USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit

                      ____________________



No. 98-1962



                       JEANNE B. DEMARS,

                                

                     Plaintiff, Appellant,

                                

                               v.

                                

   CIGNA CORPORATION and INSURANCE COMPANY OF NORTH AMERICA,

                                

                     Defendants, Appellees.

                                

                      ____________________

                                

          APPEAL FROM THE UNITED STATES DISTRICT COURT

                                

               FOR THE DISTRICT OF NEW HAMPSHIRE

                                

           [Hon. Paul Barbadoro, U.S. District Judge]

                                

                     _____________________

                                

                             Before

                                

                     Boudin, Circuit Judge,

                                

                 Coffin, Senior Circuit Judge,

                                

                   and Lynch, Circuit Judge.

                                

                     ______________________

                                

          Kenneth C. Brown, with whom Jared R. Green and

Abramson, Reis, Brown & Dugan were on brief, for appellant.

          Eleanor H. MacLellan, with whom Sulloway & Hollis,

P.L.L.C. was on brief, for appellees.



                     ______________________

                                

                         April 6, 1999

                     ______________________

                                  LYNCH, Circuit Judge.  Jeanne B. Demars brought this suit

against the Insurance Company of North America ("ICNA"), the

provider of her long-term disability insurance, and ICNA's parent

corporation CIGNA Corporation ("CIGNA"), after CIGNA -- upon

reviewing the accuracy of information on a conversion application

Demars had submitted seven years earlier -- recalculated her

disability benefit level and demanded that she remit alleged

overpayments totaling more than $70,000.  Demars brought state law

claims of unfair trade practices, breach of contract, intentional

infliction of emotional distress, bad faith breach of contract, and

bad faith refusal to pay an insurance claim, as well as a claim for

disability benefits under the Employee Retirement Income Security

Act of 1974 ("ERISA"), 29 U.S.C.  1001 et seq.

  The sole question on appeal is whether ERISA preempts all

state law claims related to an individual insurance policy obtained

by an employee after termination of employment through the exercise

of conversion rights granted by an employee welfare benefit plan. 

In other words, we consider whether ERISA regulation extends to

"conversion policies."  The district court found that it does and

therefore granted defendants' motion to dismiss Demars's state law

claims.  We reverse.

                               I

  For the purposes of a motion to dismiss, we accept as

true the facts alleged in the complaint.  See Duckworth v. Pratt &

Whitney, Inc., 152 F.3d 1, 3 (1st Cir. 1998).  Demars began working

as an agent for National Life of Vermont ("National Life") in 1983. 

As a National Life employee, she was entitled to enroll in a group

long-term disability policy underwritten by ICNA.  National Life's

group policy included a "conversion clause" that permitted employees

to convert from group disability coverage to individual policies

when their employment with National Life came to an end.  Demars

initially enrolled in the group disability policy.  In 1990, when

she left National Life, she elected to convert her group coverage

to an individual ICNA policy.

  ICNA's conversion application consisted of two pages. 

The first page, to be filled out by the applicant, asked for

general information.  The second page was to be completed by

Demars's employer.  Since Demars had already left National Life,

she considered her employer to be Demars Financial Services, Inc.,

a business that she and her husband ran.  Accordingly, in response

to a question about her earnings at the time of termination, she

did not report her final National Life salary; instead, she

reported the gross annual commissions she earned as an employee of

Demars Financial Services. 

  In August 1990, ICNA notified Demars that her application

had been approved, sent her a certificate of insurance for the

conversion policy, and requested an initial premium payment. 

Demars paid the initial premium and the quarterly premiums

thereafter.

  In November 1993, Demars filed a claim with ICNA for long

term disability benefits.  Her claim was approved in April 1994,

and ICNA commenced monthly payments of $1,972 ($3,000 less Social

Security disability benefits) in May 1994.

  In March 1997, CIGNA requested that Demars forward

financial information pertaining to the years 1990 through 1996. 

After examining this information, CIGNA concluded that Demars had

incorrectly reported her income on the conversion application, that

she was actually entitled only to a $100 minimum monthly benefit,

and that ICNA had therefore overpaid her by more than $70,000

between May 1994 and June 1997.  CIGNA sent Demars a letter dated

June 26, 1997 that explained these conclusions and informed her

that CIGNA would withhold all further monthly benefit payments (now

set at $100) until she had repaid the sums allegedly owed.  Demars

has not received any benefit payments since that date.

  Rather than repaying CIGNA the allegedly excessive

benefits and accepting the reduction in future benefits, Demars

brought suit against CIGNA and ICNA, asserting both diversity and

federal question jurisdiction.  After Demars stipulated to the

dismissal of her ERISA claim and the district court granted the

defendants' motion to dismiss her state law claims, judgment was

entered against Demars, who now appeals.

                                II  We review de novo the legal question whether ERISA

preemption applies to claims arising from a conversion policy, seeDegnan v. Publicker Indus., Inc., 83 F.3d 27, 29 (1st Cir. 1996),

and begin with the words of the statute.  Section 1144(a)  states

that ERISA provisions "shall supercede any and all State laws

insofar as they may now or hereafter relate to any [ERISA] employee

benefit plan."  29 U.S.C.  1144(a).  

     We note at the outset that Demars's state law claims

clearly "relate to" her conversion policy in the sense intended by

 1144(a), since in order to prevail on those claims Demars would

need to prove the existence of, or specific terms of, the

conversion policy.  See Ingersoll-Rand Co. v. McClendon, 498 U.S.

133, 140 (1990) (stating "relates to" test); see also McMahon v.

Digital Equip. Corp., 162 F.3d 28, 38-39 (1st Cir. 1998) (applying

Ingersoll-Rand test to breach of contract and unfair trade practice

claims).   

     Defendants would like us to complete the analysis by

asking "whether the conversion policy is sufficiently connected

to[] (or related to) the underlying ERISA plan."  They argue that

the conversion policy and the ERISA plan are clearly "connected" or

"related" to each other, since Demars obtained the conversion policy

by virtue of rights granted by National Life's group disability

benefits plan.  We do not disagree with this point; there is

obviously a type of "but for" relationship linking Demars's

conversion policy and National Life's ERISA plan.  But "infinite

relations cannot be the measure of pre-emption."  New York State

Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,

514 U.S. 645, 656 (1995).  If a chain of "relates to" links could

establish ERISA preemption, then ERISA preemption and ERISA

regulation could be separated in an anomalous way.  The proper

question to ask under  1144(a) is not whether Demars's claims

relate to her conversion policy, which relates in turn to an ERISA

plan, but rather whether the conversion policy is itself subject to

ERISA regulation as an ERISA plan.

     The statute defines an "employee welfare benefit plan"

(the type of ERISA plan at issue here, see 29 U.S.C.  1002(3)) as:

     any plan, fund, or program which was heretofore or is

     hereafter established or maintained by an employer . . .

     for the purpose of providing for its participants or

     their beneficiaries, through the purchase of insurance or

     otherwise, . . . benefits in the event of sickness,

     accident, disability, death or unemployment.  



29 U.S.C.  1002(1).  

     This nearly tautological definition offers little

guidance.  The key phrase for present purposes is "established or

maintained by an employer."  Demars's conversion policy was

certainly "established" in some sense by her former employer -- but

was it "established" in the relevant sense?  Case law provides no

definitive answers.  "[N]o single act in itself necessarily

constitutes the establishment of the plan, fund, or program,"

Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982) (en

banc), quoted in Belanger v. Wyman-Gordon Co., 71 F.3d 451, 455

(1st Cir. 1995), and "[t]here is no authoritative checklist that

can be consulted" to determine whether an employer's actions

establish an ERISA plan, Belanger, 71 F.3d at 455.

     In passing ERISA, Congress's purpose was twofold: to

protect employees and to protect employers.  See McMahon, 162 F.3d

at 35-36.  Congress wanted to safeguard employee interests by

reducing the threat of abuse or mismanagement of funds that had

been accumulated to finance employee benefits, see Fort Halifax

Packing Co. v. Coyne, 482 U.S. 1, 15 (1987), while at the same time

safeguarding employer interests by eliminating "the threat of

conflicting and inconsistent State and local regulation" of

employee benefit plans, Travelers, 514 U.S. at 657 (quoting 120

Cong. Rec. 29197 (1974)).

     Neither concern seems to be strongly implicated here. 

There is little threat of abuse of funds in the ERISA sense.  While

there is a risk that funds accumulated to finance benefits under

the conversion policy could be mismanaged or abused, there is no

risk of Demars's former employer abusing or mismanaging these

funds, since it does not control them, or indeed have any tie to

them.  Rather, it is the insurers who issued the policy --

defendants here -- who are in a position to possibly abuse or

mismanage the funds.  Yet Congress placed into ERISA an express

disavowal of any intent to regulate insurers qua insurers.  See 29

U.S.C.  1144(b)(2).

     The uniformity of regulations concern is equally

attenuated.  While conversion policies like Demars's undoubtedly

impose an administrative burden, that burden lies on the insurers

who provide the policy, not on the former employer.  As Fort

Halifax noted, "Congress intended pre-emption to afford employers

the advantages of a uniform set of administrative procedures

governed by a single set of regulations.  This concern only arises

. . . with respect to benefits whose provision by nature requires

an ongoing administrative program to meet the employer's

obligation."  Fort Halifax, 482 U.S. at 11.  Thus, "an employee

benefit may be considered a plan for purposes of ERISA only if it

involves the undertaking of continuing administrative and financial

obligations by the employer."  Belanger, 71 F.3d at 454.  Under

this analysis, conversion policies are not ERISA plans, because

employers do not bear any administrative or financial

responsibility for them.

     Defendants argue that there is a residual uniformity

interest affecting employers.  They point out that if different

states can regulate conversion policies, then there will be

differential costs associated with the provision of conversion

policies in the different states.  These differential costs could

drive up the costs of granting conversion rights and thus reduce

the incentive of employers with employee welfare benefit plans to

grant those rights.  This may or may not be true, but it does not,

in any event, argue for ERISA preemption of state law claims

relating to conversion policies.  That is because "cost uniformity

was almost certainly not an object of [ERISA] pre-emption." 

Travelers, 514 U.S. at 662.  ERISA preemption was intended to

guarantee regulatory uniformity, not intrastate or interstate cost

uniformity.  See id. (rejecting argument that ERISA demands the

equalization of "relative costs of various health insurance

packages in a given state"); De Buono, 520 U.S. at 816 (noting that

ERISA does not attempt to equalize the cost of benefits across

states).  

     Other arguments bolster the conclusion that conversion

policies are not subject to ERISA.  A Department of Labor

regulation interpreting the term "employee welfare benefit plan,"

while not directly on point, provides a useful analogy.  Section

2510.3-1(j) creates a "safe harbor" for certain "group or group-type

insurance programs": a group or group-type insurance program

offered by an employer will not be considered to be an employee

welfare benefit plan if the employer does not make contributions to

and receives no consideration from the insurer, employee

participation in the program is voluntary, and the employer's sole

functions are to permit the insurer to publicize the program to

employees and to collect and remit premiums to the insurer.  See 29

C.F.R.  2510.3-1(j) (1998).  The regulation is not directly

applicable to Demars's conversion policy, since hers is not a group

policy or even a "group-type" policy, and since granting a

conversion right is not identical to "publicizing" an insurance

program.  But the logic of ERISA suggests that a conversion policy

like Demars's would be even more securely anchored in a safe harbor

than the type of policy addressed by  2510.3-1(j), since her

policy does not require any ongoing employer involvement.

     Moving from analogy to contrast, the "continuation

coverage" mandated by the Consolidated Omnibus Budget

Reconciliation Act ("COBRA"), 29 U.S.C.  1161 et seq., provides an

instructive counterpoint to the conversion policy considered here. 

COBRA amended ERISA in 1985 to require employers to permit an

employee to continue group coverage for up to eighteen months after

termination of employment, if the employee elects to do so and

agrees to reimburse the employer for up to 102% of the average per-

employee cost of that group coverage.  See 29 U.S.C.  1162. 

Unlike coverage under a conversion policy, COBRA continuation

coverage does place ongoing administrative burdens on the employer

(since the ex-employee continues to belong to the employer's group

plan), as well as ongoing financial obligations (since COBRA

coverage may in fact cost the employer more than the permitted

reimbursement amount).  Given employers' ongoing administrative and

financial involvement, courts have found that claims related to

COBRA coverage are preempted by ERISA.  See Mimbs v. Commercial

Life Ins. Co., 818 F. Supp. 1556, 1560-61 (S.D. Ga. 1993)

(explaining why COBRA continuation coverage is subject to ERISA

regulation).

     Certain practical concerns -- not present in the COBRA

context -- also suggest that state law claims related to conversion

policies should not be preempted by ERISA.  Consider, for example,

the effect on insurers if conversion policies were found to be

ERISA plans:  as ERISA plan administrators, insurers would be

required to file plan descriptions and detailed annual reports with

the Department of Labor, see 29 U.S.C.  1023, 1024, and to

provide regularly updated plan summaries to the plan beneficiaries,

see 29 U.S.C.  1022.  Given the individual nature of the typical

conversion policy, the insurer would presumably be required to meet

these extensive requirements separately for each individual

conversion policy.  An even more unwarranted outcome would result

if former employers, rather than insurers, were deemed to be ERISA

plan administrators for conversion policies, since employers would

then have to meet ERISA's reporting and disclosure requirements for

all of the policies issued, perhaps by a bevy of different

insurers, to an ever-growing collection of difficult-to-locate

former employees. 

     Finally, many other courts appear to agree with our

conclusion regarding the status of conversion policies, although

the compatibility of certain decisions is apparent only upon close

reading.  A small set of decisions clearly reach the contrary

conclusion -- but based, we believe, on unpersuasive reasoning.

     Several district courts have adopted the careful

distinction between conversion rights and conversion policies that

we drew at the outset and that was first drawn in Mimbs.  Mimbsfound that state law claims involving the right to convert are

preempted by ERISA, but that claims related to the conversion

policy itself are not.  See Mimbs, 818 F. Supp. at 1561-62 (finding

that "[a]ny claim that Defendant failed to offer proper conversion

plan options . . . relates to the ERISA plan and is pre-empted by

ERISA," but that "[t]he concerns behind ERISA pre-emption are not

implicated by state-law claims arising from obligations incurred

under the conversion policy itself"); see also Barringer-Willis v.

Healthsource North Carolina Inc., 14 F. Supp. 2d 780, 783-85

(E.D.N.C. 1998) (adopting Mimbs distinction); Mizrahi v. Provident

Life and Accident Ins. Co., 994 F. Supp. 1452, 1453-54 (S.D. Fla.

1998) (same); Powers v. United Health Plans of New England, Inc.,

979 F. Supp. 64, 69-70 (D. Mass. 1997) (same); Loudermilch v. New

England Mut Life Ins. Co., 942 F. Supp. 1434, 1437 (S.D. Ala. 1996)

(same); McCale v. Union Labor Life Ins. Co., 881 F. Supp. 233, 235-

36 (S.D. W. Va. 1995) (same); Vaughn v. Owen Steel Co., 871 F.

Supp. 247, 249 (D.S.C. 1994) (same).

     The Second Circuit and the Fourth Circuit have agreed

with the first half of the Mimbs rule -- that state law claims

related to conversion rights are preempted by ERISA -- without

deciding whether ERISA regulation extends to conversion policies. 

See White v. Provident Life & Accident Ins. Co., 114 F.3d 26, 28

(4th Cir.), cert. denied, 118 S. Ct. 369 (1997); Howard v. Gleason

Corp., 901 F.2d 1154, 1157-58 (2d Cir. 1990).

     The Ninth Circuit has spoken less clearly on this

question.  One Ninth Circuit decision obviously concerned only the

right to convert, see Tingey v. Pixley-Richards West, Inc., 953

F.2d 1124, 1132-33 (9th Cir. 1992), while a subsequent decision,

Greany v. Western Farm Bureau Life Insurance Co., 973 F.2d 812 (9th

Cir. 1992), has proven far more difficult to interpret.  The

dispute underlying Greany arose when an employee was mistakenly

told that his group health insurance would terminate on a date

later than it actually did, causing a gap between his group

coverage and the conversion coverage he obtained.  See id. at 814-

15.  The insurer quickly admitted its mistake and permitted the

employee to convert his policy retroactively to the actual date of

termination of the group policy.  See id.  Since the employee had

already received the full amount due to him under the conversion

policy, none of his panoply of claims against his former employer

and the insurer sought benefits under that policy.  See id. at 815. 

The relevant portions of Greany merely apply the first part of the

Mimbs rule, finding state law claims related to conversion rights

to be preempted by ERISA.  See, e.g., id. at 818 (rejecting a

negligence count against the employer for its actions in procuring

the conversion policy because conversion rights are subject to

ERISA regulation).

     Greany is nevertheless cited for the proposition that

conversion policies themselves are subject to ERISA regulation and

preemption.  See, e.g., White, 114 F.3d at 28; Glass v. United of

Omaha Life Ins. Co., 33 F.3d 1341, 1346 (11th Cir. 1994).  This

seems to us to be a misreading of Greany -- an understandable

misreading in light of two problematic aspects of the opinion. 

First, the opinion uses confusing language to refer to conversion

rights.  Compare Greany, 973 F.2d at 817 (referring repeatedly to

"conversion benefits"), with id. at 823 (summarizing holding as one

regarding "conversion rights").  Second, Greany discusses the

plaintiffs' unfair claims settlement practices claim without making

clear that this claim was for benefits under the group policy, not

the conversion policy.  See id. at 819.  Because the opinion does

not make this point clear, and because of its misleading use of the

phrase "conversion benefits" to refer to conversion rights, it has

been incorrectly interpreted -- and "headnoted" -- as a decision

about whether conversion policies are subject to ERISA regulation.

     Some decisions have squarely held that ERISA regulation

extends to conversion policies, but we do not find their reasoning

persuasive.  Several courts, for example, have assumed that ERISA

regulation must extend to conversion policies based on an argument

similar to the "relates to" argument rejected above, while failing

to consider whether conversion policies implicate any of ERISA's

underlying purposes.  See, e.g., Painter v. Golden Rule Ins. Co.,

121 F.3d 436, 439-40 (8th Cir. 1997) ("[T]he Conversion Policy came

into being as a result of Painter exercising her right under the

group policy to obtain this specific insurance policy. . . . As

such, the Conversion Policy is a component of [the employer's]

ERISA plan."), cert. denied, 118 S. Ct. 1516 (1998); Beal v.

Jefferson-Pilot Life Ins. Co., 798 F. Supp. 673, 675 (S.D. Ala.

1992) ("[P]laintiffs' right to the converted policy as well as a

designation of the benefits to be contained therein existed solely

by virtue of an ERISA employee benefit plan. . . . The Court . . .

finds that the policy at issue is an 'employee benefit plan' under

ERISA." (citation and internal quotation marks omitted)).

     A faulty analogy to COBRA coverage led the Sixth Circuit

to decide that a certain type of conversion policy must be subject

to ERISA.  See Massachusetts Casualty Ins. Co. v. Reynolds, 113

F.3d 1450, 1453 (6th Cir. 1997).  The employer in Reynolds had

provided ERISA-governed benefits to its employees by purchasing

individual disability insurance policies for them.  See id. 

Reynolds's individual conversion policy was therefore essentially

the same policy he had had while an employee, except that after

conversion it was Reynolds, rather than the employer, who was

responsible for paying the premiums and maintaining a relationship

with the insurer.  See id. at 1452.  

     The Reynolds court found it critical that Reynolds did

not switch from group to individual coverage and that the terms of

his policy remained the same; these facts, said the court, made

Reynolds's conversion coverage akin to COBRA continuation coverage. 

See id. (citing Mimbs's discussion of COBRA).  But the court's

conclusion fails to reflect the actual logic behind ERISA

regulation of COBRA continuation coverage.  COBRA coverage is not

subject to ERISA regulation merely because the terms of the

coverage "continue" the specific terms of the employer's ERISA plan;

rather, COBRA coverage is subject to ERISA regulation because it

implicates both of ERISA's cardinal purposes.

     The Eleventh Circuit also, we believe, misread Mimbs when

it held in Glass v. United of Omaha Life Insurance Co., 33 F.3d

1341 (11th Cir. 1994), that a conversion policy that provided

coverage to a group of ex-employees was "distinguishable from Mimbsin this respect," id. at 1346, and therefore subject to ERISA

regulation.  The court reasoned:

     The conversion in the instant case, unlike that in Mimbs,

     did not actually create an individual policy. It removed

     [the employee's] coverage from a group policy consisting

     of actively employed Silk Greenhouse employees and moved

     the coverage to a group policy of ex-Silk Greenhouse

     employees. . . . Clearly, [the employee's] ability to

     obtain the converted life insurance policy arose from the

     ERISA plan, and the converted policy itself continued to

     be integrally linked with the ERISA plan.  In this case,

     conversion . . . did not defeat ERISA regulation.



Id. at 1346-47.  By attempting to distinguish between group and

individual conversion policies, the Glass decision misunderstands

the logic of Mimbs.  Both types of conversion policy fall outside

the reach of ERISA, since what matters for ERISA purposes is not

the nature of the conversion policy but rather the nature of the

employer's ongoing administrative and financial ties to the policy. 

If no such ties exist, the policy should not be subject to ERISA

regulation.

     Finally, we note our disagreement with another frequently

cited decision holding that conversion policies are subject to

ERISA.  The court in Nechero v. Provident Life & Accident Insurance

Co., 795 F. Supp. 374 (D.N.M. 1992), also focused on the issue that

we consider central:  the extent to which conversion policies

implicate ERISA's purpose of shielding employers from inconsistent

state regulations.  See id. at 378-79.  However, contrary to what

we have concluded, the Nechero court found that conversion policies

do place a significant administrative burden on employers, because

these policies require the employer to "track[] the insurance

expiration of departing employees, timely inform[] them of their

conversion option, and assist[] in their conversion to an

individual policy if they so choose.  [The employer's] involvement

is ongoing as to its employees as a whole, and requires an

administrative scheme."  Id. at 379.  

     We agree that the administrative burdens noted in Necheroare real.  Yet because these burdens are all tied to the conversion

right, rather than the conversion policy, they do not support the

conclusion that conversion policies are subject to ERISA

regulation.  In the end, the reasoning in Nechero supports the

distinction recognized in Mimbs between conversion rights, which

are subject to ERISA, and conversion policies, which are not.

                              III

  We hold that Demars's conversion policy is not an

"employee welfare benefit plan" and that Demars's state law claims

relating to the conversion policy are not preempted under

 1144(a).  We express no opinion, of course, as to the merits of

Demars's claims against CIGNA and ICNA.

  Reversed and remanded.  Costs to appellant.