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Court Rules Against Unum Holding Plaintiff’s Plan is Exempt from ERISA Coverage

Attorney Cesar GavidiaAuthor: Attorney Cesar Gavidia

In Paula Le v. Unum Insurance Company of America, plaintiff was severely injured in an automobile accident and was unable to return to her job. She was covered by an employee welfare benefit plan (the plan) through her employer, Opelousas General Health System (OGHS). She was awarded long-term disability benefits beginning in September 2013.

In January 2017, Unum informed her it was terminating her benefits. Plaintiff insisted the termination was done without just cause. She filed a lawsuit in a Louisiana state court, alleging her benefits had been unreasonably terminated, and that Unum had violated several Louisiana laws.

Unum removed the case to federal court and filed a motion asking the Court to rule that the plan was governed by the Employee Retirement Income Security Act (ERISA) and Louisiana law did not apply. If Unum could convince the Court of this, then Plaintiff would be limited to receiving only the long-term disability benefits owed under the plan.

Plaintiff argued that ERISA did not apply to her plan. She said since her employer “operates as a political subdivision,” the plan was a governmental plan, exempt from ERISA regulations. If ERISA does not control, it opens the door for Plaintiff to pursue state remedies such as breach of contract, bad faith, and other actions for damages beyond the long-term benefits compensation.

After an in depth analysis, the Court ruled in favor of Plaintiff and held, “that the employee benefit plan established and maintained by OGHS is a ‘governmental plan’ which is exempt from ERISA coverage.”

ERISA Coverage and Exemptions

ERISA regulates employee benefit plans, but specifically exempts “any employee benefit plan if such plan is a ‘governmental plan.'” This case is limited only to the procedural issue of whether or not Plaintiff’s plan met the criteria as a governmental plan in order to be exempt from ERISA regulations.

OGHS is a Political Subdivision of the State and its Plan is Exempt from ERISA

The Supreme Court of the United States established a test to use when determining whether or not an entity is a political subdivision as defined by ERISA. First, is the entity created directly by the state. Second, is the entity “administered by individuals who ae responsible to public officials or to the general electorate.” Plaintiff need only prove the entity is a political subdivision under either the first or second prong, not both.

After analyzing the history of OGHA, the court held that it was a political subdivision of the state, and therefore, its plan was a governmental plan exempt from ERISA coverage.

OGHS is an Agency or Instrumentality of a Political Subdivision of the State

Even if an employer is not a political subdivision, it is still exempt from ERISA coverage if it is an agency or instrumentality of a political subdivision. The Court evaluated six factors to consider when making this determination. It noted that an entity does not have to meet all six criteria, but courts make their decisions weighing the factors as a whole.

The Court determined that five of the six factors weighed in favor of finding OGHS an agency or instrumentality of a political subdivision. The Court found “the employee benefit plan is a governmental plan exempt from ERISA’s coverage.”

This case was not handled by our office, but we thought it could be helpful for those who may have state claims under an employment benefit plan exempt from ERISA coverage. If you have questions about this, or any aspect of your disability claim, contact us at Dell & Schaefer for a free consultation.