Macro v. Independent Health Ass’n
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
CHERYL MACRO and KIM ZASTROW ,
Individually and as Representatives of a
Class of Persons Similarly Situated,
Plaintiffs,
-vs-
01-CV-0504C(SC)
INDEPENDENT HEALTH ASSOCIATION, INC.,
and INDEPENDENT HEALTH CORPORATION,
Defendants.
APPEARANCES: BROWN & KELLY, LLP (LISA T. SOFFERIN, ESQ., of Counsel),
Buffalo, New York, for Plaintiffs.
INDEPENDENT HEALTH ASSOCIATION, INC. (FREDERICK B.
COHEN, ESQ. of Counsel), Buffalo, New York, for Defendants.
INTRODUCTION
Plaintiffs commenced this action in New York State Supreme Court, Erie County,
against defendants Independent Health Association, Inc., and Independent Health
Corporation (referred to collectively herein as “Independent Health” or “defendant”) seeking
to challenge a notice of modification of medical insurance coverage for the treatment of
infertility. The case was removed by defendant to this court pursuant to 28 U.S.C. § 1441
on the basis of original jurisdiction under the Employee Retirement Income Security Act
(“ERISA”). Plaintiffs have moved pursuant to 28 U.S.C. § 1447 to remand the action to
state court, and for alternative relief should the court retain jurisdiction (Item 2). Defendant
has filed a cross-motion to dismiss or for summary judgment pursuant to Fed. R. Civ. P.
12(b) and 56(c) (Item 8). For the following reasons, plaintiffs’ motion to remand is granted.
BACKGROUND
Individual plaintiffs Cheryl Macro and Kim Zastrow are covered by medical insurance
provided under Independent Health’s Encompass Group Health Contract through their
husbands’ employer, the Tonawanda City School District. Both plaintiffs are currently
receiving medical treatment to assist conception, including the prescription drug Repronex
and intrauterine insemination (“IUI”), which is covered by Independent Health. (See Macro
and Zastrow Affs., attached to Item 1, Ex. C).1
Independent Health is a health maintenance organization (“HMO”), certified under
Article 44 of New York Public Health Law to operate in eight counties in the Western New
York region, “through which members of an enrolled population are each entitled to receive
comprehensive health services for an advance or periodic charge . . . .” N.Y. Pub. Health
Law § 4400 (see Item 11, ¶ 1). According to defendant, 80 percent of Independent Health
members are covered under group health contracts offered through their employers and
governed by the substantive provisions of ERISA (id., ¶ 20).2
1Ordinarily on a motion to remand, the court’s determination of removal jurisdiction is confined to
a consideration of the claims set forth in the “well-pleaded” complaint. See, e.g., Metropolitan Life Ins. Co.
v. Taylor, 481 U.S. 58, 63 (1987). However, in a case such as this where ERISA preemption is asserted
as the basis for removal, the court may “look beyond the face of the complaint to determine whether a
plaintiff has artfully pleaded his suit so as to couch a federal claim in terms of state law.” Jass v.
Prudential Health Care Plan, Inc., 88 F.3d 1482, 1488 (7th Cir. 1996); see also 14C Charles A. Wright,
Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3734 at 370 (in practice, federal
courts usually do not limit remand inquiry to face of complaint, but rather consider facts disclosed on
record of case as a whole).
2An “employee welfare benefit plan” governed by ERISA is defined as:
any plan, fund, or program which was heretofore or is hereafter established or maintained
by an employer or by an employee organization, or by both, to the extent that such plan,
fund, or program was established or is maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase of insurance or otherwise, (A)
medical, surgical, or hospital care or benefits . . . .
(continued…)
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In April 2001, Independent Health sent a notice to its group health insurance plan
subscribers advising as follows:
[W]e would like to inform you of a change to the infertility benefit, which will
not become effective until your group health plan’s renewal date, beginning
with groups that renew on July 1, 2001. As some of the other local plans
have done, Independent Health will no longer cover the treatment of infertility
as part of your group health contract, however diagnosis of infertility will be
covered as it has in the past.
(State Court Complaint, Item 2, Ex. A) (emphasis in original). Plaintiffs’ group health plan
renewal date is January 1, 2002 (Item 8, Cohen Aff., ¶ 11).
On June 25, 2001, plaintiffs commenced a proposed class action in state court on
behalf of themselves and all persons similarly situated as insured members of health plans
issued by Independent Health who are being treated for infertility or correctable medical
conditions related to infertility and have received (or will receive) the above notice (see Item
1, Ex. A). The proposed class is alleged upon information and belief to consist of more than
1,200 members (id., ¶ 6). The amended state court complaint, served and filed on July 9,
2001, sets forth eight causes of action challenging the purported exclusion of coverage for
infertility treatment on state statutory and common law grounds (id., Ex. B). Specifically, in
the first cause of action, plaintiffs allege that the exclusion violates several express
provisions of New York Insurance Law, including § 3216(i), which provides as follows:
(A) Every policy which provides coverage for hospital care shall not exclude
coverage for hospital care for diagnosis and treatment of correctable medical
conditions otherwise covered by the policy solely because the medical
condition results in infertility.
(B) Every policy which provides coverage for surgical and medical care shall
not exclude coverage for surgical and medical care for diagnosis and
2(…continued)
29 U.S.C. § 1002(1).
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treatment of correctable medical conditions otherwise covered by the policy
solely because the medical condition results in infertility.
N.Y. Ins. Law § 3216(i)(13)3 (see Item 1, Ex. B, ¶¶ 20-24).
In the second cause of action, plaintiffs challenge the April 2001 notice as
discriminatory in violation of New York Insurance Law and Human Rights Law in that it
results in the provision of diminished health care benefits for persons disabled by infertility
(see Item 1, Ex. B, ¶¶ 25-31). The third cause of action seeks declaratory relief with respect
to the rights and obligations of the parties to the contract (id., ¶¶ 32-36). The fourth cause
of action seeks to enjoin the termination or modification of coverage for the treatment of
infertility or correctable medical conditions related to infertility (id., ¶¶ 37-40). The fifth
cause of action alleges that the April 2001 notice constitutes a breach of contract (id., ¶¶ 41-
44). The sixth cause of action alleges breach of the implied covenant of good faith and fair
dealing (id., ¶¶ 45-52). The seventh cause of action alleges intentional misrepresentation
3Similarly, N.Y. Ins. Law § 3221(k)(6) provides:
(A) Every group policy issued or delivered in this state which provides coverage for
hospital care shall not exclude coverage for hospital care for diagnosis and treatment of
correctable medical conditions otherwise covered by the policy solely because the
medical condition results in infertility.
(B) Every group policy issued or delivered in this state which provides coverage for
surgical and medical care shall not exclude coverage for surgical and medical care for
diagnosis and treatment of correctable medical conditions otherwise covered by the policy
solely because the medical condition results in infertility.
N.Y. Ins. Law § 4303(s) provides:
(1) A hospital service corporation or health service corporation which provides coverage
for hospital care shall not exclude coverage for hospital care for diagnosis and treatment
of correctable medical conditions otherwise covered by the policy solely because the
medical condition results in infertility.
(2) A medical expense indemnity or health service corporation which provides coverage
for surgical and medical care shall not exclude coverage for surgical and medical care for
diagnosis and treatment of correctable medical conditions otherwise covered by the policy
solely because the medical condition results in infertility.
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as to the nature and extent of the coverage offered by defendant for treatment related to
infertility (including conception and pregnancy maintenance), causing plaintiffs to suffer
severe emotional distress (id., ¶¶ 53-62). The eighth cause of action, which was added by
the amended complaint, alleges that the April 2001 notice is deceptive and misleading in
violation of New York General Business Law § 349 (id., ¶¶ 63-71). Plaintiffs seek
compensatory and punitive damages “in a sum according to proof,” in addition to the
specific requests for declaratory and injunctive relief.
Meanwhile, on July 5, 2001, New York State Supreme Court Justice Joseph G.
Makowski granted plaintiffs’ application for an order to show cause why the proposed class
should not be certified and why discovery should not be expedited (Item 1, Ex. C). The
order directed Independent Health to answer the complaint by July 16, 2001, and further
directed the parties to submit responding and reply papers to the court by July 11, 2001
(id.).
On July 13, 2001, defendant served and filed a notice of removal of the action to this
court, asserting original federal jurisdiction and preemption under ERISA, 29 U.S.C. § 1001,
et seq., and/or the Health Insurance Portability and Accountability Act (“HIPAA”), 42 U.S.C.
§ 300gg, et seq. On July 18, 2001, plaintiffs filed a motion to remand the action to state
court on the ground that defendant has failed to establish removal jurisdiction, and in the
alternative for expedited class certification and discovery should the court retain jurisdiction
(see Item 3). In response, Independent Health filed a cross-motion to dismiss or for
summary judgment. Because I find remand to be appropriate, plaintiff’s motion to remand
is granted, and the court is without subject matter jurisdiction to rule on the issues raised
by defendant’s motion.
-5-
DISCUSSION
Plaintiffs contend removal of the action to this court was improper because the
causes of action set forth in the amended state court complaint are based primarily on New
York Insurance Law, and as such are not preempted by ERISA. According to plaintiffs,
because ERISA preemption does not apply, this court has no subject matter jurisdiction and
the case must be remanded to state court.
As an initial matter, when an action is removed from state court, the district court first
must determine whether it has subject matter jurisdiction over the claims before considering
the merits of a motion to dismiss, for summary judgment, or for other relief. See University
of South Alabama v. The American Tobacco Company, 168 F.3d 405, 410 (11th Cir. 1999).
If removal was inappropriate, the court must remand for lack of subject matter jurisdiction,
notwithstanding the pendency of the other motions. Id. at 411; see also Toumajian v.
Frailey, 135 F.3d 648, 655 (9th Cir. 1998) (district court should have remanded for lack of
subject matter jurisdiction and should not have dismissed on grounds of ERISA
preemption).
Under the removal statute, any civil action brought in state court may be removed by
the defendant to federal district court if the district court has original jurisdiction. 28 U.S.C.
§ 1441(a); see Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for
Southern Cal., 463 U.S. 1, 7 (1983). The defendant carries the burden of establishing
removal jurisdiction. See United Food & Commercial Workers Union, Local 919 v.
Centermark Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994). “If at any
time before final judgment it appears that the district court lacks subject matter jurisdiction,
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the case shall be remanded.” 28 U.S.C. § 1447(c); Franchise Tax Bd., 463 U.S. at 7.
Because of its mandatory language, and the significant federalism concerns raised by
removal jurisdiction, the federal courts are directed to construe the removal statute strictly.
See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941). All doubts about
jurisdiction should be resolved in favor of remand to state court. See University of South
Alabama, 168 F.3d at 411(presumption in favor of remand is necessary because if federal
court reaches merits of pending motion in removed case where subject matter jurisdiction
is lacking, it deprives state court of its right under Constitution to resolve controversies in
its own courts; citing cases).
District courts have original jurisdiction over cases “arising under the Constitution,
laws, or treaties of the United States.” 28 U.S.C. § 1331. Under the “well-pleaded
complaint” rule, a cause of action is said to arise under federal law only if a federal question
is presented on the face of the plaintiff’s complaint. Metropolitan Life Ins. Co., v. Taylor,
481 U.S. 58, 62 (1987). Because federal preemption is a defense not appearing on the face
of the complaint, a defendant generally may not remove an action on the basis of federal
preemption. Id. However, a narrow exception to this rule exists where the “preemptive
force of a statute is so ‘extraordinary’ that it ‘converts an ordinary state common-law
complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.’”
Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987) (quoting Taylor, 481 U.S. at 63-64);
see also Marcus v. AT&T Corp., 138 F.3d 46, 52 (2d Cir. 1998).
ERISA is one such statute. Taylor, 481 U.S. at 65-66. ERISA comprehensively
regulates employee welfare benefit plans, including those that provide medical care
“through the purchase of insurance or otherwise . . . .” 29 U.S.C. § 1002(1); Metropolitan
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Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732 (1985). The statute’s express preemption
clause provides that ERISA “shall supersede any and all State laws insofar as they may now
or hereafter relate to any employee benefits plan” covered by the Act. 29 U.S.C. § 1144(a).
A state law “‘relates to’ an employee benefit plan, in the normal sense of the phrase, if it has
a connection with or reference to such a plan.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85,
96-97 (1983).
Claims falling within ERISA’s civil enforcement provisions4 seeking to recover
benefits, to enforce rights, or to clarify rights to future benefits under a plan covered by
ERISA are said to be “completely pre-empted.” Rubin-Schneiderman v. Merit Behavioral
Care Corp., 2001 W L 363050, at *2 (S.D.N.Y. April 10, 2001) (citing Lupo v. Human Affairs
Int’l, Inc., 28 F.3d 269, 272 (2d Cir. 1994)). That is, even if the complaint on its face makes
only state law claims, those claims are generally considered as claims arising under federal
law and removable to federal court if they seek to enforce or clarify rights under an
employee benefit plan that is covered by ERISA. See, e.g., In the Matter of Applications of
Nuclear Generation Employees Association, 145 F.Supp.2d 291, 297 (S.D.N.Y. 2001).
In support of their motion to remand, plaintiffs primarily contend that the claims in this
case are not preempted, and therefore do not arise under federal law, because they fall
within the exception provided by ERISA’s “saving clause.” Plaintiffs also contend, though
less forcefully, that their claims are not preempted because they do not “relate to” an
4Section 1132(a) provides, in pertinent part:
A civil action may be brought . . . by a participant or beneficiary . . . to recover benefits
due to him under the terms of his plan, to enforce his rights under the terms of the plan,
or to clarify his rights to future benefits under the terms of the plan . . . .
29 U.S.C. § 1132(a)(1)(B).
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employee benefit plan within the scope of ERISA’s preemption clause.5 Because claims
based on state laws which purport to “regulate[ ] insurance” are not preempted “even if they
also ‘relate to’ employee benefit plans,” Shackelton v. Conn. General Life Ins. Co., 817
F.Supp. 277, 281 (N.D.N.Y. 1993), the court’s analysis will focus on the application of the
saving clause (cf., Marcella v. Capital District Physicians Health Plan, Inc., 47 F.Supp.2d
289, 293 (N.D.N.Y. 1999) (citing Shackelton)).
The saving clause, set forth at 29 U.S.C. § 1144(b)(2)(A), provides that “nothing in
[the ERISA statute] shall be construed to exempt or relieve any person from any law of any
State which regulates insurance, banking, or securities.” As explained by the Second
Circuit in Franklin H. Williams Ins. Trust v. Travelers Ins., 50 F.3d 144 (2d Cir. 1995), two
tests have been used by the courts to determine if a state law is one which “regulates
insurance” for the purpose of applying the saving clause. Id. at 150 (citing Metropolitan Life,
471 U.S. at 740 (1985)). Under the so-called “common sense” test, a court considers the
ordinary, common-sense meaning of the term “regulate,” which “lead[s] to the conclusion
that in order to regulate insurance, a law must not just have an impact on the insurance
industry, but must be specifically directed toward that industry.” Id., 50 F.3d at 150 (quoting
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 50 (1987). The second test is borrowed from
cases interpreting the McCarran-Ferguson Act, 15 U.S.C. § 1012, which subjects the
insurance industry to the federal antitrust laws. Under this test, three factors are
5At oral argument, plaintiffs cited New York State Conference of Blue Cross & Blue Shield Plans
v. Travelers Ins. Co., 514 U.S. 645 (1995), and American Drug Stores, Inc. v. Harvard Pilgrim Health
Care, Inc., 973 F.Supp. 60 (D.Mass. 1997), as general caselaw support for their contention that the state
Insurance Law provisions at issue in this case are not preempted because they do not “relate to”
employee benefit plans. Because I find that those provisions fall squarely within ERISA’s saving clause
(as demonstrated in the text infra), and are exempted from preemption even if they also “relate to”
employee benefit plans, I do not find it necessary to directly address the precedential value of these
additional cases cited by plaintiff.
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considered: first, whether the practice has the effect of transferring or spreading
policyholder’s risk; second, whether the practice is an integral part of the policy relationship
between the insurer and the insured; and third, whether the practice is limited to entities
within the insurance industry. Franklin H. Williams, 50 F.3d at 149 (citations omitted).
In the Metropolitan Life case, the Massachusetts Attorney General brought suit in
state court for declaratory and injunctive relief to enforce a state statute which mandated
minimum mental healthcare benefits. Applying both a “common sense” approach and the
McCarran-Ferguson factors, the Supreme Court held that the state statute was not
preempted because it regulated insurance within the meaning of ERISA’s saving clause.
Metropolitan Life, 471 U.S. at 742-45. The Court described Massachusetts’ mandated-
benefit law as “only one variety of a matrix of state laws that regulate the substantive
content of health-insurance policies . . . ,” id. at 729, and noted that while ERISA
“establishes various uniform procedural standards” for employee benefit plans, “[i]t does not
regulate the substantive content of welfare-benefit plans.” Id. at 732 (citing Shaw, 463 U.S.
at 91). The Court also found
[no] contrary case authority suggesting that laws regulating the terms of
insurance contracts should not be understood as laws that regulate
insurance. In short, the plain language of the saving clause, its relationship
to the other ERISA pre-emption provisions, and the traditional understanding
of insurance regulation, all lead us to the conclusion that mandated-benefit
laws such as [the Massachusetts statute] are saved from pre-emption by the
operation of the saving clause.
Id. at 744.
In Franklin H. Williams, an insurance trust sued the Travelers Insurance Company
in state court seeking compensatory and punitive damages for violations of New York
Insurance Law § 3214(c), which requires interest on the proceeds of a life insurance policy
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to be computed from the date of death (as opposed to the date of filing of the claim, which
was the date used by Travelers). The plaintiff also asserted common law causes of action
for breach of contract and conversion. Invoking ERISA preemption, Travelers removed the
action to federal court. Summarizing pertinent Supreme Court precedent, the Second
Circuit explained:
“ERISA preemption, without more, does not convert a state claim into an
action arising under federal law” for removal purposes. . . . [T]he “more” [is]
provided when the state claim falls “within the scope of [ERISA’s civil
enforcement provisions]. But there must first be preemption, which is a
necessary precondition to removal. Thus, when preemption is precluded by
the saving clause, removal is also barred.
Franklin H. Williams, 50 F.3d at 149 (citations omitted). Upon application of both the
“common sense” and McCarran-Ferguson tests, the Second Circuit found that § 3214(c)
was saved from preemption under § 1144(b)(2)(A). Franklin H. Williams, 50 F.3d at 149-51.
The court viewed the state insurance law provision at issue, concerning the amount of
payment to which an insured is ultimately entitled, “similar to the statute addressed in
Metropolitan Life, and . . . precisely the type of statute that Congress intended to save from
ERISA preemption.” Id. at 151. Finding the case improperly removed, the Circuit directed
remand of the entire action–statutory and common law claims alike–to state court.
Other cases decided within this circuit have followed the precedent of Metropolitan
Life and Franklin H. Williams, holding that claims brought under state statutes which
regulate insurance are not subject to ERISA preemption for the purpose of federal court
removal jurisdiction. For example, in Trapanotto v. Aetna Life Insurance Co.-Aetna Health
Plans, 1996 W L 417519 (S.D.N.Y. July 25, 1996), the plaintiff brought an action in state
court against his group health plan insurer to enforce provisions of New York Insurance Law
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§§ 3216 and 3221 (the same general statues relied upon by plaintiffs in this case) which
except certain medical expenses for minors from annual deductibles and coinsurance
payments. The plaintiff also stated claims for breach of contract, common law fraud, and
unfair trade practices under New York General Business Law § 349, and styled the case as
a class action on behalf of all persons similarly situated. The insurer removed the case to
federal court, asserting ERISA preemption. The district court remanded, finding that the
state statutes relied on were not preempted because they did not sufficiently “relate to” an
employee benefits plan; and even if they did, they were exempted from preemption by
ERISA’s saving clause. The court focused primarily on § 3221, which sets forth standard
provisions, guidelines and basic requirements for insurers. First, discussing at length the
impact of the holdings in New York State Conference of Blue Cross & Blue Shield Plans v.
Travelers Ins. Co., 514 U.S. 645 (1995) (“Travelers I”), and Travelers Ins. Co. v. Pataki, 63
F.3d 89 (2d Cir. 1995) (“Travelers II”), the Trapanotto court found as follows:
Section 3221 solely targets the insurance industry. Its effect on employee
benefit plans is no different, and no more acute, than scores of New York
statutes which can be said to indirectly bring some economic pressure to bear
on the costs of health insurance. While doing nothing to further ERISA’s
primary purpose, preempting § 3221 would read the limiting “relate to”
language out of ERISA and invite, without Congressional direction,
preemption in an area traditionally left to the states.
Trapanotto, 1996 W L 417519, at *6. The court then addressed the application of the saving
clause, finding that § 3221 easily passed both the “common sense” and McCarran-Ferguson
tests. Specifically, the Trapanotto court stated that § 3221 “‘does not merely have an
impact on the insurance industry; it is aimed at it. . . .’ Therefore, even if it were sufficiently
‘related to’ employee benefit plans to trigger ERISA’s preemption clause, § 3221 would be
excepted from preemption by ERISA’s saving clause.” Id. at *7.
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More recently, in Natoli v. First Reliance Standard Life Insurance Co., 2001 W L
15673 (S.D.N.Y. January 5, 2001), the plaintiff brought a state court action against his
employer’s long-term disability insurance carrier alleging that the carrier’s policy, which
limited benefits for “mental” disabilities to two years but did not limit benefits for “physical”
disabilities, violated the anti-discrimination provisions of New York Insurance Law § 4224.
The insurer removed the case to federal court, and moved to dismiss pursuant to
Rule 12(b)(6) on the basis of ERISA preemption. Recognizing the plaintiff’s apparent
concession that § 4224 “relates to” an employee benefit plan within the meaning of ERISA’s
preemption clause, the court focused on “the crux of the parties’ dispute,” i.e., whether the
statute “‘regulates insurance’ such that it escapes preemption under ERISA’s saving
clause.” Id., 2001 W L 15673, at *2. Upon application of the “common-sense” and
McCarran-Ferguson tests, the court in Natoli found the statute exempt from ERISA
preemption under the saving clause. Id. at *3-*5. The court also found no need to reach
the plaintiff’s alternative argument that his insurance law claim did not come within ERISA’s
civil enforcement provisions, id. at *5 & n. 3, and neither subject matter jurisdiction nor
supplemental jurisdiction to reach the defendant’s arguments for dismissal. Id. at *5 & n. 4.
Selby v. Principal Mutual Life Insurance Company, 2000 WL 178191 (S.D.N.Y.
February 16, 2000), is apparently the only decision thus far to have considered whether
ERISA’s saving clause applies to any of the state insurance law provisions sought to be
enforced by plaintiff in this case. Selby did not involve removal jurisdiction. Instead, the
Selbys brought suit in federal court under both ERISA and the state insurance law after their
health insurance company denied coverage for treatment related to Ms. Selby’s several
miscarriages. Specifically, Count Two of the complaint sought relief pursuant to
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§ 3221(k)(6) of the New York Insurance Law, one of the provisions relied upon by plaintiffs
here. The insurer moved to dismiss Count Two on the ground that it was preempted by
ERISA. Relying on Metropolitan Life and Franklin H. Williams, and based primarily on the
defendant’s concession that § 3221(k)(6) is not preempted by ERISA because it falls within
the scope of the saving clause, the district court denied the motion to dismiss the state law
claim. The court noted in passing, “without deciding, that § 3221(k)(6) is a law regulating
insurance and thus is saved from preemption . . . [and] that the statute may also withstand
preemption because it may not ‘relate to’ employee benefit plans within the meaning of
ERISA’s preemption clause.” Selby, 2000 W L 178191, at *3 n. 6 (citing Trapanotto, 1996
WL 417519, at *5-6).
Based on this precedent, and focusing on “the crux of the parties’ dispute,” Natoli,
2001 W L 15673, at *2, I find that the state law claims set forth in plaintiff’s amended
complaint fall within ERISA’s saving clause, and are exempt from preemption. First of all,
a common-sense reading of the statutory language reveals that the Insurance Law
provisions sought to be enforced by plaintiff are clearly and obviously directed toward the
insurance industry. Each provision contains a mandatory prohibition against an insurance
policy’s exclusion of health insurance coverage for diagnosis and treatment of a correctable
medical condition solely because the condition results in infertility. As noted in the Selby
case, these provisions “regulate[ ] the substantive content of benefit plans by requiring
coverage for correctable medical conditions that result in infertility if those conditions are
otherwise covered by the plan.” Selby, 2000 W L 178191, at *3 n. 4. Under this
straightforward, “common-sense” analysis, the state law relied upon by plaintiff undeniably
regulates insurance. See Trapanotto, 1996 W L 417519, at *7 (N.Y. Ins. Law § 3221 “does
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not merely have an impact on the insurance industry; it is aimed at it.”) (quoting FMC Corp.
v. Holliday, 498 U.S. 52, 61 (1990)).
In addition, the three McCarran-Ferguson factors are met. First, each Insurance Law
provision cited by plaintiff prohibits medical insurance carriers from excluding coverage for
certain conditions, thereby increasing the cost of the policy and ultimately having the effect
of transferring or spreading the cost – and the risk – among policyholders. Second, since
the prohibition is framed in mandatory language, it constitutes “an integral part of the policy
relationship between the insurer and the insured.” In Metropolitan Life, the Supreme Court
held that a statute meets this prong if it “limit[s] the type of insurance that an insurer may
sell to the policyholder.” 471 U.S. at 743. Sections 3216(i)(13), 3221(k)(6) and 4303(s)
satisfy this criterion by prohibiting the exclusion of coverage for treatment of a correctable
medical condition solely because the condition results in infertility. Third, because these
provisions directly regulate the terms of health insurance policies, rather than express a
general rule of law, they are “limited to entities within the insurance industry.” Cf. Franklin
H. Williams, 50 F.3d at 150 (“At a minimum, there is no clear failure to satisfy any
McCarran-Ferguson standard in this case.”). Finally, defendant has cited “[no] contrary
case authority suggesting that [the state insurance laws relied on by plaintiffs] should not
be understood as laws that regulate insurance.” Metropolitan Life, 471 U.S. at 744.
Seeking to bolster the argument for remand, plaintiffs additionally contend that the
group health care plan under which they are covered, maintained for the employees of the
Tonawanda City School District, is a “governmental plan” as defined at 29 U.S.C.
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§ 1002(32),6 and exempt from ERISA’s coverage pursuant to 29 U.S.C. § 1003(b)(1).7
Indeed, this was the holding of United States Magistrate Judge Leslie G. Foshio in Clark v.
Group Plan for Employees of North Tonawanda Public Schools, 845 F.Supp. 117 (W.D.N.Y.
1994), with respect to a self-insured group health plan formed by the North Tonawanda
Public Schools for the benefit of its employees. See id. at 120 (citing Feinstein v. Lewis,
477 F.Supp. 1256 (S.D.N.Y. 1979) (employee benefits plans established under collective
bargaining agreements between union and school districts, funded entirely by employees,
are governmental plans exempted from ERISA), aff’d, 622 F.2d 573 (2d Cir. 1980);
Lovelace v. Prudential Insurance Company of America, 775 F.Supp. 228 (S.D.Ohio 1991)
(same for plan covering city public school system employees, even though plan was issued
and administered by private insurer); see also Opinion of U.S. Department of Labor, Office
of Pension and Welfare Benefit Programs, No. 79-83A (November 20, 1979) (Health and
Welfare Fund of the Philadelphia Federation of Teachers, which provided health, disability,
retirement, and death benefits to employees and their families, held to be a governmental
plan within the meaning of ERISA)).
Despite ample opportunity to do so, defendant has not come forward with any
explanation as to why the group health care plan maintained for the employees of the
629 U.S.C. § 1002(32) provides:
The term “governmental plan” means a plan established or maintained for its
employees by the Government of the United States, by the government of any State or
political subdivision thereof, or by any agency or instrumentality of any of the foregoing.
. . . .
729 U.S.C. § 1003(b)(1) provides:
The provisions of [ERISA] shall not apply to any employee benefit plan if . . . such plan is
a governmental plan (as defined in section 1002(32) of this title) . . . .
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Tonawanda City School District should not be subject to the same exemption from ERISA
as the plan maintained for the employees of the North Tonawanda Public Schools.
Accordingly, based on the authority of Clark v. Group Plan for Employees of North
Tonawanda Public Schools and the cases cited therein, I agree that the group health care
plan under which the individual plaintiffs are covered is a “governmental plan” as defined
at 29 U.S.C. § 1002(32), and is exempt from ERISA’s coverage pursuant to 29 U.S.C.
§ 1003(b)(1).
Plaintiffs also contend their claims are not preempted because Independent Health
is not a “fiduciary” against whom suit can be brought under ERISA, citing Pegram v.
Herdich, 530 U.S. 211 (2000). In light of the court’s finding that the claims fall within the
saving clause, as well as defendant’s concession of this point (see Item 22, p. 3 n. 1), I find
it unnecessary to address this contention.
Finally, defendant argues that even if the claims of the named representative
plaintiffs are not preempted, the amended complaint makes allegations on behalf of
prospective class members that implicate ERISA plans. The same argument was expressly
rejected by the court in Berthelot v. Stallworth, 2000 WL 222155 (E.D.La. February 18,
2000), a case cited by both parties. As noted in Berthelot, prior to class certification
pursuant to Fed. R. Civ. P. 23, the only plaintiff before the court is the representative party.
Id. at *2. “Consequently, a court without jurisdiction over the claims of the named party
likewise has no jurisdiction over the claims as they pertain to the prospective class. Id.
(citing Board of School Comm’rs of City of Indianapolis v. Jacobs, 420 U.S. 128 (1975)).
As stated in Berthelot, “[t]he court’s ability to assert jurisdiction over potential members of
a potential class is irrelevant for purposes of determining whether this court has federal
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question jurisdiction over this matter . . . because none of these individuals with ERISA
plans are before the court.” Id.
Based on this analysis, I find that plaintiffs’ claims are saved from ERISA preemption
under 29 U.S.C. § 1144(b)(2)(A), and are exempt from ERISA regulation under 29 U.S.C.
§ 1003(b)(1). Defendant has therefore failed to meet its burden of establishing removal
jurisdiction based on a cause of action arising under federal law. Accordingly, the court is
without jurisdiction to consider defendant’s motion to dismiss, removal was improper, and
the entire case must be remanded to state court for lack of subject matter jurisdiction.
CONCLUSION
Based on the foregoing, plaintiffs’ motion (Item 2) to remand the case to New York
State Supreme Court is granted. The Clerk of the Court is directed to take whatever steps
may be necessary to cause the remand, and to close the file. Defendant’s cross-motion to
dismiss (Item 8) is hereby rendered moot.
So ordered.
Dated: October 25, 2001
JOHN T. CURTIN
United States District Judge
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