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Theresa Harding v. Provident Life and Accident

August 19, 2011


The opinion of the court was delivered by: Judge Nora Barry Fischer



In this case, the parties dispute whether a long-term disability plan purchased by Plaintiff Theresa Harding ("Plaintiff" or "Harding") from Defendant Provident Life and Accident Insurance Company of America ("Provident") constitutes an ERISA*fn1 plan, thereby preempting Plaintiff's state law claims for breach of contract, bad faith and unfair trade practices against Provident and Defendant Unum Group ("Unum") (collectively, "Defendants"). *fn2 This dispute was initially presented by way of a motion to dismiss under Rule 12(b)(6) filed by Defendants. (Docket No. 5). However, because the parties presented evidence outside the pleadings in support of their respective positions, including affidavits and documentary evidence, the Court entered an Order converting Defendants' motion to dismiss to a motion for summary judgment pursuant to Rule 12(d) of the Federal Rules of Civil Procedure. (Docket No. 16). The parties have not objected to this procedure nor have they submitted any further evidence after being notified of the Court's conversion of the motion to a motion for summary judgment. Upon consideration of all of the parties' submissions and for the reasons outlined herein, Defendants' motion for summary judgment [5] is GRANTED.


Unless otherwise specified, the facts of record are uncontested. Viewed in the light most favorable to Plaintiff, they are as follows. See Watson v. Abington Twp., 478 F.3d 144, 147 (3d Cir. 2007).

A. Plaintiff's Background

Plaintiff was formerly the Controller for Secon Corporation ("Secon"), a real estate company in the Pittsburgh area. (Harding Affidavit 4/4/11, Docket No. 11-1 at 2); see also (last visited 8/9/11). Among her duties at Secon, Plaintiff prepared certain forms, including IRS Form 5500, to ensure that Secon's employee benefit plans complied with the requirements of ERISA. (Id.). To this end, Plaintiff prepared ERISA compliance documents for Secon's health insurance plan, an AFLAC plan, and a Provident short-term disability plan. (Harding Affidavit 6/8/11, Docket No. 15-1 at 9). Plaintiff declares that these plans were all part of the Secon Corporation Flexible Benefits Plan and each of these plans were offered to all employees. (Id.).

B. Relationship Between Insurance Agent Angiulli and Secon Corporation

John M. Angiulli is an insurance agent with Angiulli & Associates who was authorized to sell disability policies on behalf of Provident in March of 1999. (Docket Nos. 5-7 at 2, 11 at 4).

Angiulli sold Secon its short-term disability plan as part of its Secon Corporation Flexible Benefits Plan, which Secon actively set up as an ERISA plan. (Docket No. 15 at 3-4). In March 1999, Angiulli gave a presentation to Secon employees about purchasing individual long-term Provident Disability Income Policies ("long-term disability policies"). (Docket Nos. 11-1 at 2, 4; 15-1 at 9, 27). Secon employees were not required to purchase these policies and some employees declined to purchase long-term disability policies. (Id.). Luana Sevick, the present Controller at Secon, states that the employees who purchased the long-term disability policies understood that: the policies were individually owned; Secon did not manage them; each individual's premium would be sent by Secon to Provident after being deducted from their paychecks; and, they would be a granted a small discount on the premiums as a result of this payment arrangement between Provident and Secon.*fn3 (Sevick Letter May 3, 2011, Docket Nos. 11-1at 6, 15-1 at 13).

Plaintiff and Anguilli do not believe that the individual policies were ever made a part of an ERISA plan. (Angiulli Affidavit 5/4/11, Docket Nos. 11-1at 4, 15-1 at 27; Harding Affidavit April 4, 2011, Docket No. 11-1 at 2). Neither Angiulli nor the Plaintiff, who was Controller of Secon at the time, performed any direct action (i.e. filing an IRS Form 5500) to formally make the long-term disability policies that were purchased by Secon employees part of an ERISA plan.*fn4 (Id.). Likewise, Secon's present Controller, Luana Sevick, asserts that the long-term disability policies were never formally made an ERISA plan by Secon. (Sevick Affidavit May 3, 2011, Docket Nos. 11-1at 7, 15-1 at 12). However, Secon formally complied with ERISA regulations to make, establish or administer a number of employee benefit plans, thereby making these plans ERISA-compliant, including an AFLAC plan, employees' health insurance, and a UNUM short-term disability plan.*fn5 (Harding Affidavit June 8, 2011, Docket No. 15-1 at 9).*fn6

C. Payment Arrangement Between Secon and Provident

It is undisputed that Secon acted as an intermediary between its employees and Provident such that the employees' premiums were deducted from their respective paychecks and paid to

Provident by Secon. (Docket Nos. 1-1 at ¶ 5; 5-2 at ¶ 7, 11-1 at 6). For example, the record includes a premium notice sent by Provident to Secon on August 6, 1999 (due date August 26, 1999) detailing the premiums due for each employee and specifically noting Plaintiff's monthly premium ($26.23) and policy number (7160082). (Docket No. 1-1 at 49-50). In this correspondence, the Total Premium on the invoice for the listed Secon employee group was $248.98. (Id. at 50). On at least one occasion, Secon paid Provident three times the monthly premium amount due by the employee group as evidenced by a check from Secon to Provident for $746.94, which is exactly three times the monthly payment typically due from the Secon employee group (i.e., $248.98 x 3 = $746.94). (Id. at 51-52).

D. Employer Discount Group Arrangement between Secon and Provident Employees of Secon Corporation who purchased long-term disability insurance through Provident received a twenty-percent Salary Allotment Discount. (Docket No. 1 at ¶ 14). The evidence is undisputed that the Secon employees would not have received the discount if they were not part of the employer discount group. To this end, Sevick, Secon's Controller, admits that "[t]he employees understood . that they would receive a small discount based on the fact that the premium would be a direct deduction from their paycheck, and forwarded by Secon Corporation to Unum Provident." (Sevick Letter 5/3/11, Docket Nos. 11-1 at 6, 15-1 at 13 (emphasis added)). Likewise, a representative of Provident, Devra J. Kotel, an I.D. Chief Underwriter, declares that "Ms. Harding received this Policy by virtue of her employment at Secon at a 20% premium discount, as part of a Risk Group of eligible Secon Employees." (Kotel Affidavit, Docket No. 5-2 at ¶¶ 1, 4 (emphasis added)).

This risk group arrangement is also evidenced by two faxes which originated from John Angiulli's office. (Docket Nos. 5-7 at 2). One fax, dated September 19, 2007, requests an additional registration to the Secon Corporation Risk Group and a call to confirm the registration. (Docket No. 5-7 at 5). Another fax, dated March 6, 2008, contains a request for a multi-life quote from Angiulli for fourteen Secon employees. (Id. at 2-4). This fax is followed by an email between Unum employees, including Kotel, in which he states that he is willing to provide a fully underwritten insurance quote based on the Secon employees' income. (Id.).

E. Plaintiff's Policy

After Anguilli's presentation, Plaintiff completed an application for a long-term disability policy with Provident on March 23, 1999. (Docket No. 1-1 at 36). Plaintiff's application contained personal information and medical history relevant to determining whether or not she was eligible for coverage. (Id. at 33-35). Plaintiff was deemed eligible for coverage and she was issued policy number 66-450GR-7160082 ("Policy"), which took effect on April 1, 1999. (Id. at 14). The terms of the Policy included up to five years of disability benefits, and also included a Residual Disability Benefit Rider which provided up to twenty-four months of coverage for residual disability benefits. (Id. at ¶ 4). Plaintiff's net monthly premium was $26.23. (Id. at 14). The Maximum Benefit Period for Total Disability prior to the Policy owner's sixtieth birthday was sixty months, but the Maximum Benefit Period was scheduled to decrease yearly if the disability occurred after the Policy owner reached age sixty. (Id. at 15).

Plaintiff's Policy indicates, in both the "GUIDE TO POLICY PROVISIONS" and the "POLICY SCHEDULE," that the Policy contains a "Residual Disability Benefit Rider." (Id. at 13, 15). The "POLICY SCHEDULE" also states that the Plaintiff was receiving a "Salary Allotment Discount" of $6.08 per month. (Id. at 14). With regard to this discount, the Policy notes that, "[t]his discount is applicable to the premiums for your policy only for so long as you are part of a group qualifying for the discount and for as long as the group meets the minimum requirements for obtaining the discount." (Id.). In addition, the policy states that the "MONTHLY BENEFIT FOR TOTAL DISABILITY" is $2,100. (Id.). Likewise, the Policy states that the Residual Disability Benefit Rider adds an additional $1.98 to the monthly premium and includes a maximum benefit period of twenty-four months. (Id. at 15).

In the Residual Disability Benefit Rider, the subject of the Rider is defined as follows:

Residual Disability or residually disabled means that due to Injuries or Sickness

1. you are not able to do one or more of your substantial and material daily business duties or you are not able to do your usual daily business duties for as much time as it would normally take you to do them; and

2. you have a Loss of Earnings of at least 20%. (Id. at 25). The text also includes the following qualifications to receive these Residual Disability Benefits:

We will pay Residual Disability Monthly Benefits as follows:

1. Benefits start on the day of Residual Disability following the Elimination Period or, if later, after the end of compensable Total Disability during the same period of disability.

2. Benefits will continue while you are residually disabled during a period of disability.

3. The period for which benefits for Residual Disability are payable can not [sic] exceed the Maximum Benefit Period for Residual Disability shown on Page 3. (Id.). The Rider states that, "[t]o be considered residually disabled, you must be receiving care by a Physician which is appropriate for the condition causing the Loss of Earnings. We will waive this requirement when we are furnished proof, satisfactory to us, that continued care would be of no benefit to you." (Id.). The Residual Disability Benefit Rider includes a formula that is used to calculate the monthly payment for Residual Disability:

Loss of Earnings X Monthly Benefit for Total Disability

Prior Earnings (Id.). Furthermore, the policy includes a section called "EXPLANATION OF OPTIONAL BENEFITS," which states that "[t]he optional benefits marked (X) are applicable to your policy." (Id. at 40). In this section, the Plaintiff's policy includes the requisite X marking the selection of the "Residual Disability Benefit" option. (Id. at 41). The short paragraph describing the benefit states that, "[w]hen disability lasts more than one year, cost of living indexing is applied to your pre-disability earnings; as they increase, your loss becomes greater, producing increases in your Residual Disability Monthly Benefit." (Id.).

F. Plaintiff's Disability, Receipt of Disability Benefits & the Denial of Her Claim for Residual Disability Benefits

Plaintiff became disabled on or about June 30, 2005, at which point she began to receive disability insurance benefits from Provident pursuant to her Policy. (Docket No. 1-1 at ¶ 6). Plaintiff received the full five years of disability payments as stated by the Policy, with the last payment being for a period ending on July 30, 2010. (Id. at ¶ 7). At some point before the expiration of her disability benefits, Plaintiff submitted a claim for residual disability benefits under the Policy. (Docket No. 5-8 at 2). Her claim was denied in a letter from Ann M. Goodrow, a Disability Benefits Specialist at Unum/Provident Life and Accident Insurance Company, on June 4, 2010. (Id.). Specifically, Ms. Goodrow advised Plaintiff of the following:

Dear Ms. Harding:

Thank you for taking the time to speak with me on May 17, 2010. This letter is a ...

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