Often employees are offered individual disability policies at a discounted rate if purchased with other employees. The employee may deal directly with a broker or the insurance company to purchase the policy, with the only employer connection a payroll deduction for premiums. The employees expect they have purchased an individual disability policy that is not part of an employer benefit plan. Only when their claim is denied or they are forced into litigation against the insurer due to a denial of benefits does the employee learn that the litigation may be governed under ERISA and not state law.
The recent case of McCann v. Unum Provident, 2013 U.S. Dist. LEXIS 13132 (D.N.J. Jan. 31, 2013), illustrates this situation, and how courts in the Third Circuit apply the safe harbor provision of ERISA. In McCann, a medical fellow purchased a policy that was offered to him at a discount through his employment. McCann paid the premiums directly. The policy took effect when his fellowship had ended. Benefits were denied and Unum argued that ERISA applied. The court ultimately agreed with Unum and held that the policy in question fell under ERISA and the “safe harbor provision” did not apply.
The safe harbor provision of ERISA removes a disability insurance plan from ERISA coverage if: