HLD, v. 31, n. 12
U.S. Court In Pennsylvania Holds
State Bad Faith Statute For Insurance Claims Was Not Pre-Empted By ERISA
Plaintiff Joel Rosenbaum sued defendant UNUM Life Insurance Co.
of America in the U.S. District Court for the Eastern District of Pennsylvania
for wrongfully denying his claim for long term disability benefits under an
employee benefit plan that is governed by the Employee Retirement Income Security
Act (ERISA). Defendant moved to dismiss, arguing plaintiff's state bad faith
insurance claim under 42 Pa. Cons. Stat.
� 8371 was expressly pre-empted by ERISA. The court denied the motion on
the ground the claim came within ERISA's saving clause. Defendant moved for
reconsideration, but while the motion was under consideration the Supreme Court
decided Kentucky Ass'n of Health Plans, Inc. v. Miller, 123 S.Ct. 1471
(2003), which changed the analysis for the application of the ERISA saving clause.
Defendant argued � 8371 is expressly pre-empted by ERISA,
and even if it is not expressly pre-empted, � 8371 is subject to conflict
pre-emption. As an initial matter, the court noted it was not reconsidering
the previous findings under the McCarran-Ferguson Act, but was applying the
new test under Miller. The court then turned to the issue of ERISA express
pre-emption and the saving clause and explained that Miller's two-part
test "requires that state legislation: (1) 'be specifically directed toward
entities engaged in insurance;' and (2) 'substantially affect the risk pooling
arrangement between the insurer and the insured.'" The court looked to the plain
language of � 8371 and determined the section is clearly about actions
arising under insurance policies, which brings it within the first Miller
factor. The court then addressed the second Miller factor and compared
the second Miller factor to the first McCarran-Ferguson factor. The second
Miller factor requires that the state law "substantially affect" the
risk pooling arrangement, while the now defunct McCarran-Ferguson factors requires
the state law to "actually spread risk." The court clarified that Miller
does not require � 8371 to spread the risk as defendant argued. Applying
the second Miller factor, the court determined that "any risk deflection
provisions used by an insurer to create limitations on claims and damages are
effectively nullified by � 8371," and thus � 8371 "substantially affects
the risk pooling arrangement between the insurer and the insured." Therefore,
the court found the statute satisfied the Miller test.
Defendant also argued under a theory of conflict pre-emption that
allowing an ERISA-related bad faith claim to proceed conflicted with Congress'
intent in enacting ERISA and therefore the state claim was pre-empted. The court
determined that Congress enacted the saving clause with the intent of excluding
state laws that regulate insurance from ERISA pre-emption. Accordingly, the
court found that � 8371 satisfied the Miller test and denied defendant's
motion for reconsideration.
Rosenbaum v. UNUM Life Ins. Co. of Am., No. 01-6758, 2003
WL 22078557 (E.D. Pa. Sept. 8, 2003).