Disability policy covering only employers not subject to ERISA jurisdiction

The U.S. District Court for the Southern District of New York remanded to state court for lack of subject matter jurisdiction a case brought by a disability-insured physician against his insurer for breach of contract and misrepresentation. Because the policy extended coverage only to the physician-owner of a medical practice and his partner, and not to their employees, it fell outside the jurisdiction of the ERISA statue.

Dr. Andrew McGowan Jr. owned a medical practice. He maintained disability insurance with U.S. Life Insurance Co. in the City of New York. McGowan sued U.S. Life in state court, alleging breach of contract, constructive trust and misrepresentation, and seeking recovery of insurance premiums and declaratory relief.

U.S. Life removed the action to federal district court. McGowan moved to remand the case to state court, contending that the policy at issue was not part of an ERISA-governed plan and that the district court therefore lacked subject matter jurisdiction.

The district court noted that ERISA grants federal courts subject matter jurisdiction of certain actions brought by employee benefits plan participants. Here, McGowan presented an affidavit asserting that no employees of his professional corporation were covered under his policies with U.S. Life and that the policies extended coverage only to himself and his physician partner in the corporation. U.S. Life did not challenge McGowan’s assertions.

The district court concluded that, based on the record, it lacked subject matter jurisdiction over the action. McGowan’s uncontroverted evidence indicated that the policy covered only owner-workers and thus fell outside ERISA’s ambit. While a plan that covers both owners and non-owner employees falls within ERISA, a plan covering only owners or partners fall outside the statue’s jurisdiction. Accordingly, the case was remanded to state court.

See McGowan v. U.S. Life Insurance Company in the City of New York, No. 06-7680 (S.D.N.Y. Jan. 24, 2007).

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