Satendra K. Agrawal; Satendra K. Agrawal, M.d., Inc. v. Paul Revere Life Insurance Company

12 Agrawal, et al. v. Paul
Revere Life Ins. Co.
No. 98-4260
employees will have a unique advantage: the self-employed
individual can pursue a parade of state law claims that are
withheld from his employees by preemption.
III.
In conclusion, we reverse the judgment of the district court
regarding Agrawal’s state law claims under the business
expense policy because this policy is not part of an ERISA
plan and, therefore, the claims are not preempted.
Furthermore, although Dr. Agrawal’s individual policy and
the group policy may jointly constitute an ERISA plan, we
adhere to precedent and reverse the district court’s judgment
as to the state law claims under the individual policy because
Dr. Agrawal does not have standing to bring an ERISA
action.
*The Honorable Douglas M. Hillman, United States District Judge for
the Western District of Michigan, sitting by designation.
1
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0062P (6th Cir.)
File Name: 00a0062p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
S ATENDRA K. AGRAWAL;
S ATENDRA K. AGRAWAL,
M.D., INC.,
Plaintiffs-Appellants,
v.
P AUL R EVERE LIFE
INSURANCE C OMPANY ,
Defendant-Appellee.
;>

1
No. 98-4260
Appeal from the United States District Court
for the Northern District of Ohio at Toledo.
No. 97-07575—James G. Carr, District Judge.
Argued: November 2, 1999
Decided and Filed: February 18, 2000
Before: MARTIN, Chief Judge; DAUGHTREY, Circuit
Judge; HILLMAN, District Judge.*

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2 Agrawal, et al. v. Paul
Revere Life Ins. Co.
No. 98-4260
_________________
COUNSEL
ARGUED: William H. Bartle, MURRAY & MURRAY,
Sandusky, Ohio, for Appellants. Carl J. Schmidt, WOOD &
LAMPING, Cincinnati, Ohio, for Appellee. ON BRIEF:
William H. Bartle, Margaret M. Murray, W. Patrick Murray,
MURRAY & MURRAY, Sandusky, Ohio, for Appellants.
Carl J. Schmidt, William C. Price, William R. Ellis, WOOD
& LAMPING, Cincinnati, Ohio, for Appellee.
_________________
OPINION
_________________
BOYCE F. MARTIN, JR., Chief Judge. Dr. Satendra K.
Agrawal and Satendra K. Agrawal, M.D., Inc. appeal the
district court’s grant of summary judgment in favor of Paul
Revere Life Insurance Company. The district court held that
the plaintiffs’ state law claims arising from multiple disability
insurance contracts were preempted by the Employee
Retirement Income Security Act and that the plaintiffs had
standing to pursue civil remedies under ERISA. For the
following reasons, we reverse.
I.
On September 16, 1991, Dr. Satendra K. Agrawal and
Satendra K. Agrawal, M.D., Inc. acquired three long-term
disability insurance policies from Paul Revere Life Insurance
Company. Dr. Agrawal is the sole shareholder of Agrawal,
Inc. Dr. Agrawal’s occupation is that of a cardiovascular and
thoracic surgeon. At the time of coverage, Agrawal, Inc. had
at least two employees other than Dr. Agrawal.
Of the three policies purchased, two were individual
policies. The first policy was an individual disability policy
that listed Dr. Agrawal as both the insured and the owner. It
No. 98-4260 Agrawal, et al. v. Paul
Revere Life Ins. Co.
11
“under which no employees are participants” and provides
this illustration:
For example, a so-called “Keogh” or “H.R.-10" plan
under which only partners or only a sole proprietor are
participants covered under the plan will not be covered
under Title I. However, a Keogh plan under which one
or more common law employees, in addition to the self-
employed individuals, are participants covered under the
plan, will be covered under Title I.
29 C.F.R. § 2510.3-3(b). For purposes of the definition of
“employee benefit plan” the regulation defines “employee,”
stating that “[a]n individual and his or her spouse shall not be
deemed to be employees with respect to a trade or business,
whether incorporated or unincorporated, which is wholly
owned by the individual or by the individual and his or her
spouse.” 29 C.F.R. § 2510.3-3(c)(1).
This limiting definition of employee addresses the threshold
issue of whether an ERISA plan exists. It is not consistent
with the purpose of ERISA to apply this limiting definition of
employee to the statutory definitions of participant and
beneficiary. When self-employed individuals are excluded
from classification as participant or beneficiary, the self-
employed lack standing to enforce their rights under ERISA
and can sue under state law theories. ERISA was originally
put into place to protect the interests of employees by
imposing duties on those who fund and administer the
employee benefit plans; with these protections come
limitations on employees’ rights to recover state law
remedies. Although self-employed individuals may not need
the protections offered by ERISA, because they are likely to
look out for themselves in the administration of the plan, it
does not follow that once a self-employed person chooses to
participate in an ERISA plan and gain benefits thereunder, she
should be free from the limitations imposed upon her
employees. Under Fugarino, a self-employed individual who
participates in a disability plan that covers him and all of his

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10 Agrawal, et al. v. Paul
Revere Life Ins. Co.
No. 98-4260
Because the sole proprietor and his family members were
neither participants nor beneficiaries under an ERISA plan, no
preemption occurred and they enjoyed the broader relief
provided by state tort and contract law. See id.
The district court erred in ignoring Fugarino. Because Dr.
Agrawal is the sole shareholder of Agrawal, Inc., he is neither
a participant nor a beneficiary under an ERISA plan. See id.
As neither a participant nor a beneficiary, Dr. Agrawal is not
an ERISA entity; likewise, he does not have standing under
the ERISA enforcement mechanisms. See Smith, 170 F.3d at
616-17. Because Congress did not intend to create an
enforcement mechanism to bind non-ERISA parties, we hold
that Dr. Agrawal does not have standing to enforce his rights
under ERISA and his state law claims arising under any
ERISA plan that may exist are not preempted.
Although the decision in the present case is preordained by
the Fugarino holding, we note that the reasoning underlying
the Fugarino decision is not thoroughly consistent with the
goals of ERISA. The statutory and regulatory definitions of
“employee,” “participant,” and “beneficiary” cause confusion.
The statute defines “employee” as “any individual employed
by an employer.” 29 U.S.C. § 1002(6). The statute further
defines “participant” as “any employee or former employee of
an employer . . . , who is or may become eligible to receive a
benefit of any type from an employee benefit plan . . .”, 29
U.S.C. § 1002(7), and defines “beneficiary” as “a person
designated by a participant, or by the terms of an employee
benefit plan . . . .” 29 U.S.C. § 1002(8). These are the only
definitions provided for the terms “participant” and
“beneficiary.” However, another definition of “employee”
exists and creates confusion as to who is an employee and for
what purposes.
Section 2510.3-3 of Title 29 of the C.F.R. attempts to
clarify the term “employee benefit plan.” The regulation
states that “employee benefit plan” does not include any plan
No. 98-4260 Agrawal, et al. v. Paul
Revere Life Ins. Co.
3
also stated that all coverage would be paid for by Dr.
Agrawal’s employer. The second individual policy was a
disability income policy for business overhead expenses.
This policy insured Dr. Agrawal, but was owned and paid for
by Agrawal, Inc.
The third policy purchased by Agrawal, Inc. was a group
disability policy that covered Dr. Agrawal and other
employees. Paul Revere canceled this group policy in 1995
because the policy required a minimum of two covered
employees and no employees other than Dr. Agrawal were
eligible for coverage.
On February 15, 1992, Dr. Agrawal sustained a knee injury
while skiing and had to undergo medical treatment. Dr.
Agrawal’s activities as a surgeon were limited because he was
unable to stand through prolonged surgeries. From August
1992 until January 1993, Dr. Agrawal and Agrawal, Inc.
received total disability benefits from Paul Revere. Plaintiffs
then informed Paul Revere that Dr. Agrawal would return to
work on a part-time basis. Paul Revere began to limit
payments to residual disability benefits. Paul Revere paid
residual disability benefits for a period of more than two
years. In January 1996, Paul Revere determined that Dr.
Agrawal was no longer residually disabled and discontinued
payments under the insurance policies.
On July 14, 1997, Dr. Agrawal and Agrawal, Inc. filed a
complaint in Ohio state court based on the two individual
policies. Paul Revere properly removed the case to federal
court, filed a counterclaim based on the group policy, and
later moved for summary judgment. The district court
granted Paul Revere’s motion for summary judgment on the
basis that plaintiffs’ state law claims relate to an employee
benefit plan and, therefore, are preempted by the Employee
Retirement Income Security Act.

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4 Agrawal, et al. v. Paul
Revere Life Ins. Co.
No. 98-4260
II.
We review the district court’s grant of summary judgment
de novo. See Smith v. Wal-Mart Stores, Inc., 167 F.3d 286,
289 (6th Cir. 1999). Summary judgment is proper if there is
no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. FED . R. C IV . P. 56(c).
ERISA Preemption
The Employee Retirement Income Security Act, 29 U.S.C.
§§ 1001 et seq., is the comprehensive federal law governing
employee benefits. If an insurance policy is part of an
employee welfare benefit plan governed by ERISA, then a
plaintiff’s state law claims relating to that policy are
preempted and federal law applies to determine recovery. See
Thompson v. American Home Assurance Co., 95 F.3d 429,
434 (6th Cir. 1996) (citing Pilot Life Ins. Co. v. Dedeaux, 481
U.S. 41, 56-57 (1987)).
In the present case, we must decide whether the three
policies sold by Paul Revere to the plaintiffs satisfy the
definition of an ERISA plan. The parties agree that the group
disability policy was an employee welfare benefit plan under
ERISA. The parties, however, dispute whether the business
overhead expense policy and Dr. Agrawal’s individual policy
were ERISA plans.
An “employee welfare benefit plan” is defined as “any plan,
fund, or program . . . established or maintained by an
employer . . . 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 benefits,
or benefits in the event of sickness, accident, disability, death
or unemployment . . . .” 29 U.S.C. § 1002(1). In Thompson
v. American Home Assurance Co., 95 F.3d 429 (6th Cir.
1996), we set out a three-step factual analysis for determining
whether a benefit plan satisfies the statutory definition. First,
we apply the Department of Labor “safe harbor” regulations
to determine whether the program is exempt from ERISA.
No. 98-4260 Agrawal, et al. v. Paul
Revere Life Ins. Co.
9
We are not required, however, to determine whether these
two policies constitute an ERISA plan that was established
with the intent to provide benefits, because we hold that Dr.
Agrawal does not have standing to bring a civil action under
ERISA and therefore his claims are not preempted.
ERISA Standing
Plaintiffs claim their state law claims are not preempted
because they do not have standing to sue under the ERISA
civil enforcement provisions. Those provisions allow a
participant or beneficiary to bring suit to recover benefits due,
to enforce or clarify rights under the plan, or to obtain
appropriate equitable relief. See 29 U.S.C. § 1132(a)(1)-(4).
Specifically, Dr. Agrawal asserts that he is neither a
participant nor a beneficiary because he is the sole
shareholder of Agrawal, Inc.
As a general rule, the absence of a remedy under ERISA
does not mean that state-law remedies are preserved. See
Zuniga v. Blue Cross & Blue Shield of Michigan, 52 F.3d
1395, 1401 (6th Cir. 1995). When Congress has designed a
mechanism to enforce rights or duties of ERISA entities, the
broad preemption of ERISA will prevent the application of
state law. See Smith v. Provident Bank, 170 F.3d 609, 616-
17 (6th Cir. 1999). However, state law claims involving non-
ERISA entities are not preempted. See id. at 617.
Because one’s status as an ERISA or non-ERISA entity
determines whether or not the lack of standing affects
preemption, we must first address Dr. Agrawal’s contention
that he is neither a participant or a beneficiary under ERISA.
In light of this Court’s decision in Fugarino v. Hartford Life
& Accident Insurance Co., 969 F.2d 178 (6th Cir. 1992), we
must agree with Dr. Agrawal’s assertion. In Fugarino, having
found an ERISA plan to exist, we held that a sole proprietor
could not be a participant under an ERISA plan. See id. at
185-86. We further held the sole proprietor’s dependent
could not be a beneficiary under the plan. See id. at 186.

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8 Agrawal, et al. v. Paul
Revere Life Ins. Co.
No. 98-4260
(9th Cir. 1998), a doctor, who was the sole shareholder of his
practice, established one pension plan of which he was the
sole beneficiary and a separate pension plan for his
employees. The Ninth Circuit held the doctor’s pension plan
was not an ERISA plan and stated that “even if the plans were
created simultaneously or shared other common
characteristics, they are independent plans under ERISA.” Id.
at 596 n.4.
The Eleventh Circuit has also addressed whether multiple
insurance policies constitute an ERISA plan. In Slamen v.
Paul Revere Life Insurance Co., 166 F.3d 1102, 1103 (11th
Cir. 1999), a dentist established a health plan for himself and
the employees of his solely-owned dental practice by
purchasing health and life insurance. Four years later, the
dentist purchased an individual disability insurance policy
from Paul Revere. See id. The dentist’s professional
corporation paid the premiums for all of the insurance
policies. See id. at 1103-04. The Eleventh Circuit held, in the
absence of evidence showing that the two policies were
related, the disability policy was not part of an ERISA plan.
See id. at 1106.
In Massachusetts Casualty and Peterson, the policies
categorized together as an ERISA plan were purchased at the
same time in an effort to create a benefit plan for employees.
In both cases, all of the covered employees were covered in
the same manner: each had an individual policy or all were
originally part of a group policy. In contrast, in Watson and
Slamen, the employers established the policies or pension
plans at different times and created one plan for the exclusive
benefit of the sole owner of the medical practice. The
policies in the present case do not fit within either set of
cases. Dr. Agrawal and Agrawal, Inc. purchased the policies
on the same day. Both the group policy and Dr. Agrawal’s
individual policy provided disability benefits; however, the
individual policy was for the sole benefit of Dr. Agrawal.
No. 98-4260 Agrawal, et al. v. Paul
Revere Life Ins. Co.
5
See id. at 434. Second, we determine if a “plan” existed by
inquiring whether “‘from the surrounding circumstances a
reasonable person [could] ascertain the intended benefits, the
class of beneficiaries, the source of financing, and procedures
for receiving benefits.’” Id. at 435 (quoting International
Resources, Inc. v. New York Life Ins. Co., 950 F.2d 294, 297
(6th Cir. 1991)). Third, we ask whether the employer
established or maintained the plan with the intent of providing
benefits to its employees. See id.
In the present case, the first factor is satisfied. The parties
agree that the policies are not exempt from ERISA via the
“safe harbor.” Two of the policies satisfy the second factor,
because the delivery of disability benefits to Agrawal, Inc.
employees, as funded by Agrawal, Inc., is evident from the
group policy and Dr. Agrawal’s individual policy.
The final policy, the business overhead expense policy, fails
this second requirement. The policy does not fit neatly into
a plan for providing disability benefits to employees. The
purpose of the overhead policy was to provide the corporation
with monthly operating expenses (i.e. rent, wages, fixed costs)
in the event that Dr. Agrawal was disabled. This differs from
the goal of the other policies and the nature of the benefits
provided through them. In Stanton v. Paul Revere Life
Insurance Co., 37 F. Supp. 2d 1159 (S.D. Cal. 1999), the
district court examined the exact same business overhead
expense policy in a factual setting very similar to the present
case. That court concluded that the overhead policy was not
an ERISA plan because the policy did not provide employee
welfare benefits, 37 F. Supp. 2d at 1161-62:
Plaintiff asserts that he purchased the [business
overhead expense] policy because his ability to conduct
a profitable business turned on his ability to perform
surgery. Should he suffer a disability grave enough to
prevent him from performing surgery, [plaintiff] knew
certain expenses — leases, medical malpractice
insurance, medical supplies, salaries, and office

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6 Agrawal, et al. v. Paul
Revere Life Ins. Co.
No. 98-4260
equipment — would be ongoing. Two undisputed facts
support these assertions. First, [plaintiff] has other
personal disability insurance through another insurance
company. Second, the [business overhead expense]
policy was only for a two-year period. Common
experience adds credibility to these factual assertions.
Such an insurance arrangement is not uncommon for a
corporation to have for key employees. Finally, on its
face, a “business income overhead policy” has very little
to do with employee welfare.
The overhead policy did not provide employees or their
beneficiaries with welfare benefits; rather, it provided
operating expenses to the corporation. Providing the
corporation with funds to pay wages differs from providing
income directly to an employee who is unable to work.
Accordingly, we hold that the business overhead policy was
not part of an ERISA plan.
To determine whether Dr. Agrawal’s individual policy is an
ERISA plan, we must examine the final Thompson factor. In
Thompson, we did not explain or apply this requirement that
the employer established or maintained the plan with the
intent of providing benefits to its employees. This factor
closely tracks the statutory language of 29 U.S.C. § 1002(1).
It requires an initial showing that the employer established a
plan meeting the definition of an “employee benefit plan” and
a showing that the employer established the plan with the
intent of providing welfare benefits to the employees.
An employee benefit plan exists only when employees
other than the sole owner of a business are covered under the
plan. See 29 C.F.R. § 2510.3-3(b)-(c)(1). See also Fugarino
v. Hartford Life & Accident Ins. Co., 969 F.2d 178, 185 (6th
Cir. 1992). As stated above, the parties do not dispute that
the group policy is an employee benefit plan; they do dispute,
however, whether Dr. Agrawal’s individual policy is an
employee benefit plan. Because Dr. Agrawal’s individual
policy covers only Dr. Agrawal, the sole owner of Agrawal,
No. 98-4260 Agrawal, et al. v. Paul
Revere Life Ins. Co.
7
Inc., this policy, standing alone, cannot be an ERISA plan.
To counter this position, Paul Revere asserts that the plan at
issue is broader than the individual disability policy; Paul
Revere defines the ERISA plan as an umbrella of disability
coverage consisting of all three policies purchased by the
plaintiffs.
We must determine what constitutes the “plan” at issue.
Because we have eliminated the business overhead expense
policy as not providing employee benefits, we shall limit our
examination to the group policy and Dr. Agrawal’s individual
policy. Typically, an ERISA plan is a single benefit plan or
insurance policy. The district court correctly stated that
courts have recognized that an employee welfare benefit plan
may be funded by group or individual policies. We cannot,
however, summarily assume the plan encompasses all
insurance policies owned by the plaintiffs.
In Massachusetts Casualty Insurance Co. v. Reynolds, 113
F.3d 1450, 1453 (6th Cir. 1997), we acknowledged that an
ERISA plan can consist of individual disability insurance
policies covering each of the employer’s employees, rather
than a group policy. The Ninth Circuit, in Peterson v.
American Life & Health Insurance Co., 48 F.3d 404, 407 (9th
Cir. 1995), found that one individual health insurance policy
and a group policy together formed an ERISA plan. In
Peterson, the individual policy was originally purchased as a
group policy covering both partners of the business and one
employee. See id. at 404. When the business changed group
insurance carriers, one partner was denied coverage by the
new group carrier and maintained individual coverage with
the first insurer. See id. The Ninth Circuit held that because
the individual policy was originally purchased as part of an
ERISA plan, the first group policy, it remained a part of that
ERISA plan. See id. at 408.
The Ninth Circuit, however, recognizes that a non-ERISA
plan cannot be altered merely because the employer also
sponsors an ERISA plan. In In re Watson, 161 F.3d 593, 595

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