May et al v. Paul Revere Life Insurance Company et al

Filing 26

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS' 7 MOTION TO REMAND AND DENYING DEFENDANTS' 3 MOTION TO DISMISS AS MOOT. This case is REMANDED to Circuit Court of Ohio County, WV and DISMISSED and STRICKEN from the active docket of this Court. Clerk directed to enter judgment. Signed by Senior Judge Frederick P. Stamp, Jr on 8/12/13. (cc)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
CAROL A. MAY and STEPHEN DEAN,
Plaintiffs,
v.

Civil Action No. 5:13CV28
(STAMP)

THE PAUL REVERE LIFE INSURANCE COMPANY
and UNUM GROUP,
Defendants.
MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION TO REMAND AND
DENYING DEFENDANTS’ MOTION TO DISMISS AS MOOT
I.
The

plaintiffs,

Carol

Background
A.

May

(“May”)

and

Stephen

Dean

(“Dean”), filed a complaint in the Circuit Court of Ohio County,
West Virginia, asserting both a violation of the duty of good faith
and a violation of statutory and regulatory obligations.

The

alleged violations by The Paul Revere Life Insurance Company (“Paul
Revere”) and Unum Group (“Unum”) occurred during the denial of
claims under a disability insurance policy and the handling of the
resultant

internal

appeal.

The

complaint

stated

that

this

insurance policy was the result of an offer by Paul Revere and an
acceptance by Carol A. May after her former employer, OVHS&E
Corporation, stopped providing coverage for disability insurance
with Paul Revere.

May applied for benefits in 2008, which were

dispersed from May 2008 to May 24, 2011, when the defendants
terminated the benefits.

The defendants removed the civil action to this Court pursuant
to

28

U.S.C.

§

1441(b)-(c),

claiming

both

jurisdiction and diversity jurisdiction.

federal

question

The defendants allege

that federal question jurisdiction exists due to the complete
preemption of the plaintiffs’ claims under the Employee Retirement
Income

Security

Act

of

1974

(“ERISA”),

29

U.S.C.

§

1001.

Additionally, the defendants claim diversity jurisdiction exists
under § 1332 due to complete diversity of the parties1 and an
amount

in

controversy

that

exceeds

$75,000.00,

exclusive

of

interest and costs.
After removal, the defendants filed a motion to dismiss or, in
the alternative, to render summary judgment arguing that the
plaintiffs’ state law claims were preempted by ERISA and, in the
alternative, that the statute of limitations under state law bars
recovery.

The accompanying memorandum also addressed, for the

first time, a 25% discount that was originally part of the employer
plan with OHVS&E that May received and claimed that the same
discount was afforded to the plaintiff when the insurance was
reoffered to her directly by Paul Revere. This claim was supported
by an attached email in 2011 from an Unum specialist to Carol May
explaining that the discount may place her claim under ERISA.

1

The

Plaintiffs May and Dean are citizens of West Virginia,
defendant Paul Revere is a Massachusetts corporation with its
principal place of business in Massachusetts, and defendant Unum is
a Delaware corporation with its principal place of business in
Tennessee.
2

defendants

explain

in

this

services to Paul Revere.

motion

that

Unum

provides

claims

The plaintiffs filed a memorandum in

response that emphasized the lack of a connection between the
employer and the plan at the time that claims were made.

The

defendants filed a reply memorandum that claimed that the plan May
is claiming under is closer a to continuation than conversion of
the original plan and cites to authority finding continuation plans
sufficient to apply ERISA preemption.
Subsequently, the plaintiffs filed a motion to remand.

The

plaintiffs first contend that remand is appropriate because ERISA
does not preempt their claims and thus federal jurisdiction does
not exist.
not

The plaintiffs further argue that the defendants have

demonstrated,

as

is

their

burden,

that

the

amount

in

controversy exceeds $75,000.00, exclusive of interest and costs.
The defendants in response reiterated their argument that the
policy was for continuation coverage under ERISA. As to the amount
in controversy, the defendants claim that because punitive to
compensatory damages ratios can equal or exceed 10:1, even if
actual damages are only $8,000.00, the amount in controversy will
be satisfied.

In the plaintiffs’ reply brief, they assert that in

cases where discounted coverage is extended by an offer from the
insurance provider, the justification for ERISA preemption is
removed and thus federal jurisdiction does not exist in this case.

3

For the reasons stated below, this Court grants plaintiffs’
motion to remand.

Accordingly, this Court denies the defendants’

motion to dismiss or, in the alternative, the motion for summary
judgment as moot.
II.

Applicable Law

A defendant may remove a case from state court to federal
court in instances where the federal court is able to exercise
original jurisdiction over the matter.

28 U.S.C. § 1441.

Federal

courts have original jurisdiction over primarily two types of
cases: (1) those involving federal questions under 28 U.S.C.
§ 1331, and (2) those involving citizens of different states where
the amount in controversy exceeds $75,000.00, exclusive of interest
and costs pursuant to 28 U.S.C. § 1332(a).

The party seeking

removal bears the burden of establishing federal jurisdiction. See
Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151
(4th Cir. 1994). Removal jurisdiction is strictly construed, and if
federal jurisdiction is doubtful, the federal court must remand.
Id.
Although courts strictly construe the statute granting removal
jurisdiction, Doe v. Allied Signal, Inc., 985 F.2d 908, 911 (7th
Cir. 1993), a court is not required “to leave common sense behind”
when determining the amount in controversy.

Mullens v. Harry’s

Mobile Homes, 861 F. Supp. 22, 24 (S.D. W. Va. 1994).
amount

in

controversy

is

not

apparent

4

on

the

face

When the
of

the

plaintiff’s complaint, a federal court must attempt to ascertain
the amount in controversy by considering the plaintiff’s cause of
action as alleged in the complaint and any amendments thereto, the
notice of removal filed with a federal court, and other relevant
materials in the record. 14C Charles Allen Wright & Arthur R.
Miller, Federal Practice and Procedure § 3725 at 73 (3d ed. 1998).
Typically, removal jurisdiction should be evaluated based solely on
the filings available when the notice of removal was filed.
Tamburin v. Hawkins, No. 5:12CV79, 2013 WL 588739, at *1 (N.D. W.
Va. Feb. 13, 2013)(citing Chase v. Shop ‘N Save Warehouse Foods,
Inc., 110 F.3d 424, 428 (7th Cir. 1997).
III.
A.

Discussion

Amount in controversy
The defendants argue that diversity jurisdiction exists in

their notice of removal and subsequent briefs.
parties has not been disputed by plaintiffs.

Diversity of the
The amount in

controversy, however, must be proven by the removing party or
parties and the plaintiffs argue that the defendants did not carry
this burden.

See Lee v. Citimortgage, Inc., 739 F. Supp. 2d 940,

947 (E.D. Va. 2010); Wickline v. Dutch Run-Mays Draft, LLC, 606 F.
Supp. 2d 633, 636-37 (S.D. W. Va. 2009). In the defendants’ notice
of removal, there is no evidence, other than the defendants’
conclusory statements, to support a finding that the amount in
controversy exceeds $75,000.00 and the complaint did not allege any

5

specific amount of damages.

The defendants in their response to

the motion to remand quantify the amount of compensatory damages as
$1,000.00 for every month of benefits denied in addition to
punitive damages.

With eight months of delay to compensate for,

defendants calculate the total compensatory damages as $8,000.00.
Defendants further argue that punitive damages should be estimated
at ten times compensatory damages and included in the amount in
controversy.

Even assuming that this Court could consider the

defendants’ estimation despite its untimely assertion after the
notice of removal, there would be several issues with meeting the
required amount in controversy.
First, there is no explanation of why $1,000.00 per month is
an appropriate figure to estimate the net economic loss, annoyance,
and inconvenience that the plaintiffs seek under compensatory
damages.

It does not appear that $1,000.00 is the amount of back

benefits, as defendants claim they have previously paid all due
benefits. These bare allegations of the amount in controversy will
not suffice to meet the burden of demonstrating jurisdiction by a
preponderance of the evidence. Sayre v. Potts, 32 F. Supp. 2d 881,
886 (S.D. W. Va. 1999).
Second,

the

defendants

claim

that

punitive

damages

routinely awarded in ratios of 10:1 is incorrect.

are

Case law

demonstrates that awards that high are more the exception than the
rule.

See State Farm Mut. Auto. Inc. Co. v. Campbell, 538 U.S.

6

408,

425

(2003)

(suggesting

a

4:1

ratio

normally

approaches

constitutional impropriety); Spann v. Style Crest Products, Inc.,
171 F. Supp. 2d 605, 609-10 (D.S.C. 2001) (holding a 10:1 ratio of
punitive to compensatory is too high for purposes of estimating
amount in controversy in class action). Additionally, the award of
punitive damages is always at the court’s discretion, even when the
requisite behavior is proven.

Thus, their utility in estimating

the amount in controversy is limited.

Perrine v. E.I. du Pont de

Nemours and Co., 694 S.E.2d 815, 883 (W. Va. 2010) (citing Mayer v.
Frobe, 22 S.E. 58 (W. Va. 1895).

Therefore, the defendants have

failed to meet their burden of proving the amount in controversy,
thereby demonstrating diversity jurisdiction.
B.

Amendment to the notice of removal and ERISA preemption
For the defendants, the allegation that the discount from

May’s original plan was continued by Paul Revere is central to
their claim for federal question jurisdiction under ERISA.

The

plaintiffs counter that the discount is irrelevant because May’s
employer is no longer involved in the administration of benefits.
This Court must decide whether it is appropriate to consider such
evidence despite the fact that it appeared after the notice of
removal.
Generally, removal jurisdiction should be evaluated based on
the record at the time of removal.

Tamburin v. Hawkins, No.

5:12CV79, 2013 WL 588739, at *1 (N.D. W. Va. Feb. 13, 2013).

7

However, when the removing party imperfectly states the grounds for
jurisdiction, amendment will be allowed to more fully state those
grounds.

See Jaffe-Spindler Co. v. Genesco, Inc., 747 F.2d 253,

255 n.1 (4th Cir. 1984) (allowing amendment at appeal, upon
discovery of an oversight in the diversity statement).

In this

case, the notice of removal did claim federal jurisdiction under
ERISA, but the complaint did not mention the 25% premium discount.
The addition of the mention of the discount is not a new ground for
federal

jurisdiction,

but

it

does

justification for ERISA preemption.

explain

more

clearly

the

Therefore, the Court will

consider this additional allegation as part of the notice of
removal.
The defendants claim that because the policy that May was
denied benefits under has the same discount as the policy with her
employer, it should be considered continuation coverage.

Further,

they argue that due to the identical terms of coverage, ERISA
preemption should apply to coverage despite the lack of an ongoing
relationship

between

employer

and

employee.

The

defendants

primarily rely on Massachusetts Cas. Ins. Co. v. Reynolds, 113 F.3d
1450 (6th Cir. 1997), and Sullivan v. Paul Revere Life Ins. Co.,
2010

WL

8510501

(N.D.

Ala.

May

28,

2010),

to

argue

that

policyholders taking over payments should not end ERISA preemption.
In contrast, the plaintiffs argue that it is unclear that the
employer provided policy was ever covered by ERISA and because the

8

policy at issue was offered unilaterally by Paul Revere, there is
no longer any connection to the employer. The plaintiffs also cite
authority for the proposition that when insurance on the same terms
is offered to an employee whose policy was dropped by their
employer, the relation back to an ERISA plan is lost.

Eberlein v.

Provident Life & Accident Ins. Co., No. 06-cv-02454, 2008 WL
791944, at *7 (D. Colo. Mar. 20, 2008).
When an employer drops insurance coverage for an employee, the
employee may have the right to further coverage under either
continuation

coverage

or

conversion

coverage.

Continuation

coverage is a right to coverage under the same policy as provided
by the employer for a limited amount of time after a qualifying
event such as termination or a reduction in hours.

Continuation

coverage is mandated for certain positions by federal or state
statutes such as COBRA or PHSA.

See State ex rel. Orlofske v. City

of Wheeling, 575 S.E.2d 148, 153 (W. Va. 2002).

Conversion

coverage is a right that arises either due to contract agreements
or statutory requirements, or both.
*4.

Eberlein, 2008 WL 791944, at

That right allows an employee to convert his or her coverage

under the employer’s group plan into an individual policy. See
Painter v. Golden Rule Ins. Co., 121 F.3d 436, 438 (8th Cir. 1997).
Both of the defendants’ cited cases on ERISA are factually
distinguishable from the present case.

In Reynolds, coverage was

continued pursuant to a contract provision, not a unilateral offer.

9

In Sullivan, coverage was continued with a group discount because
the owner of the policy never told the insurance provider that his
company was dissolved and he simply kept paying the premiums
personally. Reynolds, 113 F.3d at 1452; Sullivan, 2010 WL 8510501,
at *1.

Neither of these cases address the unique situation where

insurance is dropped by the employer and resumed through an offer
by the insurer, as was the case in Eberlein, cited by plaintiffs.
Eberlein, 2008 WL 791944, at *2.
In considering this unusual question of ERISA preemption, it
is helpful to refer back to the dual purposes of Congress in
enacting ERISA: “to safeguard employee interests by reducing the
threat of abuse or mismanagement of funds that had been accumulated
to finance employee benefits, . . . while at the same time
safeguarding employer interests by eliminating ‘the threat of
conflicting

and

inconsistent

employee benefit plans.”

State

and

local

regulation’

of

Demars v. CIGNA Corp., 173 F.3d 443, 446

(1st Cir. 1999) (citing Fort Halifax Packing Co. v. Coyne, 482 U.S.
1, 15 (1987) and N.Y. State Conference of Blue Cross & Blue Shield
Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995)). Therefore,
where the employer no longer handles the administration of the
insurance policy, the justification for ERISA coverage disappears;
employers can no longer mismanage the funds or face litigation
under state and local law.

10

In this case, there does not appear to be employer involvement
in the plan after coverage was dropped and therefore there was no
direct relation to an ERISA plan.

For eight years, OVHS&E had no

control over the disability coverage that May was paying for and
receiving.

As Eberlein emphasizes, once the employer does not

control administration of the fund, the justification for ERISA
regulation is gone.

Eberlein, 2008 WL 791944, at *7.

The

importance of continuing employer administration has guided other
courts to find that even conversion by right, from a group plan to
an

individual

preemption.

policy,

breaks

the

justification

for

ERISA

See Waks v. Empire Blue Cross/Blue Shield, 263 F.3d

872, 875-76 (9th Cir. 2001); Mimbs v. Commercial Life Ins. Co., 818
F. Supp. 1556, 1562 (S.D. Ga. 1993); Vaughn v. Owen Steel Co.,
Inc., 871 F. Supp. 247, 249 (D.S.C. 1994).
Further, because this policy did not arise by right, none of
the terms May received under her latter policy can be attributed to
an ERISA plan.

That distinction makes this policy unlike a

conversion policy, which is sometimes considered an extension of
the previous ERISA plan.

Mimbs, 818 F. Supp. at 1561; see also

Nechero v. Provident Life & Acc. Ins. Co., 795 F. Supp. 374, 379380 (D.N.M. 1992).
For these reasons, there was neither a continuing employer
involvement in insurance coverage or a right to continue or convert
coverage that could justify ERISA preemption.

11

This Court thus

finds that federal question jurisdiction does not exist in this
case.
IV.

Conclusion

For the reasons stated above, neither diversity nor federal
question

jurisdiction

exists

in

this

case.

plaintiffs’ motion to remand is hereby GRANTED.

Therefore,

the

Accordingly, it

is ORDERED that this case be REMANDED to the Circuit Court of Ohio
County, West Virginia.

It is further ORDERED that this case be

DISMISSED and STRICKEN from the active docket of this Court.
Accordingly, defendants’ motion to dismiss or in the alternative,
motion for summary judgment is hereby DENIED AS MOOT.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein and to the Clerk of
the Circuit Court of Ohio County, West Virginia.

Pursuant to

Federal Rule of Civil Procedure 58, the Clerk is DIRECTED to enter
judgment on this matter.
DATED:

August 12, 2013

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

12