Opinion
CIVIL ACTION NUMBER 02-2212 SECTION "L" (2).
June 5, 2003.
ORDER REASONS
Before the Court is Defendants' motion to dismiss. For the following reasons, the motion is GRANTED IN PART and DENIED IN PART.
I. BACKGROUND
This case arises out of a controversy involving the alleged failure of Defendant Metropolitan Life Insurance Company ("Met Life") to administer employee welfare benefit plans in accordance with ERISA by failing to pay interest when the payment of life insurance benefits is delayed. Plaintiff, Sharon Anderson, claims that her husband was a participant in his employer's Group Life Insurance Plan (the "Drago Plan"), an employee welfare benefit plan under ERISA, which provided life insurance benefits and accidental death and dismemberment benefits. Plaintiff alleges that Defendant Met Life is the administrator of the plan, in addition to being the administrator of other employee welfare benefit plans in the state, and that Defendant Business Men's Assurance Company ("BMA") is the insurance carrier for the insurance benefits under the Drago Plan.
According to the Plaintiff, Met Life has a policy not to pay interest on account of delay in paying a benefit claim "regardless of the factual circumstances . . . except when ordered to do so by a court of law." The Plaintiff claims that both Louisiana and Texas have statutory or jurisprudential rules requiring insurance companies to pay interest during the period in which payment of life insurance benefits is delayed. As beneficiary of her husband's policy, Plaintiff claims she experienced Defendants' violation of the law firsthand when Met Life refused to pay her interest on the life insurance and accidental death and dismemberment insurance payment she was owed after payment was delayed for nearly six months.
Plaintiff recently amended her complaint to bring this as a class action, describing the class as "all residents of Louisiana who are participants or beneficiaries of any employee welfare benefit plans that offer benefits through the purchase of life and/or accidental death and dismemberment insurance and that are administered by Met Life, who filed claims for insurance benefits under those plans, who received delayed payment on those claims, and who, from July 30, 1992 until the present have not received interest that should have been paid on the principal amount of their claims to account for the period benefit payments were delayed." In addition to claims for denial of benefits and violation of the law, Plaintiff asserts claims against Defendants Met Life and BMA for breach of fiduciary duties.
Defendants generally deny the allegations, but do admit that they did not pay interest to the Plaintiff. The Defendants brought the current motion to dismiss the Plaintiffs claims and the class allegations for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The Defendants argue that the complaint fails to state a claim for relief because the civil enforcement provisions of ERISA do not provide a basis for the claims, the "federal common law" asserted does not give rise to a separate basis for civil enforcement under ERISA, and the state law claims alleged are pre-empted by ERISA.
II. LAW AND ANALYSIS
The Federal Rules of Civil Procedure permit a defendant to seek dismissal of a complaint based on the "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). When considering a motion to dismiss under Rule 12(b)(6), a district court should construe the complaint liberally in favor of the plaintiff, assuming all factual allegations to be true. See Leleux v. United States, 178 F.3d 750, 754 (5th Cir. 1999). Rule 12(b)(6) motions are viewed with disfavor and are rarely granted. See id. A complaint may not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (quoting Lowrey v. Texas A M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997)). In determining whether Plaintiff's complaint states a claim, this Court will review each count separately.
Count 1:
Count one of the second amended complaint alleges the following:
43. The plan, ERISA, and/or applicable state law requires the payment of interest on life insurance benefits not paid within specified periods.
44. State law requirements that interest be paid on life insurance proceeds are implicit in and incorporated by law into the terms of individual life insurance policies issued directly to consumers, or through benefit plans, such as the Drago Plan.
45. Alternatively, federal common law requiring the payment of interest on delayed benefit payments and applicable under ERISA are implicit in the terms of the Benefit Plans, including the Drago Plan.
46. Met Life's failure to pay Plaintiff interest on insurance proceeds constituted an improper denial of benefits under the Drago Plan and/or ERISA and/or applicable state law and Met Life's failure to pay interest to other class members resulted in an improper denial of benefits under life insurance policies insuring other benefit plans and/or ERISA and/or applicable state law.
Defendants argue that count one should be dismissed because (1) it fails to state a claim for interest as a plan benefit; (2) it fails to state a claim for relief under "federal common law;" and (3) it fails to state a claim for interest under any applicable state laws because such laws are preempted by ERISA. First, Defendants argue that Plaintiff has not identified any provision of the Drago Plan that entitles her to interest. In fact, Defendants explain that interest is not a benefit specified anywhere in the plan and only benefits specified in the plan can be recovered in a suit under section 502(a)(1)(B) of ERISA, relying on Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 144-47 (1985), in addition to other cases. Furthermore, Defendants argue that Plaintiffs claim for interest as an "implied term" of the Drago Plan also fails because an award of interest not explicitly included in the Plan as a benefit results in an ERISA prohibited extra-contractual or compensatory remedy.
In response, Plaintiff argues that the terms of the plan incorporate state law, including the state interest statutes. Plaintiff notes that the plan is "issued in accordance with the laws of Texas, where it is delivered" and that any "provision of this policy which is in conflict with the laws of the state in which this policy is issued is changed to conform to the minimum requirements of such laws." Plaintiff explains that both Texas and Louisiana have statutes requiring the payment of interest on life insurance proceeds. Therefore, Plaintiff contends that by incorporating state laws, the plan does provide for payment of interest. In addition, Plaintiff argues that the payment of interest under state statutes is not an extra-contractual remedy because the state law is incorporated into the terms of the plan, distinguishing the cases cited by Defendants.
Second, Defendants argue that count one fails to state a claim for relief under "federal common law," because such a claim is neither a claim for benefits under an ERISA plan cognizable under Section 502(a)(1)(B), nor a claim for "other appropriate equitable relief" to redress violations of a plan or ERISA cognizable under Section 502(a)(3)(B). Defendants explain that such a claim is simply a new claim for relief, beyond the six civil enforcement provisions identified in ERISA, citing Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985).
In response, Plaintiff argues that she has stated a cause of action under ERISA section 502(a)(3)(B) for interest as a form of equitable restitution for unjust enrichment and under ERISA section 502(a)(3)(A) for an injunction against future refusals to pay interest. Plaintiff cites a number of cases, all of which held that interest on ERISA benefits could be recovered as "other equitable relief" under section 502(a)(3)(B). In addition, Plaintiff argues that because the interest payment on the proceeds was due under state law, Plaintiff is entitled to an injunction prohibiting Defendant Met Life from continuing the practice of non-payment of interest under section 502(a)(3)(A).
Finally as to count one, Defendants argue that the complaint fails to state a claim for interest under any applicable state laws because such laws are pre-empted by ERISA, citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987), which held that a state lawsuit asserting improper processing under an ERISA regulated plan is preempted by federal law. In opposition, Plaintiff contends that the state interest statutes are saved from preemption. Plaintiff relies on the savings clause of ERISA, which provides that "Except as provided in subparagraph (b), nothing in this title shall be construed to exempt or relieve any person from any law of any state which regulates insurance, banking or securities." The Plaintiff cites a number of cases in which the courts found that a state insurance law was saved from preemption. Particularly, Plaintiff notes two cases holding that state statutes requiring the payment of interest on life insurance proceeds were saved from ERISA preemption, citing Estate of Haag, 188 F. Supp.2d 1135 (D. Mn. 2002) and Franklin H. Williams Ins. Trust v. Travelers Ins. Co., 50 F.3d 144 (2d Cir. 1995). Additionally, Plaintiff argues that the interest statutes meet the test for "regulating insurance" under the savings clause as established by the United States Supreme Court in UNUM Life Ins. Co. v. Ward.
After reviewing the complaint and the parties' briefs, this Court finds that Plaintiff's claims fall under only two of the six civil enforcement provisions of ERISA: section 502(a)(1)(B) to recover benefits under the terms of the plan, to enforce rights under the terms of the plan, or to satisfy his rights to future benefits under the terms of the plan, and section 502(a)(3)(B) to obtain other appropriate equitable relief to redress or enjoin violations of the plan or to enforce ERISA or the terms of the plan.
First, this Court must determine whether Plaintiff states a claim for interest under ERISA section 502(a)(1)(B). Plaintiffs argument that the terms of the plan incorporate state law must fail. Various courts have found that parties may not stipulate or agree that state law will govern an ERISA claim, despite the fact that a provision of the contract may provide that state law is applicable or that the plan shall be administered in accordance with state law. HECI Exploration Co. v. Holloway, 862 F.2d 513, 521 (5th Cir. 1988); The Prudential Ins. Co. of America v. Doe, 140 F.3d 785, 791 (8th Cir. 1998); Katz v. The Colonial Life Ins. Co. of America, 951 F. Supp. 36, 39 (S.D. N.Y. 1997). In fact, one court in this district has specifically considered this argument and rejected it. Heidelberg v. Nat'l. Foundation Life Ins. Co., No. 00-877, 2001 WL 23821 1, *2 (E.D. La. March 6, 2001). In Heidelberg, the Plaintiff filed suit against an insurance company regarding a disputed health insurance claim. The Plaintiff in Heidelberg argued that a Louisiana state law should not be preempted by ERISA because the parties agreed to incorporate all provisions of Louisiana law into the contract. The Plaintiff relied on provisions of the contract that provided "[t]he policy will be interpreted by laws of the state in which it is delivered. Any part of the policy which is in conflict with the laws of the state in which it is delivered is changed to conform to the minimum requirements of the state's laws." Despite this language, the court held that the cited provision did not apply, explaining that to accept Plaintiffs argument would "allow a boiler-plate provision . . . to replace federal law with state law in every respect and thus would undermine the purpose of ERISA's preemption provision to `eliminate the threat of conflicting and inconsistent state and local regulation of employee benefit plans.'" Id. Applying these cases, it is clear that Plaintiffs argument of state law being incorporated into the terms of the contract fails. Defendant is correct that interest is not a term of the plan and, therefore, Plaintiff fails to state a cause of action under ERISA section 502(a)(1)(B).
Next, this Court must determine whether Plaintiff states a claim for interest under ERISA section 502(a)(3)(B). Under the federal case law concerning ERISA, several courts have found that a plaintiff can state a claim for interest as equitable relief under section 502(a)(3)(B). Dunnigan v. Metropolitan Life Ins. Co., 277 F.3d 223, 231 (2d Cir. 2002); Fotta v. Trustees of the United Mine Workers of America, 165 F.3d 209, 213 (3d Cir. 1998); Clair v. Harris Trust Savings Bank, 190 F.3d 395, 498 (7th Cir. 1999). In these cases, plaintiffs alleged breaches of fiduciary duties and sought interest from delayed payments. The courts found that the plaintiffs stated a cause of action under section 502(a)(3)(B), despite the fact that the plan terms did not provide for interest and ERISA does not expressly provide for interest on late payments. Id. These courts considered the plaintiffs' interest claims were proper claims for equitable relief, explaining that equity sometimes awards monetary relief. Id. These cases rejected the argument that an award of interest was a prohibited extra-contractual award under Massachusetts Mutual, instead categorizing an interest award as part of the compensation due plaintiff.
However, Defendants argue that actions under section 502(a)(3)(B) require a showing of an underlying breach of explicit or implicit terms of the plan or ERISA, which Defendants contend Plaintiff has failed to do in this case. Jackson v. Fortis, 245 F.3d 748, 750 (8th Cir. 2001) (adopting district court decision and reasons, found at 105 F. Supp.2d 1055 (D. Mn. 2000)). After a close reading of the cases addressing this issue, it appears that the Plaintiff states a claim under section 502(a)(3)(B). The Jackson case is distinguishable on the facts because the plaintiff in that case was partially at fault for the delay in payment of benefits. The Jackson court did note that "It is clear that under the implied covenant, a deliberate or negligent failure to process benefits applications in a timely manner, or to pay benefits upon proof of disability, would violate the duty of good faith and fair dealing. Such behavior would, thereby, trigger a breach and open the plan to the statutory civil action for interest. . . ." Thus, the Jackson court suggested that had the plaintiff alleged any wrongdoing or unjustified delay in payment of benefits, the plaintiff would have stated a claim under section 502(a)(3)(B).
Furthermore, in the Dunnigan case, the Second Circuit addressed the issue of what a plaintiff was required to plead in order to state a claim under section 502(a)(3)(B). 277 F.3d at 230. The plaintiff in Dunnigan alleged a claim under ERISA section 502(a)(3)(B) claiming that the defendant breached its fiduciary duties by not paying interest and was unjustly enriched by a five year delay in the payment of benefits. The Second Circuit reversed the district court, which held that plaintiff could not state a claim under section 502(a)(3)(B) without a showing of bad faith. Id. The Second Circuit explained as follows:
Here, Dunnigan's complaint alleges that she was entitled to disability benefits, and that the payment of those benefits was delayed nearly five years. Construing the complaint in the light most favorable to the Plaintiff, it asserts that payment of those benefits was unreasonably delayed and made long after she was entitled to receive them. Such a delay enriches the fiduciary at the expense of the beneficiary. Unless such a delay is justified, we see no reason why it does not constitute a breach of fiduciary duty. Dunnigan adequately pleaded that she was entitled to timely payment of the benefits, and that payments were unjustly delayed. She should not be required to plead anything more. . . . We therefore vacate the dismissal of plaintiffs claim for interest as equitable relief under section 502(a)(3)(B).
Again, in the Fotta case, the court stressed that a beneficiary must prove that his payments were wrongfully withheld in order to be entitled to interest under section 502(a)(3)(B). 319 F.3d at 616. The court explained that the withholding of payments would be wrongful if it was arbitrary and capricious; however, in the Fotta case, the Plaintiff failed to allege facts showing that the insurer's acts were arbitrary and capricious.
In the present case, Plaintiffs complaint alleges that she did not receive payment until six months after she submitted proper proof of the claim. Although included in the language of count two, Plaintiff alleged that the insurer acted in violation of the law, in an arbitrary and capricious manner, abused discretion, acted without just cause and in breach of its duty to adjust claims fairly and promptly. Applying the cases detailed above, and viewing the complaint in Plaintiffs favor, it appears that Plaintiffs allegation that the Defendants intentionally refused to pay interest on any claim as a company policy regardless of merit, supports a claim because she alleges that the delay in paying the benefits was unjustified and arbitrary and capricious. Therefore, Plaintiff states a claim for interest as an equitable remedy under section 502(a)(3)(B).
With respect to her state law claims for interest under the Texas Insurance Code article 3.48 and Louisiana revised statute 22:182, Plaintiff also states a cause of action because these state interest statutes are saved from pre-emption by ERISA. ERISA's general preemption clause provides that ERISA "supercedes any and all state laws insofar as they may now or hereafter relate to any employee benefit plan." § 514(a) (codified at 29 U.S.C. § 1144(a) (1982)). However, ERISA's savings clause provides that nothing in ERISA "shall be construed to exempt or relieve any person from any law of any state which regulates insurance, banking or securities." § 514(b)(2)(A) (codified at 29 U.S.C. § 1144(b)(2)(A) (1982)). Both Texas Insurance Code article 3.48 and Louisiana Revised Statute 22:182 provide for interest to be paid on life insurance proceeds.
The Texas Insurance Code article provides the following:
Interest shall accrue from the date due proof of loss is received by the insurance company to the date the insurer accepts the claim and offers to pay. Interest shall be paid at the same time that proceeds from the policy are paid under this article. The rate of interest shall be either the rate so provided in the policy or, if there is no such provision in the policy, the rate of interest on proceeds left on deposit with the insurer.
V.A.T.S. Ins. Code Art. 3.48.
The Louisiana statute provides the following:
Interest on benefits of a life insurance policy shall begin to accrue twenty days from the date of receipt of due proof by the insurer. The rate of interest shall be calculated at the same rate paid on deposits with the insurer. . . .
La. Rev. Stat. 22:182.
In determining whether the state law is pre-empted by ERISA, the first step is to consider whether the law "relates to" an employee benefit plan. A state law relates to a benefit plan in the normal sense of the phrase if it has a connection with or reference to such a plan. Metropolitan Life Ins. Co. v. Massachusetts Travelers Ins. Co., 105 S.Ct. 2380, 2389 (1985). The Louisiana statute provides that interest on benefits of a life insurance policy shall begin to accrue twenty days from the date of receipt of due proof of death by the insurer and also provides how the rate of interest shall be calculated. La. Rev. Stat. 22:182. The Louisiana statute relates to an employee benefit plan because it references and has a connection to the plan in this case by specifying when interest begins to accrue on life insurance policy proceeds and the interest rate and, therefore, is preempted under general pre-emption clause. This does not end the inquiry-next, the Court must determine whether the state statute is saved under the savings clause of ERISA.
Note: For purposes of this motion, the parties do not dispute that the plan is an employee benefit plan under ERISA.
In analyzing whether a state statute falls within the savings clause of ERISA, the Court must determine whether the state statute is a law which "regulates" insurance. First, the Court must ask whether, from a "common sense view of the matter," the contested statute regulates insurance. Metropolitan Life Ins. Co., 105 S.Ct. at 2389; Pilot Life Ins. Co. v. Dedeaux, 107 S.Ct. 1549,1553 (1987). Next, the Court must consider three factors, derived from the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. and case law interpreting the phrase "business of insurance." Pilot Life Ins. Co., 107 S.Ct. at 1553; Unum Life Ins. Co. of America v. Ward, 119 S.Ct. 1380, 1386 (1999). The McCarran-Ferguson factors are the following: "first, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance sure industry." Metropolitan Life Ins. Co., 105 S.Ct. at 2391; Unum, 119 S.Ct. at 1386. The McCarran-Ferguson factors are guideposts and, therefore, a state law is not required to satisfy all three criteria to survive preemption. Unum, 119 S.Ct. at 1386; Rush Prudential HMO, Inc. v. Moran, 122 S.Ct. 2151, 2163 (2002). Finally, the savings clause must be interpreted to consider the effect of the saving clause on ERISA as a whole, which necessitates a consideration of the legislative intent concerning the civil enforcement provisions provided by ERISA § 502(a), 29 U.S.C. § 1132(a). Pilot Life Ins. Co., 107 S.Ct. at 1555; Clancy v. Employers Health Ins. Co., 101 F. Supp.2d 463, 467 (E.D. La. 2000); Cramer v. Association Life Ins. Co., 569 So.2d 533, 538 (La. 1990).
The civil enforcement provision of ERISA provides the following:
A civil action may be brought —
(1) by a participant or beneficiary —
(A) for the relief provided for in subsection (c) of this section, or
(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to satisfy his rights to future benefits under the terms of the plan;
(2) by the secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title;
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan;
(4) by the secretary, or by a participant, or beneficiary for appropriate relief in the case of a violation of 1025(c) of this title. . . .29 U.S.C. § 1132 (1999).
Unlike other state laws concerning insurance, no court has considered whether Louisiana Revised statute 22:182 is preempted by ERISA or exempted under the savings clause. Under the common sense view of the statute, it is clear that it regulates insurance because it is specifically directed to life insurance policies and the method of calculating interest on such proceeds. In addition, consideration of the McCarran-Ferguson factors favors a finding that the state law regulates insurance. Two cases are instructive on the application of the McCarran-Ferguson factors to a state statute concerning interest on life insurance proceeds, Franklin H. Williams Ins. Trust v. The Travelers Ins. Co., 50 F.3d 144, 146 (2d Cir. 1995) and Haag v. Hartford Life Accident Ins. Co., 188 F. Supp.2d 1135, 1136 (D. Mn. 2002). In both cases, the courts found that state statutes requiring interest to be paid on life insurance proceeds were saved under the ERISA savings clause. In considering the McCarran-Ferguson factors, the Williams court stated the following:
The date that interest accrues impacts to some degree upon a transfer of risk from the insured to the insurer . . . by varying the amount paid to the insured upon the occurrence of the insured event or condition. The date chosen for the accrual of interest affects the policy relationship between the insurer and the insured, but it is arguable whether this choice is an "integral part" of that relationship. On the other hand, both the [state statute] and the practice that it regulates are "limited to entities within the insurance industry."Williams, 50 F.3d at 150.
Persuaded by the reasoning of the Second Circuit, the Haag court conducted a similar analysis of the McCarran-Ferguson factors, stating the following:
The question of whether insurance must be paid on proceeds of insurance from the date of death has an impact on the amount of risk being insured, just as an increase in the policy benefit would have. A policy insuring for $50,000 would have a different risk than a policy insuring for $100,000. Although the amount of interest in question may be small in an individual case, the cases do not distinguish between risks of different magnitude. Moreover, when multiplied by the thousands of millions of policyholders, the amount is material. Similarly, when properly viewed as affecting the amount of policy benefit, it is properly seen to be "an integral part of the policy relationship between the insurer and the insured." Finally, it is obvious that this law applies only to entities within the insurance industry, namely life insurance companies.Haag, 188 F. Supp.2d at 1139. Applying the same reasoning as these two cases, the Louisiana statute meets two if not three of the McCarran-Ferguson factors, suggesting that the law is one which regulates insurance and should be saved.
Very recently, the United States Supreme Court has made a break from the use of the McCarran-Ferguson factors when determining whether a state law is deemed one which "regulates insurance." Kentucky Assoc. of Health Plans, Inc. v. Miller, 123 S.Ct. 1471, 1479 (2003). The Court held that for a state law to be deemed to regulate insurance, "it must satisfy two requirements. 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." Id. Even though the Court indicated it is not necessary to consider and satisfy the McCarran-Ferguson factors, the analysis remains substantially the same. Therefore, for the reasons discussed above, the state law at issue in this case meets both of these requirements to be deemed to be one which regulates insurance.
The final consideration, the role of the savings clause, also supports the finding that the state statute is saved under ERISA. Courts that have considered the role of the savings clause focus on legislative intent concerning the civil enforcement section of ERISA. In Pilot Life, the Court held that the civil enforcement provision of ERISA provides the exclusive vehicle for actions by. ERISA plan participants and beneficiaries asserting improper processing of a claim for benefits. 107 S.Ct. at 1557. Therefore, in Pilot Life, the state laws that were the basis of the plaintiffs claim for improper processing of benefits were not saved under ERISA because they allowed remedies outside of those provided under ERISA's civil enforcement section. Id. at 1556. In the present case, the state laws mandating interest on life insurance proceeds are not providing remedies outside of those allowed under the exclusive civil enforcement sections of ERISA; rather, the state laws regarding interest concern "the amount of payment to which an insured is entitled," not an additional remedy. Franklin H. Williams Ins. Trust, 50 F.3d at 151. Further, one court has drawn a distinction between state laws that impose penalties for late payment of insurance proceeds and state laws requiring interest to be paid, explaining that, unlike penalty statutes, "the provisions of a law requiring insurance companies to pay interest on life insurance proceeds [do] regulate insurance" and are saved from pre-emption. Haag, 188 F. Supp.2d at 1141. In light of the analysis of these courts, this Court finds that the Louisiana revised statute 22:182 and Texas Insurance Code article 3.48 do not provide remedies outside the exclusive civil enforcement provisions of ERISA and do in fact regulate insurance companies. Therefore, Plaintiff states a claim for interest under these particular state interest statutes.
In conclusion as to count one of the complaint, Plaintiff does not state a cause of action for interest under the terms of the plan or ERISA under section 502(a)(1)(B); however, Plaintiff does state a claim for interest as equitable relief under section 502(a)(3)(B). Finally, Plaintiff's claim for interest under Louisiana revised statute 22:182 does state a claim because the state law is saved from pre-emption. The Texas interest statute is also saved from preemption for the same reasons as the Louisiana statute, as both are substantially the same.
Count 2:
Count two of the second amended complaint alleges the following:
The Plaintiffs and other class members are entitled to recover penalties under applicable state law, including but not limited to La. R.S. 22:1220 and La. R.S. 22:656 for the intentional failure of MetLife to pay interest on insurance proceeds not paid within the applicable period.
Defendants argue that Plaintiff fails to state a claim in Count two of the complaint because the state laws listed are pre-empted by ERISA. Defendants cite to numerous court decisions which held that state law penalty claims are preempted by ERISA. Defendants contend that such statutes allow remedies that are not provided for in ERISA and, therefore, ERISA preempts such statutes.
In response, Plaintiff argues that the savings clause was intended to encompass enforcement of insurance policies and Plaintiff contends that the state statutes providing penalties serve this purpose. Plaintiff attempts to distinguish the state penalty statutes in this case from the broad common law bad faith claims asserted in Pilot Life. However, Plaintiff does not utilize the analysis laid out above, which courts in this circuit have applied in determining whether a state statute is preempted under ERISA.
Plaintiff also argues that claims for penalties under the state law diversity non-ERISA claims are not pre-empted, as the individual policies are not governed by ERISA. This issue will be discussed later in the section discussing the class issue.
Louisiana revised statute 22:1220 basically provides that insurer's who arbitrarily, capriciously, and without probable cause fail to pay the amount of a claim within sixty days will be liable for damages sustained as a result. Louisiana revised statute 22:656 provides that an insurer who fails to pay a death claim within sixty days after the date of receipt of due proof of death without just cause shall be liable for interest on the amount due at the rate of eight percent per annum from date of receipt of due proof of death by the insurer until paid.
Louisiana revised statute 22:1220 provides the following in pertinent part:
A. An insurer . . . owes to his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant or both, Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach.
B. Any one of the following acts, if knowingly committed or performed by an insurer, constitutes a breach of the insurer's duties imposed in subsection A:
. . . (5) failing to pay the amount of any claim due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause.
C. In addition to any general or special damages to which a claimant is entitled for breach of the imposed duty, the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater. . . .
Neither Louisiana revised statute 22:1220 nor 22:656 have expressly been held to be preempted by ERISA. One recent court in the Eastern District addressed preemption of 22:1220; however, the analysis of the court is dicta, as the court determined that the plaintiff s claim under the statute must be dismissed because the statute did not apply for reasons other than ERISA preemption. Carl Sutherland v. United States Life Ins., No. 00-2308, 2003 WL 1873096 (E.D. La. April 9, 2003) (Judge Duval). Nevertheless, the analysis and conclusion of the court are helpful and lend support to this Court's decision that ERISA preempts the state laws cited in Plaintiffs complaint. In Sutherland, the court reaches the conclusion that Louisiana revised statute 22:1220 is preempted by ERISA because it provides remedies that are outside the ambit of ERISA's civil enforcement provision. The Sutherland court employs the same analysis as above, that is, regardless of whether the statute regulates insurance, the state law is preempted if it provides a remedy outside those allowed in ERISA's civil enforcement section.
With respect to Louisiana revised statute 22:656, no court has held that it is preempted by ERISA. Under the analysis detailed above, that is, after consideration of whether the law regulates insurance and consideration of the role of the savings clause, the state statute is preempted and not saved under the savings clause because it provides a remedy or penalty not provided in the exclusive civil enforcement provisions of ERISA. Although it is similar to Louisiana revised statute 22:182 in that it provides for interest to be paid on life insurance proceeds, it is a penalty statute and requires interest at a particular rate only if the insurer fails to settle the claim within sixty days without just cause. The title of the statute itself also indicates that it is a penalty. Courts have routinely held that penalty statutes are pre-empted. Therefore, there is a material distinction between this interest statute, 22:656, and the interest statute discussed under count one, 22:182, which justifies this Court's finding that the 22:182 is saved under ERISA and 22:656 is preempted by ERISA.
See Clancy, 101 F. Supp.2d at 467; Coles v. Metropolitan Life Ins. Co., 837 F. Supp. 764, 768 (M.D. La. 1993); Taylor v. Blue Cross Blue Shield of New York, 684 F. Supp. 1352, 1358 (E.D. La. 1988); Cramer, 569 So.2d at 538.
Furthermore, a comparison of 22:656 with the same provision found in 22:657 governing health and accident insurance plans provides guidance for this Court. Several courts have held that 22:657 is preempted by ERISA because it provides remedies not allowed under the civil enforcement provision of ERISA. Revised statute 22:657, in addition to providing for penalties and attorney's fees for delay in payment, provides the following:
All claims for accidental death arising under the terms of health and accident contracts where such contracts insure against accidental death shall be settled by the insurer within sixty days of receipt of proof of death and should the insurer fail to do so without just cause, then the amount due shall bear interest at the rate of six percent per annum from the date of receipt of due proof of death by the insurer until paid.
Significantly, revised statute 22:656 consists of the exact same language with regard to death claims, but alters the rate of interest to eight percent. Two courts have held that a plaintiffs state law claims for interest lost on a claim for benefits under 22:657 was preempted by ERISA. Sublett v. Premier Bancorp Self Funded Medical Plan, 683 F. Supp. 153, 155 (E.D. La. 1988); West v. Connecticut General Life Ins. Co., 591 So.2d 1296, 1298 (La.Ct.App. 3d Cir. 1991). Therefore, the analysis above and these cases lead to the conclusion that 22:656 is preempted by ERISA. Accordingly, Plaintiff fails to state a claim under Louisiana revised statutes 22:1220 and 22:656.
Count 3:
Count three of the second amended complaint alleges the following:
53. Class members are entitled to prejudgment interest on the unpaid interest accrued and fixed as of the date the policy limits were paid as an equitable remedy under ERISA § 502(a)(3) as unjust enrichment, as an accounting for profits to disgorge the gains the fiduciary received from the improper use of the beneficiaries' property, or as another form of appropriate equitable relief.
54. The class members whose claims are governed entirely by applicable state law are entitled to pre-judgment interest on the unpaid interest accrued and fixed as of the date the policy limits were paid.
Defendants argue that count three fails to state a claim for pre-judgment interest under section 502(a)(3) because such equitable relief is only appropriate when there is a violation of ERISA or the terms of the plan, which Defendants contend is not present in this case. Furthermore, Defendants argue that none of Plaintiff's counts state a claim under ERISA and, therefore, there can be no judgment upon which to base her claim for pre-judgment interest.
Plaintiff responds that count one does state a claim under ERISA, specifically sections 502(a)(1)(B) and (a)(3) and, therefore, Plaintiff states a claim for an award of prejudgment interest because she has alleged a violation of ERISA. According to the Plaintiff, if the plan was breached as of the date the policy proceeds were paid without interest, then Plaintiff is entitled to prejudgment interest from that date forward. Plaintiff cites to Hansen v. Continental Ins. Co., 940 F.2d 971 (5th Cir. 1991) for the proposition that ERISA does not preclude an award of prejudgment interest.
As discussed above, Plaintiff has stated a claim for interest as equitable relief due to a violation of ERISA by alleging that the Defendants acted arbitrarily and capriciously in failing to pay interest and had a policy of not paying interest in all circumstances, regardless of the facts. The issue of whether Plaintiff states a claim for pre-judgment interest on the interest she seeks is res nova. No cases could be found where such an award was made. In fact, in the cases recognizing a claim for interest on delayed benefits, the courts compare a plaintiff's claim for interest to a plaintiffs right to pre-judgment interest, both seen as equitable relief under 502(a)(3)(B). See Fotta, 165 F.3d at 213 (explaining that "the principles justifying prejudgment interest also justify an award where benefits are delayed but paid without the beneficiary having obtained a judgment."); Hizer, 888 F. Supp. at 1462 (stating that there is no distinction between prejudgment interest and interest on delayed payments; the same considerations require payment of prejudgment interest in ERISA cases also weigh in favor of a right to on erroneously delayed payments.); Dobson, 196 F. Supp.2d at 163 (analogizing prejudgment interest to interest sought on delayed payment of benefits).
On the other hand, the cases generally stand for the proposition that pre-judgment is appropriate whenever ERISA is violated. Mertens v. Hewitt Assocs., 508 U.S. 248, 253 (1993); Hansen v. Continental Ins. Co., 940 F.2d 971, 984-85 (5th Cir. 1991). However, ignores the fact that a claim solely for interest on delayed payment of benefits is consider as an equitable remedy under section 502(a)(3)(B), and so it seems the same section cannot also provide prejudgment interest as an equitable remedy on a previous equitable remedy. Based on this reasoning, this Court finds that Plaintiff fails to state a claim in count three for pre-judgment interest on interest because this would allow a double recovery.
Count Four:
Count four of the second amended complaint alleges that "In the alternative, should BMA be deemed to be administrator of the Drago plan then Plaintiff repeats and realleges that allegations contained in the foregoing paragraphs 1 through 54, but holds BMA as a defendant in those allegations. The same arguments and analysis would apply to this count as that in counts one through three.
Class Allegations:
As discussed earlier, Plaintiff seeks to bring suit on behalf of a class, consisting of "all residents of Louisiana who are participants or beneficiaries of any employee welfare benefit plans that offer benefits through the purchase of life and/or accidental death and dismemberment insurance and that are administered by Met Life, who filed claims for insurance benefits under those plans, who received delayed payment on those claims, and who, from July 30, 1992 until the present have not received interest that should have been paid on the principal amount of their claims to account for the period benefit payments were delayed."
In their motion to dismiss, Defendants argue that Plaintiff lacks standing to assert a claim on behalf of individual policy holders. Defendants' argument is based on the premise that all of Plaintiffs own claims are pre-empted by ERISA and, therefore, Plaintiff cannot possibly represent a class of beneficiaries of group policies issued by Defendants. Additionally, Defendants argue that as a Plaintiff whose claims arise under ERISA, Plaintiff cannot represent a class of beneficiaries of individual policies whose claims would not be governed by ERISA. Because of the various defenses Defendants can assert under Plaintiffs ERISA claims that are inapplicable to claims by beneficiaries of individual policyholders, Defendants argue that the Plaintiffs claims lack the "commonality" and "typicality" requirement for representation under Rule 23.
Plaintiff opposes determination of the class certification issue at this time and recommends that this issue be taken up after further discovery. Nevertheless, the Plaintiff argues that because the ERISA defenses can be disposed of by this motion, the defenses will not consume the merits of the case and the typicality requirement can be met.
In the Fotta case described above, the Third Circuit held that class certification of claims for interest on delayed payment of benefits was not proper because the putative class members did not share common issues of law and fact and, therefore, did not meet the requirements of rule 23. 319 F.3d at 618-19. The court explained that to decide whether each putative class member would be entitled to interest, the court would have to determine whether the insurer wrongfully withheld or wrongfully delayed payment for each class member and also to determine a remedy for each class member, which would be an individual determination. Id. Thus, the Third Circuit upheld the denial of certification of the class because liability and the appropriate remedy would have to be decided for each Plaintiff on a fact specific basis. This case describes the problems of class certification of claims such as Plaintiffs. However, this Court finds that it is not appropriate to decide the class certification issue at this time and defers such decision until the parties have had an opportunity to engage in discovery.
II. CONCLUSION
For the foregoing reasons, the Defendants' motion to dismiss should be GRANTED in part and DENIED in part under Rule 12(b)(6). Plaintiffs complaint states a claim for interest as equitable relief under section 502(a)(3)(B) of ERISA, and under Texas Insurance Code article 3.48 and Louisiana revised statute 22:182, but fails to state a claim for relief for interest and penalties under Louisiana revised statutes 22:1220 or 22:656 and fails to state a claim for prejudgment interest. The Court declines to rule on the issue of class certification at this time.