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LAMB v. CONNECTICUT GEN. LIFE INS. CO.

March 3, 1980

Anneliese B. LAMB, Plaintiff,
v.
CONNECTICUT GENERAL LIFE INSURANCE CO., Defendant



The opinion of the court was delivered by: BIUNNO

This case comes before the court on defendant's motion for summary judgment addressed to the Amended Complaint, and plaintiff's cross-motion for partial summary judgment in her favor on the Third Count of the Amended Complaint. For reasons to be stated, defendant's motion will be granted in part, i. e., insofar as the Amended Complaint attempts to advance federal claims (to be described); and as to any subsumed State claims, the remainder of the Amended Complaint will be dismissed for lack of jurisdiction under F.R.Civ.P. 12(h)(3) on the court's own motion. Plaintiff's cross-motion for partial summary judgment on Count 3 will be denied. *fn1"

 The nature of the claim, as well as the applicable law, requires a review of the factual background and the steps taken in the case.

 It appears not to be in dispute that plaintiff Lamb was employed as a dietician at Overlook Hospital in New Jersey at a time when Overlook negotiated with Connecticut General Life Insurance Co. (CGLIC) a proposed group policy to provide benefits for long-term disability to those employees who wished to participate. *fn2" Overlook distributed literature about the proposal to its employees, and meetings were held at which Overlook personnel explained the proposal. Each employee was also provided with a sheet indicating the premium contribution and the level of benefits as calculated at that time, and each employee was provided with a form on which to indicate the desire to participate. Lamb, and enough other employees having indicated a desire to participate, the group policy was written by CGLIC and issued to Overlook, while certificates of coverage were issued to participating employees. *fn3"

 Thereafter, and while covered, Lamb became disabled as defined by the contract, and applied for benefits, which were approved after the contract waiting period.

 In this same period, it appears that Lamb also applied for disability benefits under the Social Security Act and that she was found to have an impairment qualifying as a "disability" as defined by law, and the statutory benefits were granted. *fn4"

 The CGLIC contract expressly provided for an "offset" for benefits from collateral sources. The amount of the monthly income benefits begins as 70% of the employee's monthly "Basic Earnings" (i. e., the rate of pay excluding overtime, bonus or additional compensation based on the normal work week of not more than 40 hours), subject to a ceiling of $ 1,500. per month in benefits. The monthly income benefits are adjusted, this being a reduction by the amount of "Other Income Benefits", a defined term, except that in any event minimum benefits of $ 50. per month will be paid regardless of the offset otherwise applicable.

 "Other Income Benefits" is defined as including any periodic cash payments "provided on account of the employee's disability", under five specific subdivisions, as well as payments of Federal Old Age Benefits provided under the Federal Social Security Act. (emphasis added)

 The five categories of collateral source payments provided on account of the employee's disability are:

 
(a) under any group insurance coverage;
 
(b) by the Federal Social Security Act, including benefits payable to the insured's dependents on account of the employee's disability; *fn5"
 
(c) by any state or federal government disability or retirement plan;
 
(d) under any pension plan with respect to which the employer contributes or makes payroll deductions;
 
(e) under or on account of any workmen's compensation or similar law;

 any one or more of which became payable on or after the commencement of the disability for which the "Monthly Income" benefit is provided under the group policy.

 Lamb's benefits under the group policy, calculated at 70% of her "basic earnings", were adjusted by deducting the amount provided each month by the Social Security Administration as primary benefits and as dependent's benefits, on account of Lamb's disability, and there is no dispute that CGLIC has regularly paid, and is paying, the difference. Also, from time to time, the Congress has increased these benefits payable on account of Lamb's disability, and the adjustment has been made by a reduction or offset against the 70% level by the increased amounts so provided by that collateral source.

 The court notes, in passing, that so far as the group policy is concerned, the point will sooner or later be reached, as to each dependent child, when federal benefits will be reduced. As that occurs, the amount of the offset will be reduced and the net or adjusted monthly amount payable by CGLIC will increase. *fn6"

 Also, it is noted in passing that under explicit provision of the Social Security Act, the Congress reserved authority to reduce or eliminate benefits, and may repeal the entire Act. *fn7"

 Judicial notice is also taken that in the current session, both Houses have passed a bill that, if enacted, would reduce the amounts payable as disability benefits under the Social Security Act to eligible claimants who become disabled hereafter. Senate amendments differ from the House bill, and it will need to go to conference. What, if anything, will be passed and enacted is naturally unpredictable at this time. See H.R.3236 and legislative history thereof.

 In any event, the claim is cast in several forms, each of which is aimed at the offset or integration provision in the group policy: *fn8"

 
2. benefits provided as dependency benefits may not be offset because they belong to the dependents and not to Lamb;
 
3. increases in benefits to provide cost-of-living adjustments may not be offset because to do so would defeat the Congressional intent to moderate the impact of inflation.

 The original complaint as filed claimed jurisdiction for the First Count under 28 U.S.C. § 1337 (civil actions arising under any Act of Congress regulating commerce) or 28 U.S.C. § 1331 (federal question). The federal questions were said to arise under the Social Security Act, 42 U.S.C. § 301, et seq., and under the Welfare and Pension Plan Disclosure Act of 1958, 29 U.S.C. § 301, et seq. The claim asserted was one of conversion and unjust enrichment by reason of deducting, from the contract benefit amount as initially integrated with Social Security disability benefits at the level then established, later increases in those Social Security disability benefits.

 Jurisdiction was also asserted for the Second Count under ERISA, 29 U.S.C. § 1132, as a civil action by a participant or beneficiary against an administrator or fiduciary of an employee welfare benefit plan when injunctive relief is sought in addition to the monetary claim for benefits. This count was advanced on the theory that if full integration with social security as contrasted with "frozen" integration was allowable initially, then when ERISA was enacted September 2, 1974, the offset became "frozen" at the level then existing, and later increases could not be integrated or offset.

 The original complaint was the subject of a motion for summary judgment which was granted in favor of defendant and against plaintiff on a showing that both the group policy and certificate, which dated back to late 1969, contained clear and express language for full integration with Social Security on an "unfrozen" basis, i. e., that the contract provided for payment of excess over and above whatever the Social Security disability benefits amounted to, up to a combined total equal to 70% of basic earnings when Lamb became eligible for policy benefits, and that no public policy was contravened thereby. There was also an undisputed showing that the group insurance policy was terminated in early 1972, more than two years before ERISA was enacted, and that ERISA had no application to the case. *fn9"

 The motion for summary judgment was granted with leave to file an amended complaint, and in due course that was done. A motion for summary judgment directed to the entire amended complaint was filed by defendant, and a cross-motion for summary judgment on the Third Count of the Amended Complaint was filed by plaintiff.

 One of the issues argued on these motions was whether the ruling on the original complaint is res judicata on the amended complaint. Because the court is of the opinion that the motions are best addressed afresh, without confining its analysis and ruling in any way, the res judicata point is not dealt with here.

 Two aspects of federal law on which the claim is grounded are clearly inapplicable. These are discussed separately.

 The first involves the Welfare and Pension Plans Disclosure Act, enacted August 28, 1958 and amended March 20, 1962 (WPPDA), 29 U.S.C. §§ 301-309. This law was repealed by The Employee Retirement Security Act (ERISA), enacted September 2, 1974, in the following language:

 
"The Welfare and Pension Plans Disclosure Act is repealed except that such Act shall continue to apply to any conduct and events which occurred before the effective date of this part." ERISA, Title I, Subtitle B, Part I, § 111(a) (1), 29 U.S.C. § 1031(a)(1); and the effective date of "this part" was January 1, 1975, 29 U.S.C. § 1031(b)(1). *fn10"

 The Disclosure Act (WPPDA), was just that and no more. It was not a regulatory statute but a disclosure statute, and by design endeavored to leave regulatory responsibility to the States. Neither it nor any other combination of federal laws preempted employee welfare or pension plans. See, Malone v. White Motor Corp., 435 U.S. 497, 98 S. Ct. 1185, 55 L. Ed. 2d 443 (1978).

 As is well-known, with the anticipated enactment of ERISA, many employee welfare and pension plans were terminated and new ones put in force, or the earlier plans were amended, to comply with ERISA. The Minnesota statute involved in Malone was eventually ruled invalid as violating the Contract Clause, U.S.Const. Art. I, sec. 10, cl. 1, White v. Malone, 599 F.2d 283 (CA8, 1979) as the result of the decision in Allied, etc. v. Spannaus, 438 U.S. 234, 98 S. Ct. 2716, 57 L. Ed. 2d 727 (1978).

 The only private civil claim created by WPPDA is found in 29 U.S.C. § 308(b) and (c). These provisions subject the administrator of a plan who fails or refuses to make publication of a description of the plan or an annual report, within 30 days of a request therefor by a participant or beneficiary of the plan, to possible liability in the amount of $ 50. a day from the date of the failure or refusal. The requesting person may sue in any court of competent jurisdiction. The administrator may be liable in that amount "in the court's discretion", and the court may also allow a reasonable attorney's fee in its discretion. Such a claim was regarded as a claim for compensation, and not for a forfeiture, fine or penalty, in Hales v. Winn-Dixie Stores, 500 F.2d 836 (CA4, 1974). The compensation, allowance of which is discretionary, is for failure or refusal to disclose and has no relation to a claim for benefits, which is what is involved here.

 The second obstacle to any reliance on WPPDA is that the "administrator" of the plan involved was Overlook Hospital, the employer, not CGLIC, the insurer issuing the policy to the employer as the method for providing the benefits. This is clear from the facts not in dispute, which show that the employer, Overlook, applied for the group policy, and presented to its own employees the opportunity to participate. The policy was issued to Overlook. Overlook, as the employer, gathered the employees' contributions by payroll deduction, added its own contribution, and remitted the premiums to CGLIC. Under the statutory definition, Overlook was both the "employer" (29 U.S.C. § 302(a)(4)) and the "administrator" (29 U.S.C. § 304(b)). It was responsible for the ultimate control, disposition or management of the money received or contributed, to wit, the employee payroll deductions and its own contribution, the total of which it was obliged to remit as premiums paid to CGLIC. See Wirtz v. Gulf Oil Corp., 239 F. Supp. 483 (E.D.Pa., 1965); Hales v. Winn-Dixie Stores, 500 F.2d 836 (CA4, 1974).

 The third and ultimately fatal obstacle to a claim of any kind under WPPDA is that although Overlook's plan or program to provide a disability benefits arrangement to its employees, is an "employee welfare benefit plan", as defined by 29 U.S.C. § 302(a)(1), the coverage section, 29 U.S.C. § 303(a), expressly excludes from WPPDA an employee welfare benefit plan if

 
"such plan is administered by ... organizations described in section(s) 501(c)(3) .... of (the Internal Revenue) Code (of 1954)". 29 U.S.C. § 303(b) (3).

 A stipulation furnished by the parties establishes that Overlook Hospital was a section 501(c)(3) organization and its name continues to appear in the "Cumulative List", issued by the Internal Revenue Service. Thus, this employee welfare benefit plan was never covered by WPPDA, that law never applied to it, and its continuance in force as to any conduct and events occurring before the effective date of Title I, Subtitle B, Part I of ERISA, has no application whatever to this case.

 So far as ERISA itself is concerned, its enactment was on September 2, 1974, by which time the group policy in this case had long been terminated, Lamb was no longer an employee of Overlook and so does not come within either ERISA or any later plan which may have been put into effect by Overlook after the termination of the CGLIC group policy.

 It must be realized that policies of "group" insurance are written for many kinds of groups other than those coming within an employee welfare benefit plan, or an employee pension benefit plan, whether under WPPDA or ERISA. Employees of an employer, or employees who are members of an employee organization (such as a labor union) are but one of many kinds of "groups". Commonly, these groups are composed of persons who are members of some kind of organization without any relation to employee status. There are associations of retired persons. Their members are groups. There are holders of all kinds of credit cards. Such holders are groups. There are borrowers on mortgage or personal loans. Such borrowers, in respect to their common lending institutions, are groups. There are trade associations. Their members are groups. There are professional organizations, national, state, regional and local. Their members are groups.

 All of these groups may negotiate group policies of all kinds with one or another insurer and offer participation to the members of the group. Throughout any year there is hardly a member of any "group" who does not receive in the mail some kind of application for group insurance, whether it be life, accident and health, disability, travel, hospital and medical, or the like.

 None of these forms of group insurance as such, of whatever kind, has any relation to WPPDA or ERISA. They represent a method for providing insurance which, in many cases, can be obtained at rates below those for individual policies. This is not always the case because in some instances, where experience rating is applied to the group, the group premium for a member may be higher than it would be for an individual policy. This occurs most commonly with hospital, medical or dental plans, and least of all with group life, based on what is generally known. *fn11"

 It is worth noting, too, that welfare benefit plans and pension benefit plans are separately defined by WPPDA and carry different requirements.

 A "welfare benefit plan" is one established to provide medical, surgical, hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment. 29 U.S.C. § 302(a)(1).

 A "pension benefit plan", on the other hand, is one established to provide retirement benefits, including a profit-sharing plan which ...


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