In this case for disability insurance benefits, Unum Group and Provident Life and Accident Insurance Company attempted to evade our client’s state law claims for breach of contract and breach of the covenant of good faith and fair dealing by asserting that the Employee Retirement Income Security Act of 1974 (“ERISA”) preempted these claims. Unum argued that our client’s individual insurance policy was offered as part of an employee welfare benefit plan that was “established or maintained” by his prior employer, and thus, governed by ERISA. Avoiding ERISA preemption can be challenging, because as Unum asserted, the Ninth Circuit has held that an employer “can establish an ERISA plan rather easily.” Steigleman v. Symetra Life Ins. Co., No. 23-4082, 2025 WL 602175, at *2 (9th Cir. Feb. 25, 2025). However, Terry Coleman and Azin Jalali successfully countered by claiming that no ERISA-governed plan ever existed because the policy did not meet the statutory requirements to establish an employee benefit plan and because there was no ongoing employee administrative scheme that would require ERISA oversight. The decision was recently published in Koo v. Unum Group, et. al., No. 2:25-CV-05797-JFW-BFMX, 2025 WL 3687545 (C.D. Cal. Dec. 16, 2025), where the Court agreed with these arguments and held that plaintiff’s state law claims could proceed because no ERISA-governed plan was ever established or maintained.
The Court further held that to the extent that our client’s employer’s involvement in the issuance and maintenance of the policy was considered, “the Court concludes that such involvement does not equate to having ‘established or maintained’ the coverage because its actions fall squarely within the safe harbor regulation.” The Department of Labor’s safe harbor regulation saves group insurance programs from ERISA preemption if all four criteria are met. Here, Unum only disputed two of these factors—the first factor prohibiting the employer from making premium contributions and the third factor prohibiting employer endorsement of the program. Unum argued that our client benefited from a premium discount that was negotiated by his employer, and thus, the employer “contributed” to his premiums. The Court rejected this argument finding that “[a]n insurer’s unilateral volume discount, particularly in the absence of any evidence that the employer negotiated that discount, ‘is not a “contribution” as that term is used in the safe-harbor provision of ERISA.’” As for the third factor, the Court held that from the perspective of an objectively reasonable employee, it is clear that the employer did not endorse the policy to its employees because it specifically conveyed its lack of endorsement in a memo that was provided to all eligible employees.
The implications of this decision are huge. Had the Court determined that ERISA applied, our client would have been stripped of his right to a jury trial and the facts of his case would have been limited to the information contained in Unum’s claim file. No written discovery or deposition testimony would have been permitted. Moreover, his relief would have been severely limited with no right to pursue consequential or punitive damages. Given these high stakes, it’s clear why insurance companies fight so hard to extend ERISA applicability, regardless of the true nature of the disability insurance program.