Shearer v. Southwest Service Life Insurance

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
January 31, 2008

No. 07-20646 Charles R. Fulbruge III
Summary Calendar Clerk

LANCE SHEARER

Plaintiff-Appellant
v.

SOUTHWEST SERVICE LIFE INSURANCE COMPANY; VIRGINIA
SURETY LIFE INSURANCE COMPANY; RICHARD SANDERS

Defendants-Appellees

Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:07-CV-1193

Before JOLLY, PRADO, and SOUTHWICK, Circuit Judges.
PRADO, Circuit Judge:
Following the dismissal of his lawsuit by the district court, Plaintiff-
Appellant Lance Shearer (“Shearer”) filed this appeal and argues that the
district court lacked subject matter jurisdiction over the case. At issue is
whether the insurance policy underlying this suit is covered by the Employee
Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461.
Because Shearer’s employer did no more than pay the premiums on the policy
and ERISA does not regulate the “bare purchase of insurance,” Shearer’s claims
are not preempted by ERISA, and the district court lacked jurisdiction over the
 No. 07-20646

case. Therefore, we VACATE the judgment of the district court and REMAND
the case for further proceedings consistent with this opinion.
I. FACTUAL AND PROCEDURAL BACKGROUND
Shearer is the 50% owner of Intercontinental Materials Management, Inc.
(“IMMI”), as well as an employee of the company. His mother, Christal Shearer
(“Ms. Shearer”) owns the other 50% of IMMI. On June 10, 2004, Shearer applied
for health insurance for himself and his family from Defendant-Appellee
Southwest Service Life Insurance Company (“SWSL”). The premiums for the
policy were paid by IMMI. Shearer and his mother both stated in their affidavits
that this was done for bookkeeping purposes. Some time later, Shearer’s son
suffered an injury requiring hospitalization and surgery, and Shearer submitted
a claim under his policy to SWSL. Although SWSL paid for a portion of the
claim, Shearer contends that the policy required SWSL to pay for the entire
amount.
Shearer filed suit against SWSL and its agent, Defendant-Appellee
Richard Sanders (“Sanders”), in Texas state court on March 2, 2007, bringing
state law claims of misrepresentation, breach of contract, unfair and deceptive
trade practices, and unfair claim settlement practices.1 SWSL, with Sanders’s
consent, removed the case on April 6, 2007. Defendants claimed that the
insurance policy at issue was covered by ERISA and thus Shearer’s claims were
preempted by ERISA and removable pursuant to 28 U.S.C. § 1331.
Shortly after removal, the district court struck Sanders as a defendant.
Shearer then filed a motion to remand, arguing that his insurance policy was not
an ERISA plan. The district court denied the motion without comment. The
district court then granted SWSL’s motion for summary judgment, ruling that
Shearer’s claims failed to meet the ERISA standard for relief. Shearer now

1
Shearer also named Virginia Surety Life Insurance Company as defendant; however,
Shearer never served Virginia Surety, so it is not a party to this case or appeal.

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appeals and contends that the district court lacked jurisdiction over the case
because the insurance policy was not an ERISA plan. We have jurisdiction to
hear his appeal, as a final judgment has been entered. See 28 U.S.C. § 1291.
II. DISCUSSION
As the party removing the case, SWSL bears the burden of establishing
jurisdiction. See Boone v. Citigroup, Inc., 416 F.3d 382, 388 (5th Cir. 2005). In
this case, SWSL asserts that federal question jurisdiction exists because ERISA
preempts Shearer’s state law claims. SWSL bases this argument on its assertion
that the insurance policy at issue is an “employee benefit plan” under ERISA,
and ERISA preempts “any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan . . . .” 29 U.S.C. § 1144(a); Peace
v. Am. Gen. Life Ins. Co., 462 F.3d 437, 442 (5th Cir. 2006). Thus, we must
determine whether Shearer’s insurance policy is an employee benefit plan as
defined by ERISA.
Typically, the existence of an ERISA plan is a question of fact that we
review only for clear error. Reliable Home Health Care, Inc. v. Union Cent. Ins.
Co., 295 F.3d 505, 510 (5th Cir. 2002). However, when the facts are undisputed,
we treat the issue as one of law and review it de novo. See House v. Am. United
Life Ins. Co., 499 F.3d 443, 448-49 (5th Cir. 2007), petition for cert. filed, (U.S.
Jan. 2. 2008)(No. 07-895). Here, there are no factual disputes with respect to the
insurance policy or its purchase. Consequently, we review the matter de novo.
Pursuant to ERISA, an “employee benefit plan” includes an “employee
welfare benefit plan.” 29 U.S.C. § 1002(3). ERISA defines an “employee welfare
benefit plan” as
any plan, fund, or program which was . . . established or maintained
by an employer . . . 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

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benefits, or benefits in the event of sickness, accident, disability,
death or unemployment . . . .
Id. § 1002(1). SWSL contends that Shearer’s insurance policy fits within this
definition.
This court uses a three-prong test to determine whether an employee
benefit arrangement meets the definition of an employee welfare benefit plan
and, thus, is an ERISA plan. Peace, 462 F.3d at 439. To be an ERISA plan, the
arrangement must be (1) a plan, (2) not excluded from ERISA coverage by the
safe-harbor provisions established by the Department of Labor, and (3)
established or maintained by the employer with the intent to benefit employees.
See id. (citing Meredith v. Time Ins. Co., 980 F.2d 352, 355 (5th Cir. 1993)).
Here, Shearer concedes that, under this court’s precedent, his insurance policy
constitutes a plan and does not fall within the safe-harbor provisions of the
Department of Labor. However, Shearer asserts that his insurance policy fails
the third element of the test because it was not established or maintained by
IMMI with the intent to benefit employees. See MDPhysicians & Assocs., Inc.
v. State Bd. of Ins., 957 F.2d 178, 183 (5th Cir. 1992) (noting that simply because
a plan exists does not mean that the plan is an ERISA plan).
In the past, we have broken down the third step of our analysis into two
elements—(1) whether the employer established or maintained the plan, and (2)
whether the employer intended to provide benefits to its employees. Meredith,
980 F.2d at 355. “To determine whether an employer ‘established or maintained’
an employee benefit plan, ‘the court should [focus] on the employer . . . and [its]
involvement with the administration of the plan.’” Hansen v. Cont’l Ins. Co., 940
F.2d 971, 978 (5th Cir. 1991). We have stated that “the purchase [of insurance]
is evidence of the establishment of a plan, fund, or program” and that “the
purchase of a policy or multiple policies covering a class of employees offers
substantial evidence that a plan, fund, or program has been established.” Mem’l

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Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 242 (5th Cir. 1990) (internal
quotation marks omitted). However, we have consistently held that if an
employer does no more than purchase insurance for its employees and has no
further involvement with the collection of premiums, administration of the
policy, or submission of claims, the employer has not established an ERISA plan.
Hansen, 940 F.2d at 978.
In Taggart Corp. v. Life & Health Benefits Administration, Inc., we held
that a company’s purchase of insurance for its lone employee was insufficient to
establish an ERISA plan. 617 F.2d 1208, 1211 (5th Cir. 1980) (noting that “[t]he
corporation did no more than make payments to a purveyor of insurance,
patently for tax reasons”). We reached a different result in Memorial Hospital,
in which an employer purchased insurance for all of its employees, finding that
to be sufficient evidence of an intent to establish and maintain an ERISA plan.
904 F.2d at 242-43. Relying on Memorial Hospital, we held in Kidder v. H & B
Marine, Inc., 932 F.2d 347, 353 (5th Cir. 1991), that an employee benefit plan
purchased by the employer for all of its employees was an ERISA plan. In
Hansen, we reaffirmed our rule that the purchase of insurance alone is
insufficient to demonstrate an ERISA plan, but held that other evidence in that
case, such as the employment of a benefits administrator and the issuance of a
booklet regarding the plan endorsed by the employer, satisfied the burden of
demonstrating the employer’s intent to establish an ERISA plan. 940 F.2d at
978.
Here, the evidence before the district court demonstrated that IMMI paid
the premiums on Shearer’s policy and that IMMI paid the premiums on a
separate policy from a different insurance company for Ms. Shearer. IMMI,
however, did not pay for insurance for any of IMMI’s other employees.2 The facts

2
During the time at issue, IMMI had between three and seven employees.

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of this case, therefore, fall somewhere between Taggart and the other cases
described above. Considering all of the facts and our precedent, we conclude
that IMMI’s payment of premiums on two separate policies for two different
employees, while not providing insurance for any other employees, is not
sufficient evidence of IMMI’s intent to establish or maintain an ERISA plan.
The plans in Memorial Hospital and Kidder were purchased for all of the
company’s employees, which lends greater support to the argument that a plan
existed. Here, however, the alleged plan covered Shearer, with a different policy
covering his mother. This is not sufficient to demonstrate that IMMI intended
to establish and maintain a plan to benefit its employees. Consequently, there
was no ERISA plan at issue, and the district court lacked jurisdiction over this
case.
Defendants incorrectly assert that Provident Life & Accident Insurance Co.
v. Sharpless, 364 F.3d 634 (5th Cir. 2004), is binding in this situation. The issue
in Sharpless was not whether the employer established or maintained an ERISA
plan. Instead, the court in Sharpless was concerned with whether shareholding
doctors could be considered “employees” for purposes of establishing and
maintaining an ERISA plan “for the benefit of employees.” Id. at 638. The court
held that the shareholders could be considered employees. Id. at 639. In this
case, Shearer does not dispute that he may be considered an employee under
ERISA, despite owning 50% of IMMI. Therefore, Sharpless is not dispositive of
the issues in this case.
III. CONCLUSION
Because IMMI’s payment of premiums alone is insufficient to create an
ERISA plan, the district court lacked jurisdiction over the case. We therefore
VACATE the judgment of the district court and REMAND for further
proceedings consistent with this opinion.
VACATED and REMANDED.

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