In the News
Mealey's Litigation Report: Disability Insurance
Vol. 2, #11, May 2002
Illinois Employer Sues Disability Insurer Alleging Fraud, Deceptive Practices*
BELLEVILLE, Ill.—An employer has sued its disability insurer, alleging claims of consumer fraud and violations of the Illinois Consumer Fraud and Deceptive Practices Act. The parties are disputing whether a federal jurisdiction question exists or whether the action should be remanded to state court (William A. Mueller d/b/a The Bankruptcy enter v. Standard Insurance Co., No. 02-349-DRH, Ill. Cir., St. Clair Co.).
(Complaint in Section F. Document #17-020522-105B. Standard's reply brief available. Document #17-020522-016B. Mueller's response brief available. Document #17-020522-017B.)
William A. Mueller, d/b/a/ The Bankruptcy Center, an employer law firm, on March 25 sued Standard Insurance Co., the insurer it had contracted with to provide its employees with short- and long-term disability benefits. The Complaint alleges claims of common law fraud and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.
Allegations
The Mueller law office alleges that Standard promised to provide a quality of service; said its policy was "people, not just policies"; promised to provide benefits to those who were disabled did not say that a claimant would have to provide "compelling proof" of disability; did not state that it would conduct paper reviews and use them as a basis to deny claims; and did not mention that it would conduct "shoddy, biased investigations" targeted toward claim 100denials.
The complaint refers to Standard's handling of the disability claim of Mueller law office employee Lynda Cheatham. Cheatham filed a claim for disability benefits after she was diagnosed with congestive heart failure, upper respiratory infection and other illnesses. Cheatham was only allowed to return to work four hours a day based on recommendations by her treating doctor, who said she became extremely fatigued, disoriented, dizzy and sometimes had blackouts.
The Mueller law office alleges that Standard's denial of Cheatham's claim was without good reason or cause, was done without a proper investigation, was done without contacting her treating physician, was done without putting people over policies and was done without providing quality disability coverage.
Standing To Sue
Standard removed the action to federal court, claiming federal subject matter jurisdiction under ERISA; Bankruptcy Center filed a motion to remand on April 26. On April 29, the St. Clair County Circuit Court issued a sua sponte order requiring the parties to brief the jurisdiction question. Standard filed its response brief on May 10 and the plaintiff filed its reply on May 17.
In its memorandum in support of its motion to remand, the plaintiff argues that ERISA is not applicable in this case.
"Plaintiff is not one of the parties entitled to have standing under ERISA and therefore there is no federal subject matter jurisdiction." Bankruptcy Center argues.
The plaintiff says Madden v. Country Life Insurance Co. (835 F. Supp. 1081 [N.D. Ill., 1993]), in which an Illinois federal court found that there was no ERISA preemption and sent the case back to state court, is instructive. The plaintiff in Madden was a partner in a law firm that alleged state law claims against it insurer.
Madden Ruling
The Madden court found that ERISA preempts only state law claims when the plaintiff fits within the definition of the parties entitled to relief under Section 502.
The Court in Madden summed up why employers are not parties who can bring ERISA claims, and why jurisdiction is not preempted by holding, '[p]ut another way, in order for plaintiff's state law claims to be completely preempted . . . he must be entitled to bring an ERISA claim; that is he must have been a "participant" or "beneficiary.'" Here Plaintiff is neither and , as in Madden, the case must be remanded back to state court," the Mueller law office argues.
The plaintiff also cites the ruling in Giordano v. Jones (867 F.2d 409 [7th Cir. 1989]), in which the court dismissed an ERISA claim by an employer, finding that employers do not have standing to sue under ERISA.
"Here Plaintiff is not suing to recover benefits or to enforce an employee's rights under the plan. He is also not seeking to clarify future benefits. It would be improper for him to do so, as those rights are for the person whose claim was denied—employer's employee. Further, Plaintiff is not a participant or beneficiary. Because Plaintiff is not a party who has standing to bring an ERISA claim, there is no ERISA claim and hence there is no federal subject matter jurisdiction," Mueller law office argues.
Assignee/Beneficiary
In its response brief, Standard argues that ERISA applies to the Mueller law office's complaint and that the case was properly removed. Standard argues that the "true thrust" of the complaint is one for improper claims handling of denial of benefits to Cheatham.
"The complaint alleges myriad facts related to Standard's wrongful and improper conduct but a considered analysis of the Complaint reveals that the core and essence of the allegations of the Complaint involve that area of law related to the processing, administration and e\denial of a claim for benefits under an insured employee benefit plan; an area of the law that displaces state law claims by reason of complete preemption under the federal law of ERISA," Standard says.
Standard argues that the court can look beyond the Mueller law office's complaint under the complete preemption doctrine and find that the complaint actually arises from federal law. Standard says Mueller law office is actually bringing a Section 502 claim as a beneficiary.
"The Mueller law office is clearly advancing Cheatham's benefit claim and is acting in the capacity of an assignee of Cheatham and Cheatham's claim for disability benefits," Standard says.
'False Assumption'
In its reply, Mueller law office contends that Standard's entire argument is based on the false assumption that it is a participant or beneficiary.
"Plaintiff is neither an assignee nor a beneficiary and Defendant has not shown any scintilla of evidence to support its false assumption. Because Plaintiff is neither and assignee or beneficiary there is no jurisdiction," the Mueller law office argues.
Chris J. Kolker Jr. of Belleville, Ill., represents Mueller. Standard is represented by Michael J. Smith of Michael J. Smith & Associates in Chicago and Jerome E. McDonald of Campbell, Black, Camine, Hedin, Ballard & McDonald in Mount Vernon, Ill.