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Donovan v. Dillingham

Court of Appeals for the Eleventh Circuit
3 Employee Benefits Cas. (BNA) 2122, 688 F.2d 1367 (1982)
ELI5:

Rule of Law:

An employer or employee organization establishes an 'employee welfare benefit plan' under ERISA if, from the surrounding circumstances, a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits, even without a formal, written plan document.


Facts:

  • Union Insurance Trust (UIT) was a multiple employer trust (MET) designed to allow small employers to obtain group health insurance for their employees at more favorable rates.
  • UIT secured a master group health insurance policy from Occidental Life Insurance Company of California.
  • Various employers and employee organizations ('subscribers') paid to join UIT to provide health insurance coverage to their employees or members.
  • Some subscribers were providing health benefits for the first time, while others switched their existing insurance coverage from other carriers (like Blue Cross/Blue Shield) to UIT.
  • Many employers subscribed to UIT to fulfill pre-existing obligations to provide health benefits under collective bargaining agreements.
  • Subscribers and their employees relied on the terms of the Occidental Life policy to determine eligibility, benefits, and the procedures for filing claims.

Procedural Posture:

  • The Secretary of Labor filed a lawsuit in U.S. District Court against the trustees of Union Insurance Trust (UIT), alleging violations of ERISA's fiduciary duties.
  • The defendants filed a motion to dismiss for lack of subject matter jurisdiction, arguing that no ERISA-covered employee benefit plans existed.
  • The district court, following the precedent of Taggart Corp., granted the motion and dismissed the Secretary's complaint.
  • The Secretary of Labor appealed the dismissal to the U.S. Court of Appeals for the Eleventh Circuit.
  • A three-judge panel of the Eleventh Circuit initially affirmed the district court's decision.
  • The Eleventh Circuit then voted to rehear the case en banc, meaning before the full panel of the court's judges.

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Issue:

Does an employer's subscription to a multiple employer trust to provide group health insurance for its employees establish an 'employee welfare benefit plan' subject to ERISA?


Opinions:

Majority - Chief Judge Godbold

Yes. An employer's subscription to a multiple employer trust to provide health insurance can establish an employee welfare benefit plan under ERISA. The court held that an ERISA plan does not require a formal, written instrument for its creation. A plan is 'established' if a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits from the surrounding circumstances. While the purchase of insurance is not the plan itself, it is substantial evidence that a plan has been established, particularly when done for a class of employees on an ongoing basis. The court distinguished its prior holding in Taggart Corp., clarifying that while a MET itself is not an ERISA plan, an employer's act of subscribing to one to provide benefits to its employees can create a distinct, single-employer ERISA plan. The court expressly overruled any interpretation of Taggart that would prevent an employer's mere purchase of a group insurance policy from ever constituting an ERISA plan.



Analysis:

This decision significantly broadened the definition of an ERISA 'plan,' moving away from a requirement of formal documentation towards a more flexible, reality-based test. By focusing on whether a reasonable person could ascertain the essential elements of a benefit scheme from the circumstances, the court made it more difficult for employers to evade ERISA's fiduciary duties and regulations simply by using a third-party trust or a simple insurance policy. This ruling affirmed that ERISA's protections are determined by the employer's function of providing benefits, not the form in which those benefits are delivered. It established a key precedent in the Eleventh Circuit for identifying informal or unwritten ERISA plans.

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