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When a union “endorses” an insurance policy by allowing the union logo to be used in sales brochures and refers to the policy as part of its benefits package, a federal judge has ruled that the policy is covered by ERISA — even if the union made no decisions on claims and played no role in drafting the policy. In his 31-page opinion in Schneider v. UNUM Insurance Co., U.S. District Judge Franklin S. Van Antwerpen found that such a policy does not fall within ERISA’s “safe harbor” provisions. While Van Antwerpen found that ERISA pre-empted several of Julius Schneider’s state-law claims and that the claims must be dismissed, the decision can hardly be described as a victory for UNUM. Van Antwerpen also found that Schneider had the right to pursue four state-law claims relating to alleged violations of Pennsylvania insurance law by UNUM. In a significant victory for the plaintiff, Van Antwerpen went on to consider and reject UNUM’s arguments that all four claims should be dismissed on summary judgment. For each claim, the judge found issues exist that a jury must decide. In the suit, Schneider claims that UNUM offered a “long-term care” insurance policy to members of the Pennsylvania State Education Association (PSEA) on an “open enrollment basis” beginning in 1995. Open enrollment meant that union employees could get coverage without providing any information about their medical history. Schneider, who has multiple sclerosis, claimed that he spoke with UNUM representatives twice to confirm that his MS would not preclude him from coverage. Both times, he claimed he was assured it would not. For three years, Schneider paid premiums on the policy until his MS rendered him completely disabled and in need of benefits in January 1998. But UNUM denied his claim on the grounds that his policy never took effect since he was already “totally disabled” at the time he enrolled. Schneider’s lawyer, Wallace B. Eldridge of Allentown, filed a suit that accused UNUM of violating several provisions of Pennsylvania insurance law and sought damages for breach of contract, denial of benefits and violations of Pennsylvania’s consumer protection law. UNUM’s lawyer, E. Thomas Henefer of Stevens & Lee in Reading, moved for summary judgment on all of the claims. Van Antwerpen found that the court’s first task was to decide whether the policy was covered by ERISA. Henefer argued that the policy met all of the standards for being considered a “welfare benefit plan” that was offered by an “employee organization.” But Eldridge insisted that the policy fell within the Department of Labor’s “safe harbor” provision, as well as ERISA’s “savings clause.” Van Antwerpen found that while the safe harbor provision does not apply to UNUM’s long-term care policy, not all of Schneider’s state-law claims are pre-empted by ERISA since the savings clause creates an exception for claims under Pennsylvania insurance laws. To trigger the safe harbor provision, Van Antwerpen said, Schneider would have to show that his union was completely “neutral.” “Plans are not subject to ERISA [under the safe harbor] in cases where employers are disconnected from the program such that it is clear that the program represents a third party’s offering to employees,” Van Antwerpen wrote. Van Antwerpen found that the appearance of the union’s logo and its reference to the policy as part of the union’s long-term employee benefits package “would lead a reasonable employee to conclude that PSEA endorsed UNUM’s plan.” As a result, Van Antwerpen dismissed Schneider’s breach of contract and consumer protection claims, but allowed him to pursue declaratory relief on all of the insurance law claims. Henefer moved for summary judgment on all four of the insurance claims, but Van Antwerpen found that for each one, there were factual disputes that must be decided at trial. In the first claim, Schneider argued that the UNUM policy’s exclusion of persons that are “totally disabled” is impermissible under 31 Pa. Code Section 98.94, which prohibits coverage exclusions which are “ambiguous or unfairly discriminatory.” The policy defines “totally disabled” persons that “because of an injury or a sickness … are unable to perform each of the duties or activities of a person of the same age and sex in good health.” Eldridge argued that such a definition is inherently ambiguous and discriminatory toward those with permanent disabilities. When Schneider enrolled, Eldridge said, he was aware of, and forthright about, his MS diagnosis and had obtained a letter from his doctor deeming him able to work. He also testified that he told an UNUM representative about the extent of his physical limitations before enrolling and was assured that he would be covered. But Henefer argued that the policy’s definition of “totally disabled” was sufficiently clear to notify Schneider that, despite his conversations with UNUM representatives, he was in fact never covered by the policy. Van Antwerpen found that reasonable minds could clearly disagree about the meaning of the policy. In short, the judge said, the clause is ambiguous. And in a significant victory for Schneider, the judge went on to find that enforcement of the exclusion could violate public policy. “The policy language makes it possible for UNUM to disqualify any insured who at the time of enrollment was unable to perform ‘each of the duties or activities of a person of the same age and sex in good health.’ Taken literally, this language could unfairly exclude a large number of insureds,” Van Antwerpen wrote. “Such a situation is unacceptable because, among others, it transfers a disproportionate amount of risk to policyholders. We therefore conclude that such policy language is ambiguous and must be construed against the insurer,” he wrote. In his second claim, Schneider argued that UNUM’s reliance on the “totally disabled” policy exclusion after offering the policy on an open enrollment basis constitutes “post-claims underwriting” in violation of 31 Pa. Code Section 89.908(d). Eldridge argued that UNUM’s open enrollment policy permitted it to charge a higher premium due to the lack of a formal application process, and therefore applying the exclusion to Schneider would unfairly benefit UNUM by preventing the insurer from needing the higher premiums to offset Schneider’s medical risks. Henefer responded by arguing that the policy was not deemed invalid due to underwriting criteria, but instead that Schneider was never covered at all since he was totally disabled at the time of enrollment. Van Antwerpen found that both sides have evidence to back up their claims. While UNUM said it can prove that Schneider was already disabled when he enrolled, Schneider said he can prove that doctors were telling him to keep working and that UNUM knew all about his medical condition and assured him of future coverage. “We find that these conflicting accounts of Mr. Schneider’s condition and UNUM’s reaction thereto constitute genuine issues of material fact,” Van Antwerpen wrote.

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