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April 10, 2001


The opinion of the court was delivered by: John S. Martin, Jr., United States District Judge.


Eric Rubin-Schneiderman ("Plaintiff") originally filed this action against Merit Behavioral Care Corp. ("Merit"), Sati Ahluwalia, M.D. ("Dr. Ahluwalia"), and Empire Blue Cross and Blue Shield ("Empire Blue Cross") (collectively "Defendants") in New York Supreme Court. Defendants removed the case pursuant to 28 U.S.C. § 1441 on the grounds that Plaintiff's claims are completely preempted under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1144(a). Plaintiff now moves to remand the case to state court. For the reasons set forth below, Plaintiff's motion is denied.


Plaintiff's complaint and accompanying affidavits set forth the following facts. Plaintiff's parents own a company called Barson Hardware Co., Inc. ("Barson"). During the relevant time period, Barson maintained a group health plan with Empire Blue Cross known as the Empire BlueChoice Preferred Provider Organization ("BlueChoice PPO"), which was an ERISA-governed plan. (Schneiderman Decl. Ex. A.) Plaintiff was insured under the plan as a dependent of his parents until he no longer qualified for coverage at age nineteen. In February 1997, Plaintiff's father submitted an application to Empire Blue Cross to continue Plaintiff's coverage as an individual. (Schneiderman Decl. Ex. B.)

The BlueChoice PPO allows members to obtain medical care from in-network or out-of-network doctors, and the reimbursement benefits differ accordingly. Some medical services require pre-approval by a utilization review agent before the patient obtains care, whether care is sought from an in-network or out-of-network doctor. Empire Blue Cross employed Merit to provide these utilization review services. Mental health services was one category of treatment that required pre-approval.

Plaintiff suffers from various psychiatric disorders. In August 1997, Plaintiff's treating physician recommended that Plaintiff be placed in an in-patient treatment facility known as Four Winds Hospital. Plaintiff's father contacted Merit and was told that Plaintiff would have to undergo a pre-admission psychiatric evaluation to determine whether admission to Four Winds would be covered by his policy. Although the evaluating physician at Four Winds recommended admission, Merit denied coverage. In a letter dated September 9, 1997, Dr. Ahluwalia, an employee of Merit, stated that "[b]ased on the information that we received and national professional criteria for medical necessity, [Merit] cannot authorize inpatient psychiatric treatment at Four Winds Hospital" because the "current level of symptoms can be treated at a lower level of care." (Pl.'s Mem. Supp. Remand, Ex. A.) Dr. Ahluwalia instead recommended intensive outpatient treatment. Seven months later, on April 6, 1998, Plaintiff attempted suicide at his parents' residence. He was subsequently transferred to Four Winds Hospital.

Plaintiff brought this action against Empire Blue Cross, Merit, and Dr. Ahluwalia based on Merit's refusal to authorize coverage for in-patient care for Plaintiff's psychiatric illness.

Plaintiff claims that Merit and Dr. Ahluwalia were negligent in refusing coverage, and that Empire Blue Cross is vicariously liable for their acts. Plaintiff also charges both Merit and Empire Blue Cross with negligent hiring, training, and supervision. Following Defendants' removal, Plaintiff brought this motion to remand on the basis that (1) his policy is not governed by ERISA and (2) his state law claims are not subject to complete preemption.



The BlueChoice policy provided that upon a disqualifying event, a group member could either convert the policy to an "individual contract" or temporarily continue coverage as a "continued coverage beneficiary." (Schneiderman Decl. Ex. A at 35-39.) If one elected to continue coverage, the Policy provided for coverage in accordance with COBRA legislation or under New York State law, whichever applied. Plaintiff was not eligible for continuation under COBRA because his father's employer had fewer than twenty employees on a typical business day during the previous year. (Schneiderman Decl. ¶ 5.) Plaintiff's ability to extend his coverage therefore fell under state law. Under N.Y. Ins. Law § 4305, a disqualified individual can either continue coverage under the "group contract's terms and conditions" for thirty-six months in Plaintiff's case, see id. § 4305(e)(4)(C), or convert to an individual direct payment contract, see id. § 4305(d). Plaintiff elected to continue coverage under the group contract. (Schneiderman Decl. Ex. B.)

In order for ERISA to govern the terms of an insurance policy, the policy must be sufficiently connected to an ERISA-governed plan. Plaintiff argues that the continuation of his policy as an individual essentially severed his plan from his parents' ERISA plan because the continuation was not a plan benefit, but a creature of state law. By the terms of Section 4305 and of the policy, continuation coverage extends a group member's coverage for a limited time when membership in the group ends. The plain language of the statute and the policy thus suggest that the continuation coverage falls under the original plan. In the context of continuation under COBRA, courts have held that a policy continuation remains part of the original ERISA plan.*fn1 See, e.g., Demars v. Cigna Corp., 173 F.3d 443, 447 (1st Cir. 1999); Mimbs v. Commercial Life Ins. Co., 818 F. Supp. 1556, 1560-61 (S.D. Georgia 1993). Courts reason that the ability to continue coverage arises as the result of enrollment in an ERISA plan, that the terms of the continuation policy are identical to those of the group contract, and that the employer has continuing obligations in administering the policy. See Demars, 173 F.3d at 447; Mimbs, 818 F. Supp. at 1561. This reasoning is no less applicable in Plaintiff's case, where the statute governing the right to continue coverage arises under state law, rather than under COBRA. In particular, Section 4305(e) explicitly provides that premium payments are to be made directly to the employer.*fn2

Therefore, Plaintiff's continuation of his coverage as an individual in 1997 did not sever his policy from his parents' ERISA plan, and his policy ...

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