Opinion
Civil Action No. 03-1803.
April 19, 2004
OPINION
I. Introduction
Plaintiff Geraldine Walters ("Walters") brings this action claiming long-term disability benefits under an employee benefits plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. Pending before the Court is the Motion to Dismiss of Defendant Kemper Insurance Companies ("Kemper"). After careful consideration of the Motion and the opposition thereto, the Court concludes that the Motion should be granted in part and denied in part.
II. Standard of Review
In reviewing a motion to dismiss under Rule 12(b)(6), the court accepts all well-pleaded allegations as true and views them in the light most favorable to the plaintiff. In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Id. (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). Claims should be dismissed under Rule 12(b)(6) only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). However, a court will not accept unwarranted inferences or sweeping legal conclusions cast in the form of factual allegations. Mitchell v. Cellone, No. 01-2028, 2003 U.S. Dist. LEXIS 22347, at *6 (W.D. Pa. November 17, 2003) (citing Miree v. DeKalb County, Ga., 433 U.S. 25, 27 n. 2 (1977)).
III. Summary of Facts
For purposes of the Motion, the Court accepts the following well-pleaded allegations as true. Since 2001, Ms. Walters has been a full-time employee with Verizon Wireless. As part of her employment, she was eligible for and was a participant in a group long-term disability plan provided by Kemper and governed by ERISA. On April 30, 2002, Ms. Walters became disabled as the result of an automobile accident. Ms. Walters notified Kemper of her disability and Kemper denied payment of benefits. She exhausted all available administrative appeals prior to commencing this action.
IV. Analysis
A. Declaratory Judgment (Count I) and Breach of Contract (Count II)
ERISA preempts state law insofar as it relates to any employee benefit plan. 29 U.S.C. § 1144(a). Ms. Walters' first two claims, for declaratory judgment under 42 Pa.C.S. §§ 7531, et seq., and breach of contract under Pennsylvania state law, fall squarely within the scope of ERISA preemption and will be dismissed.
Plaintiff does not contest dismissal of Count II of the Complaint.
B. Bad Faith (Count III)
In an exception which must be narrowly construed, a state law is saved from ERISA preemption if it "regulates insurance, banking or securities." 29 U.S.C. § 1144(b)(2)(A). Plaintiff argues that the Pennsylvania bad faith statute, 42 Pa.C.S. § 8371, regulates insurance and thus falls within the savings clause. Under section 8371, if the court finds that the insurer acted in bad faith toward the insured, it may award prejudgment interest, punitive damages, court costs and attorney fees. 42 Pa.C.S. § 8371. Count III of Ms. Walters' Complaint seeks all of these remedies.
In the past year, federal district courts within the Third Circuit have been presented with the question presented here and have reached different results. Compare Nguyen v. Healthguard of Lancaster, Inc., 282 F. Supp.2d 296, 306 (E.D. Pa. 2003) (Pennsylvania bad faith law preempted) and McGuigan v. Reliance Std. Life Ins. Co., 256 F. Supp.2d 345, 350 (E.D. Pa. 2003) (same) with Stone v. Disability Mgmt. Servs., 288 F. Supp.2d 684, 696 (M.D. Pa. 2003) (Pennsylvania bad faith law not preempted) and Rosenbaum v. Unum Life Insurance Co., No. 01-56758, 2003 U.S. Dist. LEXIS 15652 (E.D. Pa. Sept. 8, 2003) (same).
For many years, the seminal case interpreting ERISA's insurance regulation preemption exception was Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985). In Metropolitan Life, the Supreme Court adopted a two part test to decide whether a law regulates insurance for the purpose of the ERISA savings clause. First, the law must have regulated insurance "from a common sense view." Id. at 740. To pass the common sense test, the law must go beyond affecting the insurance industry; it "must be specifically directed toward that industry." Id. Second, the Court adopted the three factors used in the McCarran-Ferguson Act to determine whether a regulation falls within the business of insurance. Id. The factors included whether the regulation (1) transferred or spread policy risk; (2) was "an integral part of the policy relationship between the insurer and the insured;" and (3) applied only to entities within the insurance industry. Id. at 743. These factors were to be balanced; none was individually determinative. UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 373 (1999).
Two years after Metropolitan Life, the Supreme Court specifically addressed the interplay of bad faith laws and ERISA in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). In Pilot Life, the Court applied Metropolitan Life and held that Mississippi's bad faith law did not regulate insurance within the meaning of ERISA's savings clause. Pilot Life, 481 U.S. at 49-51. However, in addition to its holding that the Mississippi bad faith law did not meet the factors of Metropolitan Life, the Court also reviewed the goals of ERISA and stated in dicta that Mississippi's law would also be preempted because it conflicted with ERISA's civil enforcement remedies, which "were intended to be exclusive." Id. at 54. Significantly, this Court is unaware of any case in which a United States Court of Appeals has held any bad faith law to escape ERISA preemption since the Supreme Court decided Pilot Life. See, e.g., Kidneigh v. UNUM Life Ins. Co. of Am., 345 F.3d 1182, 1199 (10th Cir. 2003) (Colorado bad faith law preempted); Elliot v. Fortis Benefits Ins. Co., 337 F.3d 1138, 1147 (9th Cir. 2003) (Montana bad faith law preempted); Conover v. Aetna US Health Care, Inc., 320 F.3d 1076, 1080 (10th Cir. 2003) (Oklahoma bad faith law preempted); Moffett v. Halliburton Energy Servs., 291 F.3d 1227 (10th Cir. 2002) (Wyoming bad faith law preempted); Howard v. Coventry Health Care of Iowa, Inc., 293 F.3d 442 (8th Cir. 2002) (Iowa bad faith law preempted); Phillips-Foster v. UNUM Life Ins. Co. of Am., 302 F.3d 785, 796 (8th Cir. 2002) (Minnesota bad faith law preempted); Gilbert v. Alta Health Life Ins. Co., 276 F.3d 1292 (11th Cir. 2001) (Alabama bad faith law preempted).
Last term, in Ky. Ass'n of Health Plans, Inc. v. Miller, 123 S.Ct. 1471 (2003), the Supreme Court modified Metropolitan Life when it jettisoned the McCarran-Ferguson factors and adopted a new two part test. "First, the state law must be specifically directed toward entities engaged in insurance. Second, the state law must substantially affect the risk pooling arrangement between the insurer and the insured." Miller, 123 S.Ct. at 1479 (internal citations omitted). Plaintiff argues that Miller narrows ERISA's preemption power and saves her claim for bad faith against Kemper. She maintains that Miller, along with district court cases Stone and Rosenbaum, show a trend towards allowing bad faith claims to survive preemption. The Court disagrees.
1. Express Preemption — Applying Miller
As applied to Plaintiff's bad faith claim, Miller does not alter the Metropolitan Life line of cases so as to save her claim from preemption. Accepting that the Pennsylvania bad faith law satisfies the first prong of Miller, the Court is not convinced that it satisfies the second prong.
Under past precedent, the Supreme Court made clear that the McCarran-Ferguson factors were guideposts, all of which need not be satisfied for a law to be deemed to regulate insurance. See Ward, 526 U.S. at 373; Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 366 (2002). Under Miller, however, the guidepost approach has been eliminated, and the law now "must substantially affect the risk pooling arrangement between the insurer and the insured." Miller, 123 S.Ct. at 1479 (emphasis added). Applying this standard to the facts presented here, the Court finds that claims for bad faith are neither a risk identified within insurance policies nor a risk of loss the insurer agrees to bear on behalf of the insured. Rather, the law of bad faith is remedial, "a resort to which the insured may turn when injured by its relationship with its insurer." Tutolo v. Independence Blue Cross, No. 98-CV-5928, 1999 U.S. Dist. LEXIS 6335, at *7 (E.D. Pa. May 6, 1999). The fact that the threat of such claims may result in increased costs which may be passed on to the insured or that it may place an additional burden on insurers to act in good faith to avoid increased awards is too attenuated to be deemed to "substantially affect" the risk pooling arrangement. Indeed, the Courts of Appeals for the Ninth and Tenth Circuits, interpreting the Supreme Court's decision in Miller, have held state bad faith laws preempted. See Elliot, 337 F.3d at 1147; Kidneigh, 345 F.3d at 1199. Accordingly, the Court finds that Pennsylvania's bad faith law does not "regulate insurance" within the meaning of ERISA's savings clause, 29 U.S.C. § 1144 (b)(2)(A).
2. Conflict Preemption
Even if Pennsylvania's bad faith law were found to pass the Miller test, it offers remedies which ERISA does not, a factor which the Supreme Court has stated is a basis for preemption. See Pilot Life, 481 U.S. at 54; Rush, 536 U.S. at 377. Under the doctrine of conflict preemption, a state law may be preempted "to the extent that it actually conflicts with federal law." English v. General Elec. Co., 496 U.S. 72, 79 (1990). Where a state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," that law is preempted. Hines v. Davidowitz, 312 U.S. 52, 67 (1941). "State law causes of action . . . are preempted under ERISA both when they are expressly preempted by the terms of the statute as well as when the state law provides remedies beyond those contained in ERISA itself." Kidneigh, 345 F.3d at 1185 (citing Pilot Life, 481 U.S. at 54).
Although the Supreme Court has not expressly held an insurance statute to be preempted by ERISA under the conflict preemption doctrine, it has suggested that preemption would be applied:
Although we have yet to encounter a forced choice between the congressional policies of exclusively federal remedies and the reservation of the business of insurance to the States, we have anticipated such a conflict, with the state insurance regulation losing out if it allows plan participants to obtain remedies that Congress rejected in ERISA.Rush, 536 U.S. at 377 (quoting in part Pilot Life, 481 U.S. at 54) (internal marks and citations omitted). See also Nguyen v. Healthguard of Lancaster, Inc., 2003 U.S. Dist. LEXIS 22043 (E.D. Pa. 2003) (Judge Van Antwerpen disagreeing with Judge Newcomer's analysis of Supreme Court precedent in finding no conflict preemption in Rosenbaum). In sum, because Pennsylvania's bad faith law offers remedies ERISA does not, the Court finds that Plaintiff's claim under that statute is preempted by ERISA.
An appropriate order follows.
ORDER OF COURT
AND NOW, this 19th day of April, 2004, in accordance with the foregoing opinion, it is HEREBY ORDERED:1. Defendant's Motion to Dismiss (Document No. 3) is GRANTED IN PART with respect to Plaintiff's state law claims; Counts I, II and III are DISMISSED.
2. Defendant's motion is DENIED without prejudice as to removing it as the named Defendant.
3. Defendant shall file and serve a response to the remainder of Plaintiff's Complaint on or before May 14, 2004.