Bommarito v. The Northwestern Mutual Life Insurance Company

Filing 57

MEMORANDUM AND ORDER signed by Senior Judge William B. Shubb on 7/23/18 ORDERING that Defendant's Motion for the Application of ERISA and its Motion for Summary Judgment of Plaintiffs Claim for Relief for Bad Faith and Claim for Punitive Damages 36 be, and the same hereby are, GRANTED. (Mena-Sanchez, L)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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DEVRA BOMMARITO, an
individual,

NO. 2:15-cv- 1187 WBS DB

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Plaintiff,
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v.
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THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY and MARK
MAJEWSKI,

MEMORANDUM AND ORDER RE: MOTION
FOR THE APPLICATION OF ERISA AND
MOTION FOR PARTIAL SUMMARY
JUDGMENT OR SUMMARY ADJUDICATION

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Defendants.
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Plaintiff Devra Bommarito initiated this action against

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defendants The Northwestern Mutual Life Insurance Company

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(“Northwestern Mutual”) and Mark Majewski for breach of contract,

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breach of good faith and fair dealing, and declaratory relief.

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Presently before the court is Northwestern Mutual’s Motion for

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the Application of ERISA to this Matter and its Motion for

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Partial Summary Judgment and/or Summary Adjudication on

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plaintiff’s bad faith and punitive damage claims.

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36.)

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I.

Factual and Procedural Background
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(Docket No.

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From May 1992 until December 2010, plaintiff was a

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physical therapist and 50% owner of XCEL Orthopaedic Physical

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Therapy, Inc. (“XCEL”), at which time she became the sole owner

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of XCEL.

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3), Ex. 7.)

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Disability Income Policy (“the Bommarito Policy”) from

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Northwestern Mutual.

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(Docket No. 36-5), Ex. 25 at 18.)

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inability to engage in her “regular occupation,” the policy

(Decl. of Rebecca Grey (“Grey Decl.”) (Docket No. 51On September 7, 1997, plaintiff purchased a

(Decl. of Lisa Duller (“Duller Decl.”)
In the event of plaintiff’s

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provided monthly benefits until plaintiff’s 70th birthday.

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Decl., Ex. 8.)

(Grey

Plaintiff’s former business partner, G.B.,1 also

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purchased a disability insurance policy from Northwestern Mutual

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at this time.

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Field (“Field”) met with plaintiff and G.B. at XCEL’s office

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several times.

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No. 36-3), Ex. 35 (Plaintiff’s Dep.).)

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Field to meet with XCEL employees to discuss Northwestern

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Mutual’s services, including its disability insurance.

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Additionally, Northwestern Mutual agent Steve

(Decl. of Sean P. Nalty (“Nalty Decl.”) (Docket
Plaintiff also allowed

(Id.)

Beginning on December 31, 2006, plaintiff was involved

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in multiple events causing injuries to her cervical spine and

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left shoulder.

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submitted a Request for Disability Benefits to Northwestern

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Mutual.

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¶ 4.)

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time, the date of disability was established as September 27,

(Id.)

On or about November 24, 2009, plaintiff

(Decl. of Lisa Duller (“Duller Decl.”) (Docket No. 36-5)

In January 2010, the claim was approved.

(Id.)

At the

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Initials of XCEL employees will be used throughout this

order.
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2007.

(Id.)
Plaintiff received partial disability benefits for the

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time between December 26, 2007 and December 9, 2009.

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Decl. ¶ 4.)

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until August 26, 2013, she received total disability benefits

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from Northwestern Mutual under the Bommarito Policy.

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During this time, plaintiff represented to Northwestern Mutual on

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numerous occasions that she was not working at all.

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on the Continuance of Disability Benefits Form that plaintiff

At that point, plaintiff had surgery.

(Duller

Thereafter,

(Id. ¶ 5.)

For example,

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signed on May 21, 2010, she answered “no” to the question of

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whether she had performed “any work of any kind at your prior

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occupation or at any other occupation whether or not you received

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any income.”

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Set of Req. for Admissions), Req. 20.)

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form in August 2010, August 2011, November 2011, June 2012,

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December 2010, and October 2013, plaintiff repeatedly answered no

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to this question.

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(Nalty Decl., Ex. 31 (Northwestern Mutual’s First
When filing out the same

(Id.)

Defendant also required plaintiff to apply for Social

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Security Disability Income benefits.

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(Majewski Dep.).)

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application to the Social Security Administration.

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2011, Northwestern Mutual informed plaintiff that the Social

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Security Administration had denied her application for benefits,

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and instructed her to appeal the decision.

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plaintiff submitted to the Social Security Administration a

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Disability Report Appeal, in which she stated that she had not

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worked between February 27, 2012, and August 9, 2012.

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Decl., Ex. 33 (Northwestern Mutual Second Set of Req. for

(Grey Decl., Ex. 3

Accordingly, plaintiff submitted an

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On May 5,

On August 9, 2012,

(Nalty

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Admissions), Req. 33).)

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informed plaintiff that she had been awarded Social Security

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Disability Income Benefits.

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this, her Northwestern Mutual benefits would be impacted.

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addition, plaintiff was told she would need to reimburse

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Northwestern Mutual for an overpayment of benefits from November

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1, 2009 to July 26, 2013 in the amount of $46,639.99.

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On November 1, 2013, Northwestern Mutual

She was told that, as a result of
In

On May 8, 2013, Northwestern Mutual was contacted by
the California Department of Consumer Affairs and was told that

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plaintiff “was practicing physical therapy while receiving

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private disability insurance benefits.”

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Because of this, Northwestern Mutual placed plaintiff under

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surveillance.

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Exs. 16-20.)

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(Grey Decl., Ex. 8.)

(Declaration of Adam Kawa (“Kawa Decl.”) ¶¶ 4-5,

On January 17, 2014, Northwestern Mutual sent a letter

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to plaintiff accusing her of intentionally misrepresenting her

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level of functioning, and informing her of its determination that

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she was neither partially nor totally disabled.

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1.)

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canceled.

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with the California Department of Insurance, alleging that “the

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insured intentionally provided false and misleading information

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regarding her condition in order to fraudulently obtain benefits

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from Northwestern Mutual.”

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2016, the San Joaquin County District Attorney filed a criminal

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complaint against plaintiff, charging her with multiple counts of

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Fraudulent Claim for Insurance Payment, among other things.

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(Nalty Decl., Ex. 36 (Compl. in The People of the State of

(Grey Decl., Ex.

Plaintiff’s claim file was closed and the policy was
On February 11, 2014, defendant filed a fraud report

(Grey Decl., Ex. 8.)

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On February 22,

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California, Plaintiff, v. Devra Ann Bommarito, San Joaquin County

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Superior Court, DA Case: CR-2016-4112271).)

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Plaintiff initiated this lawsuit on June 1, 2016,

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alleging breach of contract, breach of the implied obligation of

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good faith and fair dealing, and seeking declaratory relief.

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(Compl. (Docket No. 2).)

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Motion for Disqualification of Counsel as well as a Motion to

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Strike Defendants’ Motion for Summary Judgment.

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The court denied both motions on March 12, 2018.

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II.

(Docket No. 40.)
(Docket No.

46.)

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On March 2, 2018, plaintiff filed a

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Motion for the Application of ERISA
Northwestern Mutual contends that plaintiff’s state-law

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claims are preempted by ERISA.

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U.S.C. § 1144(a), states that ERISA provisions “shall supersede .

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. . State laws” to the extent those laws “relate to employee

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benefit plans.”

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state-law claims requires examination of whether the Bommarito

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Policy constitutes part of an “employee benefit plan” such that

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it would be governed by ERISA.

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ERISA’s preemption clause, 29

In this case, whether ERISA preempts plaintiff’s

Under ERISA § 3(1), 29 U.S.C. § 1002(1), an “employee
welfare benefit plan” or “welfare plan” is:
(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 . . . (5) to
the participants or their beneficiaries.

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Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 492 (9th
Cir. 1989)(citing Donovan v. Dillingham, 688 F.2d 1367, 1371
(11th Cir. 1982)).
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The existence of an ERISA plan is a question of fact

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for the court, to be answered in light of all surrounding facts

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and circumstances.

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established by a preponderance of the evidence.

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A.

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(Id.)

The existence of an ERISA plan must be
(Id.)

Plan, Fund, or Program
Defendant argues that plaintiff and her XCEL co-owner

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G.B. set up a plan to provide employees with disability coverage.

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Plaintiff argues, conversely, that she did not intend to set up

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any such plan, and instead merely purchased an individual

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disability policy for herself.

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fund or program (pursuant to a writing or not) is a reality a

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court must determine whether from the surrounding circumstances a

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reasonable person could ascertain the intended benefits,

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beneficiaries, source of financing, and procedures for receiving

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benefits.”

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(9th Cir. 1995) (citing Donovan, 688 F.2d at 1373).

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“In determining whether a plan,

Cinelli v. Security Pacific Corp., 61 F.3d 1436, 1441

No single act alone is sufficient to constitute the

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establishment of a plan, fund, or program.

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purchase of insurance does not conclusively establish a plan,

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fund, or program, but the purchase is evidence of the

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establishment of a plan, fund, or program.”

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1373 (cited with approval in Cinelli, 61 F.3d at 1441–42).

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Further, “the purchase of a group policy or multiple policies

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covering a class of employees offers substantial evidence that a

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plan, fund, or program has been established.”

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For example, “the

Donovan, 688 F.2d at

(Id.)

The disability policy issued to plaintiff has a date of

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issue of August 7, 1997.

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application, which was signed by plaintiff, indicated that the

(Duller Decl., Ex. 25.)

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The

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premium would be paid “100% by employer,” and noted that “an

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ERISA Disclosure Statement . . . is required whenever the

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employer is paying any part of the premium.”

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(Docket No. 36-8), Ex. 1 at 11.)

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submitted.

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Statements which explained that “all employees” were in the class

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of employees that were eligible for this coverage.

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The form further explained that XCEL would “demonstrate employer

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sponsorship” by, among other things, paying all or part of the

(Seebach Decl.

An ERISA disclosure was in fact

In addition, plaintiff signed and submitted Employer

(Id. at 12.)

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premium, using payroll deduction, recommending the program to

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eligible employees through an endorsement letter, and allowing

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Northwestern Mutual agents to contact eligible employees on

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company time.

(Id.)

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Furthermore, between 1998 and 2002, XCEL employees

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B.B., M.K., J.O., C.H., M.C., G.L., L.E., J.S., and B.E. all

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applied for disability insurance from Northwestern Mutual.

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(Seebach Decl., Exs. 1-11.)

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submitted with documents explaining that the premiums would be

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paid 100% by employer XCEL.

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submitted with each application.

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The employees’ applications were

(Id.)

ERISA Disclosure were also

This evidence establishes that disability insurance

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policies were issued by Northwestern Mutual to nine XCEL

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employees.

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disability coverage to said employees.

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the record that the persons benefitting are employees who applied

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for and qualified for disability coverage.

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benefits were financed through the policies issued by

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Northwestern Mutual, and the procedures to apply for and collect

Clearly, the intended benefit was to provide

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It is equally clear from

The disability

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benefits are specified in each of the Policies.

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court concludes that although this plan was accomplished through

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the issuance of a number of individual insurance policies, a plan

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was created because “from the surrounding circumstances a

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reasonable person can ascertain the intended benefits, a class of

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beneficiaries, the source of financing, and procedures for

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receiving benefits.’”

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F.2d 1083, 1087 (9th Cir. 1991) (citing Donovan, 688 F.2d at

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1373).

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B.

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Accordingly, the

Carver v. Westinghouse Hanford Co., 951

Thus, defendant has satisfied the first element.
Established or Maintained by an Employer
The Ninth Circuit has recognized than an employer “can

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establish an ERISA plan rather easily.

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no more than arrange for a ‘group-type insurance program,’ it can

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establish an ERISA plan, unless it is a mere advertiser who makes

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no contributions on behalf of its employees.”

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Ass’n. v. Kennesaw Life & Acc. Ins. Co., 809 F.2d 617, 625 (9th

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Cir. 1987).

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Even if an employer does

Credit Managers

The evidence discussed in the previous section

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demonstrates that XCEL “established or maintained” a disability

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benefit plan.

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that indicated that XCEL would demonstrate “employer sponsorship”

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by performing tasks that constitute endorsement of the Policies

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and the XCEL Plan.

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XCEL would contribute 100% of premium costs.

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court concludes that XCEL established and maintained a benefit

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plan.

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C.

As explained, plaintiff signed Employer Statements

Furthermore, the signed forms indicated that
Accordingly, the

Remaining Requirements
The third, fourth, and fifth requirements are easily
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satisfied in this case.

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employer, for the purpose of providing benefits, to participants

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or their beneficiaries.

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person acting directly as an employer, or indirectly in the

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interest of an employer, in relation to an employee benefit

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plan.”

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XCEL Plan was established to provide health, disability, and

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dental insurance, thereby satisfying the fourth requirement.

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Finally, the fifth requirement is satisfied because the Plan

The plan must be provided by an

ERISA defines an “employer” as “any

29 U.S.C. § 1002(5).

XCEL clearly is an employer.

The

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provided these benefits to all Plan participants, including

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plaintiff, as well as at least eight other XCEL employees who

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enrolled in and received disability insurance.

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court concludes that an ERISA Plan was established.

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D.

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Therefore, the

ERISA Exemptions
Plaintiff argues that even if an ERISA Plan was

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established, her policy is exempt from ERISA because of the Safe

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Harbor Provision created by 29 C.F.R. § 2510.3–1(j).

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Harbor exempts insurance policies from ERISA where (1) there are

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no employer contributions to coverage, (2) participation is

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completely voluntary, (3) the employer does not endorse the

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program, and (4) the employer receives no consideration for the

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program.

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this point, she would need to prove that the plan meets all four

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requirements of the regulation.

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Danone Waters of N. America, Inc., 532 F. 3d 940, 942 (9th Cir.

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2008) (court determined plan was not exempt from ERISA because

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plaintiff failed to allege that employer had made no contribution

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to the plan).

29 C.F.R. § 2510.3–1(j).

The Safe

For plaintiff to prevail on

29 C.F.R. 2510.3-1(j); Sgro v.

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1.

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The parties dispute whether XCEL contributed to its

Contributions and Payment

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employees’ disability insurance policies.

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XCEL never paid the policy premiums for employees, while

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defendant argues the opposite.

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for the premiums in order to have contributed to the coverage.

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By facilitating discounted premiums through a multi-life premium

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discount, XCEL “contributed” to the program, regardless of

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whether it actually paid for the premiums or not.

Plaintiff argues that

However, XCEL need not have paid

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Plaintiff’s Disability Insurance Application indicated

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that she would apply for a “MultiLife” Plan, which would provide

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a Multilife Discount.

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Discount Supplement was submitted with plaintiff’s application,

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along with all XCEL employee applications.

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California courts, a discount on an insurance policy premium

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constitutes an employer contribution.

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Acc. Ins. Co., No. SACV 10-393 JVS, 2011 WL 12566818, at *7–8

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(C.D. Cal. Apr. 13, 2011) (collecting cases).

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employee receive[s] a benefit they would not have absent the

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action taken by their employers, [the] employer’s action should

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be considered a ‘contribution.’”

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facilitated a discounted rate for employees, she contributed to

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the plan, regardless of who paid the premiums directly.

(Seebach Decl., Ex. 1 at 3.)

A MultiLife

According to numerous

Zide v. Provident Life &

(Id.)

When “the

Thus, because plaintiff

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Plaintiff argues that even according to Seebach, a

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Northwestern Mutual employee, there is nothing in the record

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explicitly indicating that plaintiff and G.B. were made aware

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that a Multilife Supplement was submitted with their employees’

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applications.

(Grey Decl., Ex. 6, (Seebach Dep.) at 167.)
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However, even if plaintiff did not fill out the form herself, as
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she argues, she still signed it, and thus the court expects that
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she would have an awareness and understanding of the information
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contained within.

Thus, whether there is anything in the record

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to explicitly indicate that plaintiff was informed that these
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forms would be submitted with each application is irrelevant.
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Her signature appears on each of them, and that is sufficient for
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the court to determine that she was aware of the Multilife
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Supplements and the Multilife Discounts.
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Accordingly, the court concludes that XCEL contributed
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to its employees’ coverage, and thus plaintiff cannot satisfy the
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first requirement.

Because all factors of the safe harbor

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provision must be met, the court does not consider the remaining
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factors and instead concludes that the safe harbor provision does
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not exclude the plan at issue here from ERISA coverage.

See

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Stuart v. UNUM Life Ins. Co. of America, 217 F.3d 1145, 1153 (9th
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Cir. 2000) (noting that “employers must satisfy all four
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requirements of the safe harbor regulation . . . to be exempt
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from ERISA coverage”).
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E.
Plaintiff’s Claims are Governed by ERISA and State Law
Claims are Preempted

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The Ninth Circuit has continually held that state law

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claims arising out of a denial of ERISA plan benefits are

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preempted by ERISA.

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California, 408 F.3d 1222 (9th Cir. 2005).

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plaintiff’s Complaint is based on state law claims alleging that

See, e.g., Cleghorn v. Blue Shield of

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In this case,

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Northwestern Mutual breached the terms of the Bommarito Policy

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and improperly processed plaintiff’s claim for disability

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benefits.

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plaintiff with a specific and express cause of action for

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recovering such benefits.

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relief for breach of contract, bad faith, and declaratory relief

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must be dismissed, with prejudice, because they are preempted by

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ERISA.

Because this is an ERISA governed plan, ERISA provides

Accordingly, plaintiff’s claims for

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III. Motion for Partial Summary Judgment and/or Summary
Adjudication of the Bad Faith and Punitive Damages Claims

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Defendant moves for summary judgment or summary

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adjudication on plaintiff’s claims for Bad Faith and Punitive

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Damages, arguing that these claims fail as a matter of law.

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A.

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Bad Faith Claim
“The key to a bad faith claim is whether or not the

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insurer’s denial of coverage was reasonable.

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law, a bad faith claim can be dismissed on summary judgment if

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the defendant can show that there was a genuine dispute as to

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coverage.”

Guebara v. Allstate Ins. Co., 237 F.3d 987, 992 (9th

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Cir. 2001).

“The Ninth Circuit has frequently affirmed summary

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judgment orders in bad faith claims where the trial court’s

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ruling was based on a genuine dispute over insurance coverage.”

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Adams v. Allstate Ins. Co., 187 F. Supp. 2d 1207, 1214 (C.D. Cal.

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2002).

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Under California

In this case, the record indicates that there was a

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genuine dispute as to whether plaintiff should have received

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disability insurance benefits and thus that Northwestern Mutual’s

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denial was reasonable.

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representations that she was performing no work of any kind, when

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questioned by defense counsel, plaintiff admitted that she had

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provided physical therapy services to patients “at times” and

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that she worked as a physical therapist “intermittently, on an

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as-needed, emergency basis” from 2010 forward.

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5 (Plaintiff’s Dep.).)

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Despite plaintiff’s multiple

(Nalty Decl., Ex.

In addition, Dr. Bryan Coleman Salgado (“Dr. Salgado”),

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who works as an expert consultant for the California Department

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of Consumer Affairs, reviewed XCEL’s records and identified 125

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patients that had received treatment from plaintiff between 2010

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and 2013.

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(Docket No. 36-7) Delgado Decl., Ex. 12.)

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asked physician consultant Henry M. Alba (“Dr. Alba”) to review

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plaintiff’s claim for disability benefits.

(Declaration of Henry

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M. Alba (“Alba Decl.”) (Docket No. 36-4).)

Dr. Alba reviewed the

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video surveillance, medical records, and pharmacy records.

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Alba concluded that plaintiff “is clearly working fulltime.

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Therefore there is no limitations nor restrictions for her

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occupational duties as an owner/operator of a physical therapy

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clinic.”

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reached the conclusion that plaintiff had been “intentionally

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misrepresenting [her] level of functioning to obtain benefits

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that [she] knew [she was] not entitled to.”

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(Hyde Dep.).)

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(Decl. of Bryan Coleman Salgado (“Salgado Decl.”)

(Id. ¶ 4, Ex. 23.)

Northwestern Mutual

Dr.

From this, Northwestern Mutual

(Nalty Decl., Ex. 38

Despite plaintiff’s assertion that she was not working

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at all, the evidence indicates otherwise.

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misrepresentations by plaintiff, which were serious enough to
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These alleged

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result in a criminal prosecution,2 certainly establish that

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Northwestern Mutual had a reasonable and just cause for the

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denial of the claim.

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Northwestern Mutual did not act in bad faith in denying

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plaintiff’s benefits.

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Northwestern Mutual’s decision was correct, but instead merely

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concludes that there was a genuine dispute as to coverage.

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Accordingly, the court will grant summary judgment in favor of

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Northwestern Mutual as to plaintiff’s claim of bad faith.

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B.

Accordingly, the court concludes that

The court makes no decision as to whether

Punitive Damages Claim

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“Punitive damages are appropriate if the defendant’s

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acts are reprehensible, fraudulent or in blatant violation of law

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or policy.

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does not justify the imposition of punitive damages.”

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v. Transamerica Ins. Co., 25 Cal. App. 4th 1269, 1287 (4th Dist.

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1994).

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damage claim if “no rational jury could find the Plaintiff’s

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evidence to be clear and convincing proof of malice, fraud or

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oppression.”

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58-61 (1st Dist. 1998).

The mere carelessness or ignorance of the defendant
Tomaselli

The court can summarily adjudicate plaintiff’s punitive

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Hoch v. Allied-Signal, Inc., 24 Cal. App. 4th 48,

The evidence relied on by Northwestern Mutual

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establishes, at the very least, that there is at least a genuine

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dispute over the existence of a disability.

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great, in fact, that it led to criminal charges against plaintiff

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for alleged fraud related to her benefits plan.

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Northwestern Mutual’s denial of benefits was reasonable, and

The dispute was so

Thus,

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2

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4, 2018.

The criminal trial has been continued until September
(Docket No. 47.)
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plaintiff cannot present clear and convincing evidence of malice,

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oppression, or fraud.

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claim must be dismissed with prejudice.

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Accordingly, plaintiff’s punitive damages

IT IS HEREBY ORDERED that defendant’s Motion for the

5

Application of ERISA and its Motion for Summary Judgment of

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plaintiff’s Claim for Relief for Bad Faith and Claim for Punitive

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Damages (Docket No. 36) be, and the same hereby are, GRANTED.

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Dated:

July 23, 2018

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