The Guardian Life Insurance Company of America v. Gabrielian and Associates

Filing 39

FINDINGS OF FACT AND CONCLUSIONS OF LAW signed by Judge John F. Walter. (kbr)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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THE GUARDIAN LIFE INSURANCE )
)
COMPANY OF AMERICA,
)
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Plaintiff,
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v.
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GABRIELIAN & ASSOCIATES,
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Defendant.
___________________________ )
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LEO GABRIELIAN; GABRIELIAN )
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AND ASSOCIATES INSURANCE
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SERVICES, INC.,
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Counterclaimants, )
)
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v.
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THE GUARDIAN LIFE INSURANCE )
)
COMPANY OF AMERICA,
)
Counterdefendant. )
)
___________________________

Case No. CV 12-632-JFW (MANx)
FINDINGS OF FACT AND
CONCLUSIONS OF LAW

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With the agreement of the parties, the Court found this

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matter appropriate for submission on the papers without oral

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argument and vacated the Court Trial calendared for November

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27, 2012.

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/ / /

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After considering the administrative record, evidence,

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and briefs filed by the parties, the Court makes the

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following findings of fact and conclusions of law:
Findings Of Fact1

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I.

Introduction
Plaintiff and counter-defendant The Guardian Life

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Insurance Company of America (“Guardian”) filed this

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declaratory relief action seeking an order from this Court

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confirming its rescission of the group disability insurance

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policy issued by Guardian to “Gabrielian & Associates”

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(“G&A”) insuring G&A’s employees.

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(“Gabrielian”) and Gabrielian and Associates Insurance

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Services, Inc. filed a counterclaim seeking disability

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benefits under the group policy.

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the Employee Retirement Income Security Act of 1974, 29

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U.S.C. § 1001, et seq.

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II. Facts

Leo Gabrielian

This action is governed by

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A.

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On January 31, 2011, Gabrielian, as “CEO and President of

The Application

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G&A,” applied for a group disability insurance policy to be

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issued by Guardian insuring G&A’s employees. (AR 00006).

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Gabrielian represented on the Application that G&A was a

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corporation that employed two eligible employees who worked

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The Court has elected to issue its decision in
narrative form because a narrative format more fully explains
26 the reasons supporting the Court’s conclusions. Any finding
a
law is hereby
27 of fact that constitutesof conclusion ofconclusion of law
adopted as a conclusion
law, and any
28 that constitutes a finding of fact is hereby adopted as a
finding of fact.
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more than 30 hours per week, and that G&A sought insurance

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for both of these employees. (AR 0005).

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the Application, and represented that he “reviewed the

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statements made by [him] on this application, and they are

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true and complete.” (AR 00006).

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that“[i]t is understood that no individual shall become

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insured while not actively at work on a full-time basis, and

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only full-time employees shall be eligible.

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employee means one who regularly works the number of hours in

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the normal work week established by this planholder (but not

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less than 30 hours per week) at his Planholder’s place of

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business.”

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Gabrielian signed

He also acknowledged

Full-time

(AR 00006).

In addition to the Application, G&A submitted “Evidence

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of Insurability” for its two alleged “employees” - Gabrielian

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and Melissa Alexanians.

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that Melissa Alexanians was a full time employee of G&A as of

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January 1, 2011. (AR 00183). The “Evidence of Insurability,”

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submitted by G&A, stated that Alexanians was an insurance

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agent, that her annual earnings were $100,000, and that she

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had been actively working for G&A full time for full pay at

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least 30 hours per week, year round.

(AR 00183-00187). G&A represented

(AR 00183).

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B.

The Plan

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Based on the information provided in the Application,

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Guardian issued G&A the Group Policy with an Employer Rider

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group plan number G-00761339-GN (the “Group Policy.”).

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00012).

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the Finance, Insurance, and Real Estate Industry Insurance

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Trust Fund.

(AR

The Group Policy was issued under the Trustees of

(AR 00012, 00026).
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G&A became a participating

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employer covered by the Group Policy effective February 1,

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2011 (AR 00012, 00026).

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G&A’s two covered employees as “President” and “Vice

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President.” (AR 00014).

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The Group Policy identifies the

The Group Policy states: “For purposes of this plan, we

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will treat partners and proprietors like employees if they

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meet this plan’s conditions of eligibility.” (AR 00014). The

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Group Policy also states that it is governed by ERISA. (AR

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00078-00079).

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C.

Gabrielian’s Claim for Disability Benefits

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On March 18, 2011, according to Gabrielian’s treating

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physician, Gabrielian became totally disabled. Gabrielian

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submitted his claim to Guardian on July 8, 2011. (AR 00464).

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D.

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As part of Guardian’s investigation of Gabrielian’s claim

Guardian’s Rescission of the Group Policy

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for disability benefits,2 on January 4, 2012, Guardian’s

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investigator, Robert Grandolfo, interviewed Melissa

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Alexanians, one of G&A’s alleged “employees.” (AR 00389).

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Melissa Alexanians advised Mr. Grandolfo that, in or around

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March 2011, she had considered going into business with

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Gabrielian as a partner.

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Grandolfo that she worked with Gabrielian on a part-time,

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trial basis to become familiar with insurance sales. (AR

(AR 00389).

She advised Mr.

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On October 10, 2011, Guardian
25 for short term disability benefits, denied Gabrielian’s claim
on the grounds that
Gabrielian had not provided Guardian with information it had
26 requested to support Gabrielian’s disability claim. (AR
27 00559). Gabrielian appealed Guardian’s denial of benefits.
(AR 00548). Guardian acknowledged receiving Gabrielian’s
28 appeal and then continued to investigate Gabrielian’s claim.
(AR 00548).

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00389).

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about working and decided to be a “stay at home mom.”

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00389). According to Alexanians, she never finalized any

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partnership arrangements with Gabrielian or entered into a

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written partnership agreement and never had a formal business

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relationship with Gabrielian or his insurance agency, G&A.

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She advised Mr. Grandolfo that she was never a paid employee

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of Gabrielian and never received any compensation from him.

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(AR 00389).

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However, after about one month, she changed her mind
(AR

On January 6, 2012, Mr. Grandolfo sent a letter to Ms.

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Alexanians, confirming their January 4, 2012 conversation,

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and stating: “[I]f any of the information included in this

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letter is incorrect or needs clarification, please feel free

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to make corrections or additions directly to the letter.

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Please initial any changes and fax or e-mail the letter back

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to my attention.”

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any corrections or additions or otherwise respond to the

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letter. (AR 00715-00716).

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(AR 00897).

Ms. Alexanians did not make

Mr. Grandolfo spoke with Ms. Alexanians again on January

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12, 2012, to confirm that she had received his January 6,

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2012 letter, and to obtain additional information.

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00717). Specifically, Mr. Grandolfo explained to Ms.

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Alexanians that certain of the information that had been

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entered on her application for insurance was inconsistent

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with the information she had provided during their previous

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conversation.

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advised her that, in the application, the beginning date of

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her employment with Mr. Gabrielian was listed as January 1,

(AR 00717).

(AR

For example, Mr. Grandolfo

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2011 and that her signature was dated January 31, 2011.

In

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addition, in the application, her annual income was reported

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as $100,000. (AR 00717).

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could not remember the specific dates that she began working

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with Mr. Gabrielian and that the income figure reported on

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the application was for income that she had earned in years

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prior to 2011.

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that she did not receive any income while working with Mr.

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Gabrielian. (AR 00717).

Ms. Alexanians explained that she

(AR 00717).

However, she again confirmed

On January 13, 2012, Mr. Grandolfo

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sent another letter to Ms. Alexanians, confirming their

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January 12, 2012 discussion.

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asked Ms. Alexanians to sign and return the letter via fax or

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email.

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(AR 00898).

Mr. Grandolfo

Ms. Alexanians never responded. (AR 00717).

Guardian underwriter Conie Hoeft reviewed the

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Application, and the information provided by Mr. Grandolfo,

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and determined that Melissa Alexanians was not a full-time

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employee of G&A.

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concluded that G&A would not have been eligible for the Group

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Policy and that, as a result, Guardian would not have issued

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the Group Policy.

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With only one full-time employee, Ms. Hoeft

(AR 00001).

Accordingly, in a letter dated January 20, 2012, Guardian

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notified Mr. Gabrielian that it was rescinding the Group

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Policy issued to G&A, and refunded the premium paid by G&A.

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(AR 00215-00222).

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Gabrielian that: “In addition, even if the coverage was not

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rescinded (which by this letter it is), you would still have

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not established that you are entitled to benefits for Short

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Term Disability.” (AR 00217).

In that letter, Guardian advised

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Although the January 20, 2012 letter advised Gabrielian

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that he had the right to appeal Guardian’s decision and

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submit additional information, Guardian filed this

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declaratory relief action on January 24, 2012, before Mr.

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Gabrielian could appeal Guardian’s decision. (AR 00219).

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E.

Mr. Gabrielian’s position with respect to Ms.
Alexanians’ employment

Mr. Gabrielian submitted a declaration in addition to his

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Opening Trial Brief in this action, which states that, in

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early 2011, he intended to enter into a partnership named

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“Gabrielian & Associates” with Alexanians to sell insurance

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under his existing corporation “Gabrielian and Associates

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Insurance Services, Inc.”

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Mr. Gabrielian states that he took the initial steps to

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create or establish the partnership “Gabrielian &

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Associates,” including meeting with an attorney on the

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subject, but the required documents were never prepared.

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Gabrielian Declaration at ¶ 3.

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create or establish the partnership were never prepared,

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Gabrielian states that “Alexanians and I began working

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together in February 2011, both working in excess of 30 hours

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per week as far as I was aware.

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numerous deals, sharing a large number of emails, documenting

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the work that we were doing together, submitting applications

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for insurance and distributing the commissions between

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ourselves.”

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considered Alexanians his partner, even though no partnership

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agreement was ever executed.

Gabrielian Declaration at ¶ 3.

Although the documents to

We worked together on

Gabrielian Declaration at ¶ 11.

Gabrielian

Gabrielian Declaration at ¶¶
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12, 14. Mr. Gabrielian admits that in May 2011, Alexanians

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advised Gabrielian that she no longer wished to work.

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Gabrielian Declaration at Exhibit D.

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Conclusions Of Law
I.

Jurisdiction And Venue
This action involves the rescission of an employee

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welfare benefit plan regulated by ERISA.

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has original jurisdiction over this matter under 28 U.S.C. §

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1331 and 29 U.S.C. § 1132(e).

As such, the Court

Venue in the United States

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District Court for the Central District of California is

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invoked pursuant to 29 U.S.C. § 1132(e)(2).

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The parties do not dispute the facts requisite to federal

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jurisdiction and venue.

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II. Standard Of Review

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Generally, where the plan grants discretionary authority

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to the administrator or fiduciary to determine eligibility

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for benefits or to construe the terms of the plan, the Court

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reviews the decision to rescind the plan for an abuse of

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discretion. See Shipley v. Arkansas Blue Cross and Blue

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Shield, 333 F.3d 898 (8th Cir. 2003) (applying the abuse of

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discretion standard to insurer’s decision to rescind the plan

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because plan granted discretion to interpret the terms of the

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plan, including the enrollment form).

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plan grants such discretion to the administrator or

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fiduciary, the Court will review the insurer’s decision to

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rescind the plan de novo when the administrator or fiduciary

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fails to exercise that discretion or engages in “wholesale

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and flagrant violations” of the procedural requirements of
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However, even where a

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ERISA.

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955,971-72 (9th Cir. 2006).

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Abatie v. Alta Health & Life Ins. Co., 458 F.3d

In this case, both parties agree that the Group Policy

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grants discretion to Guardian to determine eligibility for

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benefits and to construe the terms of the plan with respect

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to claims. (AR 00047; 00705). However, each party has taken

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conflicting positions regarding whether the Court should

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review Guardian’s decision to rescind the Group Policy de

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novo or for abuse of discretion.

In its Opening Brief,

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Guardian argued that the Court should review its rescission

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decision de novo.

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that the Court should review its rescission decision for

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abuse of discretion.

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G&A and Gabrielian argued that the Court should review

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Guardian’s rescission decision for abuse of discretion.

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Then, in their Opposition, G&A and Gabrielian argued that the

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Court should review Guardian’s rescission decision de novo.

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Then, in its Opposition, Guardian argued

In contrast, in their Opening Brief,

In light of the fact that Guardian filed this action

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before Gabrielian or G&A could appeal Guardian’s decision to

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rescind the Group Policy, the Court will apply the de novo

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standard of review.

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Martel, LLP, 2007 WL 2123324, at *2 (N.D. Cal. July 23, 2007)

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(reviewing defendants’ termination of plaintiff’s disability

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benefits de novo where defendants never ruled on plaintiff’s

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appeal); Vaught v. Scottsdale Healthcare Corporation Health

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Plan, 2009 WL 649806, at *2 (D. Ariz. Mar. 10, 2009) (finding

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de novo review appropriate where Plan failed to exercise its

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discretionary authority by failing to act on claimant’s

See, e.g. Kowalski v. Farella, Braun &

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appeal).

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Guardian’s decision to rescind the Group Policy.

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Accordingly, the Court gives no deference at all to

Moreover, because Gabrielian did not have an opportunity

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to appeal the decision before Guardian filed this action, he

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also did not have an opportunity to present evidence in

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opposition to Guardian’s conclusion that Alexanians was not a

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full-time employee of G&A. The Court may exercise its

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discretion to allow evidence that was not before the plan

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administrator “when circumstances clearly establish that

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additional evidence is necessary to conduct an adequate de

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novo review of the benefit decision.”

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Travenol Long Term Disability Ben. Plan, 46 F.3d 938, 944

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(1995) (quoting Quesinberry v. Life Ins. Co. of North

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America, 987 F.2d 107, 1025 (4th Cir. 1993) (en banc)).

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Because Gabrielian did not have the opportunity to present

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evidence in opposition to Guardian’s decision to rescind the

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Group Policy, the Court will consider the extrinsic evidence

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submitted by Gabrielian and G&A with respect to Alexanians’

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employment.

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exceptional circumstances that may warrant an exercise of the

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court’s discretion to allow additional evidence include

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“circumstances in which there is additional evidence that the

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claimant could not have presented in the administrative

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process.”).

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Mogeluzo v. Baxter

See Quesinberry, 987 F.2d at 1027 (noting that

In light of the Court’s decision to review Guardian’s

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rescission of the Group Policy de novo, the parties agree

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that Guardian must prove, by a preponderance of the evidence,

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that its decision to rescind the Group Policy was correct.
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III. Discussion
Based on its review of the administrative record and the

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extrinsic evidence, the Court concludes that Guardian was

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entitled to rescind the Group Policy.

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Under ERISA, an insurer may rescind an insurance contract

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when it is entered into on the basis of a fraudulent or

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material misrepresentation.

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America v. Meyling, 146 F.3d 1184, 1191 (9th Cir. 1998).

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“[T]o establish materiality in the insurance context, the

See Security Life Ins. Co. Of

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misstatements must have either affected insurability or the

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amount of premium paid by the insured. In essence,

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materiality is determined by the misrepresentation’s effect

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on the insurer’s informed acceptance of risk, i.e., would

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knowledge of the true facts have influenced the insurer in

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deciding whether to accept the risk or in assessing how much

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premium should be paid for undertaking the risk.”

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1192 (emphasis added).

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argument, Guardian is not required to establish that the

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misrepresentation caused it financial harm.

Id. at

Contrary to Gabrielian and G&A’s

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In this case, the Court concludes that Gabrielian

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misrepresented the status of Alexanians’ employment on the

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insurance application.

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that Alexanians was a full-time employee of a corporation.

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However, the Court finds that Alexanians was not a full-time

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employee of a corporation, and at most was associated with

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Mr. Gabrielian in selling insurance under the name of

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Gabrielian & Associates. Indeed, based on Gabrielian’s own

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admission in his declaration, G&A was the proposed name of a

Specifically, Gabrielian represented

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partnership to be formed between Gabrielian and Alexanians in

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the future and the documents to create or establish the

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partnership were never prepared.

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Gabrielian and Alexanians worked together as insurance

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brokers, submitting applications for insurance and splitting

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commissions between themselves and other insurance agents, as

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Alexanians stated to Guardian’s investigator, she never

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entered into any partnership with Gabrielian and never even

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had a formal business relationship with Gabrielian or G&A.

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While it is true that

The Court concludes that Gabrielian’s misrepresentation

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regarding Alexanians’ employment status was material, in that

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it would have influenced Guardian in deciding whether to

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enter into the insurance contract.

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true facts, it would not, and in fact, could not, have issued

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the Group Policy, governed by ERISA, to G&A.

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qualify as an “employee benefit plan” under ERISA, the plan

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must cover at least one employee.

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Life Ins. Co., 48 F.3d 404, 407 (9th Cir. 1995) (“The

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regulations implementing this section provide that a plan

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‘under which no employees are participants’ does not

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constitute an ERISA benefit plan.”).

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that Alexanians was not an employee of G&A and was at most

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associated with G&A in selling insurance, Guardian could not

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have issued the Group Policy governed by ERISA to G&A.

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Moreover, even assuming that both Gabrielian and Alexanians

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were somehow partners doing business under the name of G&A as

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Gabrielian contends, Guardian still could not have issued the

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Group Policy governed by ERISA to G&A.
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Had Guardian known of the

In order to

See Peterson v. American

Because the Court finds

“Neither an owner of

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a business nor a partner in a partnership can constitute an

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‘employee’ for purposes of determining the existence of an

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ERISA plan.”3

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preponderance of the evidence that Gabrielian made a material

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misrepresentation in G&A’s Application for insurance, and

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that Guardian was entitled to rescind G&A’s Group Policy.

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IV. Conclusion

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Id.

Accordingly, the Court finds by a

For all of the foregoing reasons, the Court finds that
Guardian correctly rescinded G&A’s Group Policy, and thus

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that Gabrielian is not entitled to any disability benefits.

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Counsel shall meet and confer and prepare a joint

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proposed Judgment consistent with these Findings of Fact and

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Conclusions of Law.

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lodged with the Court on or before January 7, 2013.

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unlikely event that counsel are unable to agree upon a joint

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proposed Judgment, the parties shall each submit separate

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versions of a proposed Judgment along with a declaration

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outlining their objections to the opposing party’s version on

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or before January 7, 2013.

The joint proposed Judgment shall be
In the

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Dated:

December 19, 2012
JOHN F. WALTER
UNITED STATES DISTRICT JUDGE

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As Gabrielian points out, the
25 purposes of this plan, we will treat Group Policy states: “For
partners and proprietors
like employees if they meet this plan’s conditions of
26 eligibility.” However, this provision does not affect the
in G&A’s
27 materiality of the misrepresentationemploy at application for
insurance. As long as the partners
least one
employee, Guardian could have issued the Group Policy and the
28 partners would be treated like employees for the purposes of
coverage under the Group Policy.

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