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Ninth Circuit Says Converted Individual Insurance Policy Was Not Subject to ERISA and State Law Claims Were Not Pre-Empted


HLD, v. 29, n. 10 (October 2001)

Ninth Circuit Says Converted Individual Insurance Policy Was Not Subject to ERISA and State Law Claims Were Not Pre-Empted

Barbara Waks initially obtained insurance coverage from Empire Blue Cross/Blue Shield ("Empire") under a group insurance plan covering employees of her husband's company. The plan qualified under, and was regulated by, the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. � 1001 et seq. When her husband's company ceased operations, Waks applied for individual coverage with Empire in accordance with the conversion rights of the group policy. Empire issued Waks an individual policy for comprehensive hospital and medical benefits effective February 1993.

In June 1996, Empire authorized Waks' emergency admission to Sunrise Hospital Medical Center. Waks suffered from pain, nausea, vomiting, severe disorientation, and spiking temperatures. Empire later denied Waks' insurance claim for the hospital costs and denied her appeal. Waks filed suit in federal district court for breach of contract, breach of the covenant of good faith and fair dealing, and breach of statutory duties. The district court granted summary judgment in favor of Empire and held that Waks' state law claims were pre-empted by ERISA. Waks appealed.

The Ninth Circuit held that ERISA did not pre-empt the state law claims arising under Waks' converted individual policy with Empire. The appeals court determined that because Waks' individual policy covered her as an individual, and not as an employee of her husband's company or any other employer, the converted policy was not itself an ERISA plan. See Peterson v. American Life & Health Ins. Co., 48 F.3d 404 (9th Cir. 1995). The appeals court also found that Waks' state law claims were not  "related to" an ERISA plan for purposes of pre-emption. The appeals court concluded that ERISA pre-emption would be an "absurd result" because the individual policy was independent of an ERISA plan and, therefore, placed no burden on any administrator or any plan. Faced with an even split between two circuits, the appeals court accorded its decision with that of the First Circuit in Demars v. Cigna Corp., 173 F.3d 443 (1st Cir. 1999). Accordingly, the appeals court reversed the order of the district court and remanded for consistent proceedings.

Waks v. Empire Blue Cross/Blue Shield, No. 99-17437, 2001 WL 936111 (9th Cir. Aug. 20, 2001) (4 pages).

Health Lawyers would like to thank Margaret Manning, of Los Angeles, California, and Michael D. Roth, of the Law Offices of Michael Dundon Roth, in Los Angeles, California, for sending us copies of this decision.

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