Alphonse M. Santino v. Provident Life and Accident Insurance Company

Citations: 276 F.3d 772; 27 Employee Benefits Cas. (BNA) 1199; 2001 U.S. App. LEXIS 26926; 2001 WL 1628316Docket: 00-1926

Court: Court of Appeals for the Sixth Circuit; December 20, 2001; Federal Appellate Court

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In Alphonse M. Santino v. Provident Life and Accident Insurance Company, the Sixth Circuit Court of Appeals upheld the district court's ruling that Santino's state law claims were preempted by the Employee Retirement Income Security Act (ERISA) and that his lawsuit was untimely. Santino, a physician and former shareholder of Wayne-Maycomb Urology Associates P.C., purchased disability insurance from Provident Life in 1984. After suffering an illness in 1994 that limited his ability to provide patient care, Santino received 'residual disability' payments from Provident Life but later asserted his condition should have been classified as a 'total disability.' 

In December 1998, he filed suit in state court, which was removed to federal court by Provident Life, citing ERISA preemption. The district court dismissed the case on grounds of untimeliness, as the insurance policies stipulated that any legal actions must be initiated within three years of the proof of loss requirement. The appellate court reviewed the preemption issue de novo and determined that Santino was a 'participant' in an 'employee welfare benefit plan' under ERISA, despite his shareholder status, as the policies provided benefits related to disability. The decision affirmed the lower court’s rulings, maintaining that ERISA's provisions applied to Santino's claims.

ERISA defines an 'employee' as anyone employed by an employer, as stated in 29 U.S.C. 1002(6). The Supreme Court, in Nationwide Mutual Insurance Company v. Darden, clarified this definition by referencing common law agency criteria. It is established that Santino is an employee of the Wayne-Macomb clinic, as he receives a salary, provides services, and identified the clinic as his employer. Santino contends that his shareholder status and authority at the clinic classify him as an 'employer' under ERISA, potentially excluding him from being an 'employee.' However, case law indicates that shareholder status alone does not confer ERISA employer status (Scarbrough v. Perez; Int'l Brotherhood of Painters v. George A. Kracher, Inc.).

Santino also cites Department of Labor regulations (29 C.F.R. 2510.3-3(c)(1)), arguing that individuals owning a business cannot be considered employees. However, this regulation pertains specifically to individuals who wholly own a business, not joint shareholders. The Department of Labor interprets this regulation as applying only when one shareholder wholly owns the corporation, which aligns with Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. mandates deference to the Department’s interpretation.

Consequently, Santino qualifies as an ERISA 'employee,' and the insurance policies he holds are categorized as an ERISA 'employee welfare benefit plan.' To pursue an ERISA claim, an individual must be a 'participant' or 'beneficiary' of the plan (29 U.S.C. 1132(a)(1)). The definition of 'participant' includes any employee who may receive benefits from an employee benefit plan (29 U.S.C. 1002(7)). Prior cases (Fugarino and Agrawal) established that sole proprietors or sole shareholders cannot be considered participants in an ERISA plan, reinforcing the distinction between status as an employee and an employer.

Joint shareholders are not excluded from ERISA coverage, as established by several circuit courts which have ruled that shareholder status does not negate eligibility for ERISA benefits. Specifically, the court referenced cases such as Sipma and Englehardt, affirming that disallowing shareholders as plan participants would undermine ERISA's purpose of equitable treatment in employee benefit claims. Consequently, a joint shareholder qualifies as a participant in an employee welfare benefit plan under ERISA. 

Santino, as an ERISA participant, has his state claims preempted. Although ERISA lacks a specific statute of limitations for benefit claims, the court noted these claims are subject to the most analogous state statute, which in Michigan is six years for breach of contract. However, insurance contracts can stipulate shorter limitations; Santino's policy requires claims to be filed within three years of written proof of loss. He accepted benefits for over three years without contest after being informed of Provident Life's 'residual disability' determination on January 25, 1995, and did not file suit until December 1998. Thus, his lawsuit is time-barred.

Given these findings, the court affirmed the district court's decision without addressing the characterization of Santino's illness.