issued with a 12% premium for all
participating employees, and this discount was only
available to individuals who were employees of the
employer entering into the Salary Allotment Agreement.
(Id., ¶ 8).

9.

A number of other employees of NEAUC applied for and
received individual disability policies from Provident
Life after 1990 and received a 12% premium discount
because NEAUC entered into the Salary Allotment
Agreement and agreed to its terms. (Id. ¶ 9).

10.

Each of the policies issued under the Salary Allotment
Agreement, including Dr. Rosen’s, contained a salary
allotment rider referencing the Salary Allotment
Agreement with NEAUC as the employer. (Id., ¶ 10, and
Ex. D thereto).

11.

Provident Life also applies financial underwriting to
the applications for disability coverage in which it
follows guidelines to make sure that the applicant does
not obtain more coverage than is allowed based on
current income.
If the premiums are paid by the
employer with no portion of the premium included in the
insured’s taxable income, the employee can obtain a
greater amount of coverage than he or she would be able

4

to obtain if he or she paid the premiums or if the
premiums were included in his or her taxable income.
(Id., ¶ 12).
12.

Dr. Rosen applied for a Provident Life disability
insurance policy. (Id., ¶ 13, and Ex. F thereto).

13.

On his application, Dr. Rosen responded “yes” to
question 11(a), which asked: “Will your employer pay for
all disability coverage to be carried by you with no
portion of the premium to be included in your taxable
income?” (Id.)

14.

Based upon representations by Dr. Rosen in his
application that the premiums would be paid by his
employer with no portion allocated to his taxable
income, Provident Life issued the policy to him for an
amount above which he would have been permitted to
obtain if premiums were paid by him or were charged to
him as taxable income. (Id., ¶ 14).

15.

Dr. Rosen’s policy has remained the same and has not
been altered or converted since it was issued by
Provident Life, and Dr. Rosen has continued to receive
the benefit of the 12% premium discount he obtained
based on his employer’s agreement to enter into the
Salary Allotment Agreement. (Id., ¶ 16).

16.

Premium statements for the policy issued to Dr. Rosen
and the policies in effect have been billed under the
risk group and sent directly to NEAUC up until the time
of Dr. Rosen’s claim.
NEAUC paid those premiums
directly to Provident Life. (Id., ¶¶ 17-18, and Ex. G
thereto).

These “facts” are lifted verbatim from Provident’s submission. Many
of them are offered as attachments to the declaration of Roxanne
Kaminski, an employee of Provident, which is the subject of a
motion to strike by Rosen.
Rosen

counters,

not

only

with

his

motion

to

strike

the

Kaminski declaration, which, if granted, might create disputes of
material fact not otherwise detectable, but with the following
rendition of the “facts” that he

contends are undisputed and that

demonstrate that his state law claims are not preempted by ERISA:
1.

Dr. Rosen has been the sole owner of NEAUC since it was

5

formed in 1985.

(See Exhibit 1)

2.

At all times since its formation, Dr. Rosen has been the
only doctor employed by NEAUC (See Exhibit 1)

3.

Since its inception in 1985, NEAUC has never had a group
disability insurance plan or policy for its employees.
(See Exhibits 1 & 2)

4.

NEAUC has never offered any welfare benefit plan of any
kind to its employees.
In fact, the only employee
benefit that NEAUC has ever had is a deferred
compensation plan. (See Exhibits 1 & 5)

5.

In the late 1980's early 1990's, Dr. Rosen’s financial
advisor, Mike Monroe, brought a Provident agent to Dr.
Rosen’s office to present the benefits of a Provident
individual disability income policy. (See Exhibits 1 &
2)

6.

At that time, Dr. Rosen already had disability insurance
policies with UNUM, but the Provident agent who came
with Mike Monroe explained that Dr. Rosen could get the
same or better coverage for less money, so Dr. Rosen
filled out an application for a Provident individual
disability insurance (‘IDI’) policy and a business
overhead expense (‘BOE’) policy. (See Exhibits 1 & 2)

7.

Dr. Rosen was told by the agent that the Provident
policies would provide the same monthly benefits as his
then existing UNUM policies and that he would get those
benefits if he was unable to perform the material and
substantial duties of his specialty as urologic surgeon.
(See Exhibits 1 & 2)

8.

Dr. Rosen had an existing individual disability policy
in force with UNUM that provided $19,300 in monthly
benefits if he became totally disabled, and a BOE policy
which provided $12,000 in monthly benefits in the event
he became totally disabled.
(See Exhibit 3, pg. 20
Question 4, (Bates PLA-POL-IDI(7028896)-000020)

9.

Dr.
Rosen
did
not
financially
qualify
for
a
$19,300/monthly benefit with Provident, but Provident
issued him a policy for that benefit amount on an
“exception” basis. (See Exhibit 6, pg.2)

10.

Provident offered Dr. Rosen an Individual Disability
Policy and a Business Overhead Policy with the same
benefits he had under his UNUM policies, so Dr. Rosen
accepted Provident’s offer and cancelled his UNUM
policies (See Exhibits 1,2,3)

11.

At some point Dr. Rosen was told that he needed to pay
the premiums through his company NEAUC which he did.
(See Exhibits 1 & 2)

12.

The Provident agent never discussed anything about a
welfare benefit plan or ERISA throughout the sales and

6

issuance process.

(See Exhibits 1 & 2)

13.

Dr. Rosen’s accountant explained to him the tax
implications of how the policy premiums were paid years
later. (See Exhibits 1 & 2)

14.

Dr. Rosen’s company, NEAUC, never created a welfare
benefit plan for its employees nor did it endorse or
promote a specific insurance company to its employees.
(See Exhibits 1 & 2)

15.

Several employees of NEAUC decided to apply for and
purchase individual disability income policies from
Provident around the same time Dr. Rosen replaced his
UNUM policies (1990). (See Exhibits 1 & 2)

16.

The employees of NEAUC who purchased insurance with
Provident in the early 1990's did so under a policy form
different from Dr. Rosen’s. (Exhibit 2, Doc. 15-1, page
25)

17.

While NEAUC did not have copies of the employee’s
policies and NEAUC was not involved in issuing the
policies, NEAUC paid the Provident bill each quarter and
then deducted the entire premium payments from each
employee’s after tax income. NEAUC did not contribute
anything to the funding of any of the Provident
policies. (See Exhibits 1 & 5)

18.

From 1990-1994 there were five (5) policies in addition
to Dr. Rosen’s, but the number of policies decreased
every year. Since 1995, the only policies that have
been paid on the Provident bill have been Dr. Rosen’s.
(See Exhibits 1 & 5)

19.

NEAUC was not involved with promoting or marketing the
individual disability policies Provident sold employees
of NEAUC. (See Exhibits 1 & 2)

20.

Each employee made an individual decision on what
insurance policies they wanted to apply for and purchase
and how long they wanted to keep the policy.
Each
employee also decided what they wanted to do with the
policy once they left employment with NEAUC.
The
employees, like Dr. Rosen, also paid the entire premiums
for their policies as deductions from their salaries.
(See Exhibits 1,2 & 5)

21.

Dr. Rosen’s disability premiums were paid by him after
being deducted from his salary and, he states in his
application for the policy, no portion of the premium
was included as taxable income to him. (See Exhibits 1
& 5, Doc 15-1 page 23)

22.

NEAUC has never filed a form 5500 for a disability plan
or a welfare benefit plan. (See Exhibits 1 & 5)

23.

As owner of NEAUC, Dr. Rosen never intended to create a
disability benefit plan and he has never considered

7

NEAUC to have a disability plan.

(See Exhibit 1)

24.

Prior to his disability, Dr Rosen was never told by
Provident that it considered his individual disability
policies to be part of an ERISA plan. (See Exhibit 1)

25.

If Dr. Rosen had been told that the Provident policies
would lead to the establishment of an ERISA plan, he
would not have agreed to purchase the policies. (See
Exhibit 1)

26.

Provident has never mentioned ERISA to Dr. Rosen
throughout the three years it has been managing his
claim. (See Exhibit 1)

27.

Provident has never issued Dr. Rosen a Form 1099 for the
disability benefits it has paid him over the years nor
did it issue him a 1099 for the refunded premium it sent
him. (Exhibits 1 & 2)

28.

Dr. Rosen’s policies themselves do not mention ERISA and
Provident never sent him forms or communications
referencing ERISA until he filed this lawsuit to recover
total disability benefits due under his policies. (See
Exhibit 1)

29.

Dr. Rosen’s policy did not include the 1813 ERISA form
that Provident sent multilife policyholders for policies
that were issued through an ERISA welfare benefit plan.
(See Exhibits 3 & 4 - page 1)

30.

Dr. Rosen’s Individual Disability Policy contains
contract
language
that
specifically
references
compliance with State laws. This type of language is
inconsistent with ERISA preemption and not found in
group policies for which ERISA applies. (See Exhibits
3 at pg 15 (PLA-POL-ID(7028896)-000018) & 4 at pg 12
(PLA-POL-BOE(7028897)-000021))

31.

Other than paying the quarterly premiums and then
deducting those from Dr. Rosen’s after tax income NEAUC
has had no participation in his Provident disability
policies. (See Exhibits 1 & 2)

32.

NEAUC does not have copies of Dr. Rosen’s disability
policies. (See Exhibit 1)

33.

Additionally, NEAUC does not interact with Dr. Rosen’s
financial advisor, Mike Monroe, or Provident regarding
benefits payable through Dr. Rosen’s individual
disability policies. NEAUC does not have any welfare
benefit plan documents or summary plan descriptions
relating to Dr. Rosen’s disability policies.
(See
Exhibits 1 & 5)

34.

Provident’s underwriting guidelines issued December 9,
1988 show that Dr. Rosen’s policy was not part of group
policy because when Provident does group policies it
requires a “traditional plan with a minimum of 10

8

employees.”

(Doc. 15-1 pg. 17)

35.

Provident gave Dr. Rosen a 2% discount for also buying
a BOE policy from them and then an additional 10% Large
Case discount. (Doc. 15-1 pg. 18)

36.

Dr. Rosen’s policy was issued “in consideration of the
payment in advance of the required premium.” (Doc 14-1
pg 15)

37.

Dr. Rosen’s policy does not mention any discounts Dr.
Rosen received for purchasing his personal disability
policies. Provident used discount pricing in “buying
premium” as a “formidable challenge to the competition.”
(Doc. 15-1 pg. 17)

38.

The salary allotment agreement referenced by Provident
is terminable and its termination does not affect the
continuation of coverage nor the premiums due. (Exhibit
3, pg. 16)

Because

the

court

can

glean

from

the

totality

of

this

evidence, without striking any of it submitted under Kaminski’s
imprimatur, that Provident’s Rule 56 motion should be denied, the
court will deny Rosen’s motion to strike the Kaminski declaration.
Although Rosen’s motion to strike has merit in certain respects, an
opinion by this court trying to distinguish between the evidence
that depends upon the admissibility of Kaminski’s declaration, and
that which does not, would take more of this court’s judicial
effort than the court is willing to expend.

Furthermore, Rosen

himself relies upon some of the evidence identified by Kaminski,
and Rosen cannot have it both ways.
The court well understands why Provident wants to place the
ERISA fence around Rosen’s state law claims.

It would be well

worth the effort if Provident could meet its burden of proving that
ERISA affords Rosen his only remedy, that is, outside of RICO.

9

Provident does not deny that it never mentioned ERISA to Rosen
until Rosen had gone to court without first attempting to exhaust
the administrative remedies mandated by ERISA.

If super-duper-

preemption forces Rosen to pursue the limited ERISA remedy, the
first defense Provident would likely interpose is his failure to
exhaust.

He has already pretty much exhausted himself, if his

complaint can be believed.
With nothing in the record called a “plan”, or a “sponsor”, or
a “plan administrator”, or a “claims administrator”, Provident is
necessarily arguing that Rosen was required on his own to figure
out that he was covered for disability, if at all, by an employee
ERISA benefit plan, and that he should have proceeded to seek any
benefits to which he is entitled under the ERISA scheme.
a tall order.

This is

If he had started such a process by asking for a

copy of the summary plan description, there was none to give him.
This court long ago authored a string of cases in which it
held that no ERISA plan existed under circumstances not dissimilar
from these, or that the “plan” was entitled to the “safe harbor”
exemption.

See Jordan v. Reliable Life Ins. Co., 694 F.Supp. 822

(N.D.Ala.1988); Wright v. Sterling Investors Life Ins. Co., 747
F.Supp. 653 (N.D.Ala.1990); Bryant v. Blue Cross and Blue Shield,
751 F.Supp. 968 (N.D.Ala.1990); Mitchell v. Investors Guar. Life
Ins. Co., 868 F.Supp. 1344 (N.D.Ala.1994); Hensley v. Philadelphia
Life Ins. Co., 878 F.Supp. 1465 (N.D.Ala.1995); and Gray v. New

10

York Life Ins. Co., 879 F.Supp. 99 (N.D.Ala.1995).

In many of

these cases the employer who was alleged to have created an ERISA
plan was, like NEAUC in this case, a mere conduit for collecting
and paying the premiums to the insurer. In Jordan v. Reliable, this
court, in finding that the insurance policy there in question was
not governed by ERISA, held:
. . . Reliable has not produced the written instrument
required by 29 U.S.C. § 1102 for the creation of an
“employee benefit plan.” It is impossible to tell from
the record in this case whether or not the subject
insurance policy is even a part of an “employee welfare
benefit plan,” particularly when the “Accident Insurance
Plan for Salaried Employees” attached to the complaint
does not contain the requisites set out in 29 U.S.C. §
1102. For instance, the document does not “provide for
one or more named fiduciaries who jointly or severally
shall have authority to control and manage the operation
and administration of the plan.”
For instance, the
document does not “provide a procedure for establishing
and carrying out a funding policy and method consistent
with the objectives of the plan.”
For instance, the
document does not “describe any procedure under the plan
for the allocation of responsibilities for the operation
and administration of the plan.”
For instance, the
document does not “provide a procedure for amending such
plan and for identifying the persons who have authority
to amend the plan.” For instance, the document does not
“specify the basis on which payments are to be made to
and from the plan.” The document only constitutes the
usual and customary form of a group policy of accident
insurance.
694 F.Supp. at 833-34.
In ERISA, Congress defined an “employee welfare benefit plan”
to include:
. . . any plan, fund, or program which
hereafter established or maintained by
employee organization, or by both, to
plan, fund, or program was established
11

was heretofore or is
an employer or by an
the extent that such
or is maintained for

the purpose of providing for its participants or their
beneficiaries, through the purchase of insurance or otherwise
. . . benefits in the event of sickness, accident, disability,
death or unemployment . . . .
29 U.S.C. § 1002(1).
While

this

language

outlines

five1

essential

elements

for

establishing an “employee welfare benefit plan,” the substance of
these elements is hard to grasp or to articulate. In particular,
“ERISA's definitions of ‘employee,’ and, in turn, ‘participant,’
are uninformative[,] . . . ‘completely circular and explain[]
nothing.’” Raymond B. Yates, M.D., P.C. Profit Sharing Plan v.
Hendon, 541 U.S. 1, 12 (2004) (quoting Nationwide Mut. Ins. Co. v.
Darden, 503 U.S. 318, 323 (1992)).
In

an

attempt

to

clarify

these

ambiguities,

Congress

specifically conferred discretion upon the Secretary of Labor to
“prescribe such regulations as he finds necessary or appropriate to
carry out the provisions of [Title I of ERISA].” 29 U.S.C. § 1135.
Clear and reasonable regulations issued pursuant to this authority
are entitled to deference by the courts. Massachusetts v. Morash,

1

Courts have generally distilled this language into five
requirements:
(1) a “plan, fund, or program” (2) established or maintained
(3) by an employer or by an employee organization, or by
both, (4) for the purpose of providing medical, surgical,
hospital care, sickness, accident, disability, death,
unemployment or vacation benefits, apprenticeship or other
training programs, day care centers, scholarship funds,
prepaid legal services or severance benefits (5) to
participants or their beneficiaries.
Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982).
12

490 U.S. 107, 116 (1989) (citing Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 843 (1984)).
Was This Arrangement an Employee Welfare Benefit Plan?
Generally speaking, to demonstrate the existence of an ERISA
plan requires that the five requirements outlined in Donovan v.
Dillingham, 688 F.2d 1367 (11th Cir. 1982), be satisfied. However,
the undersigned, along with the Eleventh Circuit, has emphasized
that “not all welfare benefit plans that meet these five criteria
are governed by ERISA . . . plans, funds or programs under which .
. . no employees or former employees participate are not employee
welfare benefit plans under Title I of ERISA.” McLain v. Unum Life
Ins. Co. Of America, 2013 WL 3242842 * 3 (June 21, 2013) (quoting
Slamen v. Paul Revere Life Ins. Co. 166 F.3d 1102, 1104 (11th Cir.
1999))(emphasis added). The Department of Labor has defined an
“employee benefit plan” to exclude “any plan, fund or program . .
. under which no employees are participants covered under the
plan.” 29 C.F.R. § 2510.3-3. Quite plainly, “if a benefit plan
covers only working owners, it is not covered by Title I.” Raymond
B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 22,
n.6 (2004). (emphasis added). “Plans covering working owners and
their nonowner employees, on the other hand, fall entirely within
ERISA’s compass.” Raymond B. Yates, at 21 (2004). (emphasis added).
“[T]o

establish

that

the

plan

in

this

case

[Slamen]

is

governed by ERISA, [the insurance company] would have to show that
13

an employee other than [the sole owner physician] received benefits
under the disability insurance policy.” Slamen v. Paul Revere Life
Ins. Co. 166 F.3d 1102, 1106, n.4 (11th Cir. 1999). Courts ought
not “ignore[] the fact that [] plans, however similar, are two
separate plans [where] [t]he plan covering the partners does not
pay any benefit to [employees], and the plan covering [employees]
does not pay any benefit to partners.” Slamen at 1105 (quoting
Robertson v. Alexander Grant & Co., 798 F.2d 868, 871-72 (5th Cir.
1986)).
In Slamen, the “two policies were purchased at different
times, from different insurers, and for different purposes.” Slamen
at 1105 (cited approvingly in Raymond B. Yates, 541 U.S. 1, 22, n.6
(2004) (emphasis added). Here, the disability insurance policies
covering Rosen were purchased at the same time, from the same
insurer, and for the same purposes. Yet, relying on the Department
of

Labor’s

regulation,

the

Eleventh

Circuit

in

Slamen

found

dispositive the fact that “Slamen’s disability insurance policy
covered

only

himself.”

Slamen

at

1105.

This

distinction

is

consistent with the purpose of excluding from the reach of ERISA
benefit policies that provide benefits only to employers because
“[w]hen the employee and employer are one and the same, there is
little need to regulate plan administration.” Slamen at 1105-06.
Other circuits which have faced this problem have followed the
Eleventh Circuit’s Donovan v. Dillingham and have similarly applied
14

the Slamen distinction. In House v. American United Life Ins. Co.,
the Fifth Circuit determined that a multi-class group insurance
policy constituted a single “employee welfare benefit program”
because owners and employees “benefitted from the unitary rate
structure
disability

the

firm

was

coverage

as

able
a

to

negotiate

package,

bargaining

effectively

for

receiving

the
a

constructive contribution from the firm.” 499 F.3d 443 at 452 (5th
Cir. 2007). This holding accords with the example provided by the
Department of Labor in 29 C.F.R. § 2510.3-3(b), which states:
For example, a so-called “Keogh” or “H.R. 10" plan under
which only partners or only a sole proprietor are
participants covered under the plan will not be covered
under Title I. However, a Keogh plan under which one or
more common law employees, in addition to the selfemployed individuals, are participants covered under the
plan, will be covered under Title I.
Given the structure of a Keogh plan, inclusion of a common law
employee under the plan would result in benefits to other partners
or the sole proprietor. Robertson v. Alexander Grant & Co., 798
F.2d 868, 871 (5th Cir. 1986). Even where plans “are nearly
identical,” the plans constitute separate plans if “[t]he plan
covering the partners does not pay any benefits to [employees], and
the

plan

partners.”

covering

[employees]

Robertson

at

does

871-72.

not

pay

Likewise,

any
in

benefits

to

LaVenture

v.

Prudential Ins. Co. Of America, the Ninth Circuit agreed with the
distinction outlined in Slamen and concluded that “LaVenture’s
disability insurance is not an ERISA plan because all of the

15

benefits flow to the owner.” 237 F.3d 1042, 1047 (9th Cir. 2001).
See Zeiger v. Zeiger, 131 F.3d 150 (9th Cir. 1997) (“A non-ERISA
plan is not converted into an ERISA plan merely because the
employer
ERISA.”).

also

sponsors

Being

rooted

a

separate

in

the

text

benefits
of

the

plan

subject

regulation,2

to

this

distinction is entitled to deference. Massachusetts v. Morash, 490
U.S. 107, 116 (1989).
Provident itself has been the subject of many court decisions
involving ERISA. One of them clearly applies to the instant case.
It is Schwartz v. Provident Life, 28 F.Supp.2d 837 (D. Ariz. 2003)
in which Provident failed to convince the court that an employer
who did not endorse the insurance policies in question, and who was
only a conduit for the payment of premiums, had not created an
ERISA plan.
In the instant case the parties agree that Rosen was insured
under

individually

policies

and

that

underwritten

form

other

employees

NEAUC

2

337

and
were

1737

disability

insured

under

Accordance of the Slamen distinction with the text of the
regulation is further supported by the Department of Labor’s own
interpretation of the regulation. See DOL Advisory Opinion 76–67,
1976 WL 5082 (May 21, 1976) at *1 (“plans need not comply with
any of the reporting requirements of the Employee Retirement
Income Security Act of 1974 (ERISA) . . . where the stock of the
corporation is wholly owned by one shareholder and his or her
spouse and the shareholder or the shareholder and his or her
spouse are the only participants in the plan.”). This
interpretation is also entitled to substantial deference. See
Kasten v. Saint-Gobain Performance Plastics Corp., 131 S.Ct.
1325, 1335-36 (2011) and Barnhart v. Walton, 535 U.S. 212, 221-22
(2002).
16

individually underwritten form 297N disability policies. (Doc. 14-1
¶¶ 7-13; Doc. 15-1 at 25-29; Doc. 33 at 13; Doc 37 at 6-7). Nowhere
does Provident show that any employee of NEAUC, other than Rosen,
was insured under a form 337 or a form 1737 policy. Provident also
fails to show that any employee other than Rosen could receive
benefits under the form 337 and 1737 policies or that Rosen
received any benefits from the other employees’ form 297N policies.
Rather,

based

on

the

affidavit

of

Kaminski,

Provident’s

own

employee, and the publication explaining the form 337 policy, only
Rosen was eligible to receive any benefits under his disability
policies. (Doc. 14-1) Further, Provident remarkably provides no
explanation for the form 297N policies it alleges to be part of an
NEAUC employee welfare benefit plan.
Although Provident asserts that the various policies were
issued under the same risk number, #0077866, Provident provides no
reason to give significance to this common risk number while
conceding that the policies were individually underwritten. (Doc.
37 at 6, 10). In fact, Provident attaches to its evidentiary
submissions

Rosen’s

application

for

coverage

in

which

he

specifically indicated that he was applying for “(1) Individual”
and

“(5)

Overhead

Expense”

disability

coverage

but

not

“(2)

Association, (3) Group, or (4) Employer Sick Pay” disability
coverage. (Doc. 15-1 at 23). Provident also points to the fact that
the policies shared a common salary allotment agreement. However,

17

Provident provides no reason to give significance to such an
agreement beyond the reference to an alleged “12% premium discount”
(Doc. 13 at 2), and omits any reference to the salary allotment
riders for the employees insured under the form 297N policies.
Provident provides no basis for the “12% premium discount” beyond
the affidavit of its own employee (who fails to point to any terms
in the policy or other documentation supporting a basis for the
discount). (Doc. 14-1). Instead, Provident provides a discount
sheet contradicting its own employee’s assertion by indicating a 2%
discount where “[a]n insured has a 337 an[d] a BOE policy . . .”
and a 10% “Large Case Discount” that is “[a]pplicable to Form 337
only” and where “[o]nly Form 337 premiums are counted towards
qualification [for the discount].” (Doc. 15-1 at 17-18). On the
basis of these facts provided by Provident itself, ERISA preemption
is entirely inappropriate.

Because Provident drafted all of the

documents, any ambiguity must be resolved against it.
Beyond Provident’s own pleadings and attachments, Rosen, if
not himself entitled to partial summary judgment on the preemption
issue, demonstrates genuine issues as to the material fact of
whether the form 337, 1737 and 297N policies constitute a single
“employee

welfare

benefit

plan.”

Neither

of

Rosen’s

policies

included the “1813 ERISA information sheet sent with multilife
issued policies.” (Doc. 32-3 at 1; Doc. 32-4 at 1). Further, Rosen
provides an affidavit from his insurance broker for the various

18

policies purchased in 1990. The broker maintains that he “had an
individual relationship with each [NEAUC] employee and did not
share that client information with Dr. Rosen or the Clinic.” (Doc.
32-2 at 3). The broker says that “the Provident disability policies
were not

group

policies,

the

policies

had

an

own

occupation

definition of disability, that they were individually underwritten
and were portable.” (Doc. 32-2 at 2). Specifically, the broker
recalls selling the disability policies to NEAUC employees where
Provident applied a 30% special class assessment to one NEAUC
employee, and Provident denied coverage to another NEAUC employee
due to height/weight issues. (Doc. 32-2 at 3). These facts are
incompatible with Provident’s characterization of the policies as
part of an “employee welfare benefit program” and instead strongly
suggest that the policies were separate and individual disability
policies outside

the

embrace

of

ERISA.

The

decisions

to

buy

policies were voluntary, and the policies were not touted by the
employer.
Because there are at least genuine issues of material fact as
to whether the coverages under the form 337, 1737 and 297N policies
constitutes an “employee welfare benefit program”, Provident’s Rule
56 motion must be denied.

The court does not see how Provident can

prove any set of facts that would turn Rosen’s policies into part
of an ERISA benefits package.

19

ERISA Safe-Harbor
Even if the policies under forms 337, 1737, and 297N could be
grouped into a single “employee welfare benefit plan”, which they
cannot, such a plan would fall within the Department of Labor’s
“safe

harbor”

provision.

29

C.F.R.

§

25210.3-1(j).

The

said

regulation provides:
For purposes of title I of the Act and this chapter, the
terms “employee welfare benefit plan” and “welfare plan”
shall not include a group or group-type insurance program
offered by an insurer to employees or members of an
employee organization, under which (1) No contributions
are made by an employer or employee organization; (2)
Participation 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 checkoffs.
To fall within this safe harbor, a plan must satisfy each of the
requirements set forth in § 25210.3-1(j). Randol v. Mid-W. Nat.
Life Ins. Co. of Tennessee, 987 F.2d 1547, 1550 (11th Cir. 1993).
In order to fulfill the first safe harbor requirement, Rosen
points out that although NEAUC remitted the premiums, it deducted
them from the salaries of the insured employees. (Doc. 32-1 at 2-3;
33 at 19). Provident relies on Rosen’s application, in which he
checked

“yes”

to

the

question

20

“[w]ill

employer

pay

for

all

disability coverage to be carried by you with no portion of the
premium to be included in your taxable income?” (Doc. 15-1 at 23;
Doc. 32-2 at 20). “In analyzing this element, courts must consider
the behavior of the parties at the time of the payment, not later,
self-serving allegations.” Cowart v. Metro. Life Ins. Co., 444 F.
Supp. 2d 1282, 1290 (M.D. Ga. 2006). Rosen contends, without
contradiction, that the premiums were deducted from his salary.
While Provident argues that Rosen’s signed application reflects a
different contractual arrangement, Provident does not challenge or
present evidence to prove behavior inconsistent with NEAUC’s being
a mere conduit. (Doc. 32-1 at 2-3). Construing the facts and the
language in the light most favorable to Rosen, summary judgment is
inappropriate

on

the

basis

of

the

very

first

safe

harbor

requirement. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Further, under the first, third, and fourth safe harbor
requirements, Provident’s application of a “12% premium discount”
does not place the plan outside the safe harbor definition. First,
the parties disagree over whether the “12% premium discount” Rosen
received was due to the salary allotment agreement or was simply in
accordance with other discounts available under form 337 and 1737
policies. (Doc. 15-1 at 17-19). Yet, even if the “12% premium
discount”

arose

from

the

salary

allotment

agreement,

such

a

discount is not an “employer contribution.” Some courts have
determined that a premium discount constitutes a contribution

21

because

it

is

a

benefit

an

employee

cannot

receive

as

an

individual. However, this construction is contrary to the text of
the regulation and would swallow the third and fourth safe harbor
requirements. Contra, Stone v. Disability Management Servs., Inc.,
288 F.Supp.2d 684, 692 (M.D.Pa.2003); Brown v. Paul Revere Life
Ins. Co., No. CIV.A. 01-1931, 2002 WL 1019021, at *7 (E.D. Pa. May
20, 2002). The third safe harbor requirement expressly allows an
employer to remit payment to an insurer through payroll deductions,
and

the

fourth

safe

harbor

requirement

allows

reasonable

compensation to the employer for its discharge of the burden of
providing payment via payroll deductions. 29 C.F.R. § 25210.3-1(j).
Categorizing a “12% premium discount” for payroll deductions to be
an “employer contribution” would severely limit the scope of the
third requirement and effectively eliminate the fourth requirement.
The Department of Labor’s specific safe harboring of plans that
provide payroll deductions and reasonable compensation for the
administrative burden of such deductions is entitled to deference
by this court. Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 843 (1984). Further, the weight of
authority advises in favor of this construction. See Letner v. Unum
Life Ins. Co. of Am., 203 F. Supp. 2d 1291, 1300-01 (N.D. Fla.
2001).
Even if the various disability policies at issue here could be
proven to constitute an “employee welfare benefit plan,” summary
22

judgment is inappropriate because when construed in the light most
favorable to Rosen, the alleged “plan” falls within the safe harbor
provision established by the Department of Labor.
Does Each of the Five Counts State a Claim Upon Which
the Requested Relief Can be Granted?
“Factual allegations must be enough to raise a right to relief
above the speculative level on the assumption that all of the
complaint’s allegations are true.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007).
Bad Faith and Fraud Claims
As its alleged absolute defense to the Alabama law claims of
bad faith and fraud, if not preempted by ERISA, Provident relies
upon the bar of a two-year statute of limitations.

Under Alabama

law, “bad faith refusal to pay a claim is merely a species of fraud
and, as

such,

the

statute

of

limitation

applicable

to

fraud

appl[ies].” Dumas v. S. Guar. Ins. Co., 408 So. 2d 86, 89 (Ala.
1981). Therefore, the applicable statute of limitations for both
fraud and bad faith claims is two years. Ala. Code § 6-2-38; Jones
v. Alfa Mut. Ins. Co., 1 So. 3d 23, 30 (Ala. 2008).
"The very basic and long settled rule of construction of
[Alabama] courts is that a statute of limitations begins to run
. . . as soon as the party in whose favor it arises is entitled to
maintain an action thereon." Wheeler v. George, 39 So. 3d 1061,
1084 (Ala. 2009)(italics omitted). By statute, a claim of fraud is

23

not “considered as having accrued until the discovery by the
aggrieved party of the fact constituting the fraud.” Ala. Code §
6-2-3. Specifically, Alabama courts have interpreted this accrual
to be “when the party seeking to bring the action knew of facts
which would put a reasonable mind on notice of the possible
existence of [fraud and bad faith].” ALFA Mut. Ins. Co. v. Smith,
540 So. 2d 691, 693 (Ala. 1988) (italics omitted); Farmers &
Merchants Bank v. Home Ins. Co., 514 So. 2d 825, 831 (Ala. 1987).
Generally, accrual for said claims “is a question of fact to be
determined by the circumstances of each case.” Jones v. Alfa Mut.
Ins. Co., 1 So. 3d 23, 30 (Ala. 2008)(quotation omitted). “The
question of when a plaintiff should have discovered fraud should be
taken away from the jury and decided as a matter of law only in
cases in which the plaintiff actually knew of facts that would have
put a reasonable person on notice of fraud.” Bryant Bank v. Talmage
Kirkland

&

Co.,

2011

WL

11742121,

at

*6

(Ala.

May

23,

2014)(emphasis added).
Provident argues that the statute of limitations began to run
when it notified Rosen by letter on December 19, 2011, that he did
not qualify for benefits under the “total disability” provision of
the policy. (Doc. 24 at 13). While Rosen’s claim for breach of
contract may have arisen upon his receipt of the said letter, mere
denial of benefits does not automatically give rise to a claim of
fraud or bad faith by the insurer. Tyson v. Safeco Ins. Companies,
24

461 So. 2d 1308, 1311 (Ala. 1984).

There is, of course,

no

statute of limitations defense to the contract claim.
Rosen’s fraud and bad faith claims arguably arose at some
point during Provident’s repeated refusals to pay benefits despite
Rosen’s continued documented submissions to Provident up through
the date of the filing this action, updating Provident on Rosen’s
ongoing disability diagnosis and declining revenue. (Doc. 19, ¶¶
170-72). Provident admits in its answer that it has continued to
receive these documentary submissions from Rosen (Doc. 23, ¶¶ 17071) and further admits that even now it continues to “to evaluate
Dr. Rosen’s ongoing claim pursuant to the disability policy.” (Doc.
23, ¶ 60).
For purposes of Provident’s Rule 12(c) motion, this court need
not determine the exact date upon when the fraud and bad faith
causes of action arose, but rather only that an issue of material
fact exists as to whether and when a reasonable mind could be on
notice of the possible existence of fraud and/or bad faith. In this
case,

when

the

allegations

are

construed

in

the

light

most

favorable to Rosen, both his claim of fraud and his claim of bad
faith can fall within the two year statutory period and therefore
are

not

barred

by

the

statute.

The

burden

of

proving

the

affirmative defense of statute of limitations at trial will be on
Provident.

25

The RICO Claims
“To prove any RICO violation, a plaintiff must prove the
existence of a ‘pattern of racketeering activity.’” Beck v. Prupis,
162 F.3d 1090, 1095 (11th Cir. 1998) aff'd, 529 U.S. 494 (2000)
(quoting 18 U.S.C. § 1962). A pattern of racketeering activity
requires that plaintiff allege “two or more predicate acts within
a ten-year time span” from those listed in the organic statute.
18 U.S.C. § 1961; Jackson v. BellSouth Telecommunications, 372 F.3d
1250, 1264 (11th Cir. 2004).
In Rosen’s second amended complaint, he specifically alleges
three of the predicate acts listed in the RICO statute: mail fraud,
interference with commerce, and racketeering. (Doc. 19, ¶ 101, 13033, 138-40). While a mere conclusory listing of predicate acts has
been found by some district courts to be insufficient, Rosen goes
beyond the mere labels in 18 U.S.C. § 1691, and substantively
pleads each predicate act by describing it. Brick v. Unum Life Ins.
Co. of Am., 2005 WL 5950106, at *4 (M.D. Fla. Oct. 13, 2005).
First, Rosen

says

that

Provident,

through

use

of

the

mails,

conducted its scheme of denying multitudinous long term disability
claims (Doc. 19, ¶ 132, 139). Provident itself admits that it sent
letters to Rosen involving his claims on August 1, 2011 (Doc. 23,
¶ 28), October 13, 2011 (Doc. 23, ¶¶ 30-31), November 7, 2011 (Doc.
23, ¶ 33), and December 19, 2011 (Doc. 23, ¶¶ 36-38). Rosen next
alleges that Provident’s scheme interfered with commerce, given

26

Provident’s interstate disbursements and involvement in markets
throughout the country. (Doc. 19, ¶ 131). While Provident disputes
the existence of a RICO scheme, it admits that it conducts business
in forty-seven states and two other jurisdictions. (Doc. 23, ¶ 24).
Finally, Rosen alleges that Provident engaged in racketeering
activity and describes in extensive detail its modus operandi.
(Doc. 19, ¶ 101, 130, 132, 133, 138-40).
Given that the facts of these three alleged predicate acts are
taken as true for purposes of a Rule 12(c) or 12(b)(6) motion,
Rosen sufficiently pleads the “two or more” predicate acts required
by 18 U.S.C. § 1691.
18 U.S.C. 1962(a)
“Section 1962(a) prohibits the investment of proceeds derived
from a pattern of racketeering activity in any enterprise involving
interstate commerce.” Beck v. Prupis, 162 F.3d 1090, 1095, n. 8
(11th Cir. 1998) aff'd, 529 U.S. 494 (2000). The statute provides
in relevant part:
It shall be unlawful for any person who has received any
income derived, directly or indirectly, from a pattern of
racketeering activity . . . to use or invest, directly or
indirectly, any part of such income, in acquisition of any
interest in, or the establishment or operation of, any
enterprise which is engaged in, or the activities of which
affect, interstate or foreign commerce.
From this language, "most courts of appeals have adopted the
so-called investment injury rule, which requires that a plaintiff
suing

for

a

violation

of

§

1962(a)

27

allege

injury

from

the

defendant's

"use

or

invest[ment]

of

income

derived

from

racketeering activity," distinct from any injuries caused by the
predicate acts of racketeering. Beck v. Prupis, 529 U.S. 494, 506,
n. 9 (2000) (expressing no opinion on the investment injury rule).3
“[M]ere reinvestment of the racketeering proceeds into a business
activity is not sufficient for § 1962(a).” Lockheed Martin Corp. v.
Boeing Co., 357 F. Supp. 2d 1350, 1371 (M.D. Fla. 2005).
Under the investment injury rule, Rosen sufficiently alleges
an investment injury under § 1962(a) because, distinct from the
alleged racketeering injury of denying legitimate disability claims
(Doc. 19 ¶ 132), Rosen alleges that Provident’s savings from
racketeering enabled it to undercut competing disability insurers
and to prevent Rosen from having a wider variety of insurer
options, including insurers that would provide quality services and
3

The Eleventh Circuit has not expressly adopted the
investment injury rule, and several of its district courts have
opted for a broader interpretation of § 1962(a) that encompasses
reinvestment. In re Managed Care Litig., 150 F. Supp. 2d 1330,
1351 (S.D. Fla. 2001); Avirgan v. Hull, 691 F. Supp. 1357, 136263 (S.D. Fla. 1988), aff'd, 932 F.2d 1572 (11th Cir. 1991).
Further, this court recognizes Congress’s admonition that RICO is
to “be liberally construed to effectuate its remedial purposes.”
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 498 (1985) (quoting
RICO, Pub.L. No. 91–452, § 904(a), 84 Stat. at 947); Ray v.
Spirit Airlines, Inc., 767 F.3d 1220, 1227 (11th Cir. 2014). For
purposes of this motion, however, the court analyzes the
pleadings under the more narrow investment injury rule, the
standard applied in both parties’ briefing, because if an
investment injury is properly pled, by implication it also
satisfies the broader reading of § 1962(a). Further, Provident
concedes plaintiff has sufficiently pled injury from reinvestment
of the racketeering proceeds, a sufficient injury under the
broader reading. (Doc. 24 at 6).
28

honor their policy obligations. (Doc. 19, ¶¶ 132-33). Rosen’s
alleged injury is not mere injury from reinvestment in Provident
generally, but rather that Provident’s specific investment of its
savings cut out insurance competitors from the market and prevented
them from offering benefit plans which would honor claim payouts.
Rather than mere speculation, Rosen supports this investment injury
by alleging in his second amended complaint that he did not seek
additional disability insurance from another carrier because he
reasonably relied on Provident’s false representations that his
timely and consistent premium payments entitled him to long term
disability coverage. Furthermore, Exhibit B attached to Rosen’s
second amended complaint includes an internal Provident memorandum
in which Provident admits that it was a leader in the disability
insurance market and that “[m]any of the smaller competitors have
chosen to exit the business and have either sold their block or
have entered into either a joint marketing agreement or private
label arrangements with the primary disability carriers.” (Doc. 19
at 3).
by

Because Rosen’s injuries were arguably proximately caused

Provident’s

investment

and

market

dominance,

rather

than

directly caused by the racketeering scheme itself, Rosen has
sufficiently pled the requisite investment injury for his claim
under the more narrow reading of § 1962(a).
18 U.S.C. § 1962(b)
“Section 1962(b) prohibits acquisition through a pattern of

29

racketeering activity of any interest in an enterprise involving
interstate commerce.” Beck v. Prupis, 162 F.3d 1090, 1095, n. 8
(11th Cir. 1998) aff'd, 529 U.S. 494 (2000). The statute provides:
It shall be unlawful for any person through a pattern of
racketeering activity or through collection of an unlawful
debt to acquire or maintain, directly or indirectly, any
interest in or control of any enterprise which is engaged in,
or the activities of which affect, interstate or foreign
commerce.
Similar to the “investment injury” required in § 1962(a), in order
to recover damages under § 1962(b), a plaintiff must allege injury
from acquisition or maintenance of the enterprise separate from the
racketeering activity itself. Richardson v. Cella, 2013 WL 4525642,
at *5 (E.D. La. Aug. 26, 2013); see Danielsen v. Burnside-Ott
Aviation Training Ctr., Inc., 941 F.2d 1220, 1230-31 (D.C. Cir.
1991) (“plaintiffs must allege an ‘acquisition’ injury, analogous
to the ‘use or investment injury’ required under § 1962(a) to show
injury by reason of a § 1962(b) violation”).
In this case, beyond the injury from Provident’s alleged
scheme to deny payouts to Rosen and numerous other policyholders,
Rosen alleges that by maintaining the enterprise, Provident’s
scheme

undercut

competitors,

thus

depriving

him

of

competing

disability insurers who would honor their contractual obligations.
Beyond mere speculation, Rosen attaches Exhibit G to his second
amended complaint reflecting the fact that Provident acquired
competitor insurer Paul Revere in 1997 and revised Paul Revere’s
claim procedures to comport with Provident’s nefarious procedures.
30

(Doc. 19-7 at 5). In 1999, Provident also merged with competitor
insurer UNUM and similarly revised UNUM’s claim procedures to
comport with Provident’s procedures. (Doc. 19-7 at 5). Therefore,
Rosen successfully pleads an acquisition injury under § 1962(b)
separate and distinct from Provident’s alleged underlying scheme.
CONCLUSION
For the reasons detailed above, the court will by separate
order deny defendant’s motions for partial summary judgment and for
judgment on the pleadings, and will deny plaintiff’s motion to
strike the Kaminski declaration.
DONE this 21st day of January, 2015.

_____________________________
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT JUDGE

31