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finding amendment to be futile where claim was preempted
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CIVIL ACTION No. 03-CV-925.
May 27, 2003
MEMORANDUM AND ORDER
Presently before the Court is a Motion for Leave to Amend the Complaint filed by Plaintiff Diego Morales-Ceballos ("Plaintiff") seeking to add a claim for punitive damages pursuant to Pennsylvania's bad faith statute, 42 Pa.Cons.Stat. § 8371, in light of the United States Supreme Court's recent ruling in Kentucky Association of Health Plans, Inc. v. Miller, 123 S.Ct. 1471, No. 00-1471, 2003 U.S. LEXIS 2710 (Apr. 2, 2003). Plaintiff argues that pursuant to the new test set forth inMiller, the Pennsylvania bad faith statute is saved from preemption by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. Defendants First UNUM Life Insurance Company of America, UNUM Provident Insurance Company and New England Mutual Life Insurance Company ("Defendants") contend that Plaintiff's argument is based solely on a misinterpretation of the Miller decision and that ERISA continues to preempt Pennsylvania's bad faith statute. For the following reasons, Plaintiff's Motion to Amend the Complaint is DENIED.
Pursuant to Federal Rule of Civil Procedure 15, "[a] party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served. . . . Otherwise a party may amend the party's pleading only by leave of the court or by written consent if justice so requires." Fed.R.Civ.P. 15(a). Generally, leave to amend should be freely granted absent a concern of (1) undue delay; (2) bad faith or dilatory motive; (3) continued failure to cure deficiencies by prior amendments; (4) undue prejudice to the opposition; or (5) futility of amendment. Forman v. Davis, 371 U.S. 178, 182 (1962). To determine whether a proposed amendment would be futile for purposes of Rule 15(a), courts abide by the standard of legal sufficiency applicable to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). See Oran v. Stafford, 226 F.3d 275, 291 (3d Cir. 2000); In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410, 1434 (3d Cir. 1997); Burstein v. Retirement Account Plan for Employees of Allegheny Health, No. Civ. A. 98-6768, 2002 U.S.Dist. LEXIS 22290, at *12-13 (E.D. Pa. May 30, 2002). When reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept the non-movant's well-pled averments of fact as true and view all inferences in the light most favorable to the non-moving party.Angelastro v. Prudential-Bache Securities, Inc., 764 F.2d 939, 944 (3d Cir. 1985); Society Hill Civic Assoc. v. Harris, 632 F.2d 1045, 1054 (3d Cir. 1980); Abbdulaziz v. City of Philadelphia, No. Civ. A. 00-5672, 2001 U.S.Dist. LEXIS 16972, at *4 (E.D. Pa. Oct. 18, 2001). A motion to dismiss is appropriate only when the movant establishes that he is entitled to judgment as a matter of law and there exists "no set of facts in support of his claims which would entitle him to relief." Ford v. Schering-Plough Corp., 145 F.3d 601, 604 (3d Cir. 1998); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir. 1991).
Plaintiff contends that pursuant to the new test set forth in theMiller decision, Pennsylvania's bad faith statute is no longer preempted by ERISA. When Congress enacted ERISA, it included an express provision that preempts state law claims "relat[ing] to any employee benefit plan." 29 U.S.C. § 1144(a). However, Congress also recognized the state's authority to regulate insurance matters and thus, provided for a savings clause that exempts state laws that "regulate insurance" from ERISA preemption. 29 U.S.C. § 1144(b)(2)(A). Prior to Miller, the Supreme Court established a multi-factor test for determining whether a state law fell within the savings clause. See generally Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002); UNUM Life Ins. Co. of American v. Ward, 526 U.S. 358 (1999); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). Pursuant to this test, courts first apply a "common sense view of the matter" to determine whether the state law is "specifically directed toward [the insurance] industry." Rush, 536 U.S. at 366. Then, a court considers three factors set forth under the McCarran-Ferguson Act, 15 U.S.C. § 1011, et seq. These factors include: (1) whether the state law has the affect of transferring or spreading a policyholder's risk; (2) whether the state law is an integral part of the policy relationship between the insurer and the insured; and (3) whether the state law is limited to entities within the insurance industry. Pilot Life, 481 U.S. at 48-49. Under this scheme, this Court, along with many other federal courts in this district, found that the Pennsylvania bad faith statute was preempted by ERISA. See, e.g., Keenan v. UNUM Provident Corp., No. Civ. A. 02-4420, 2003 U.S.Dist. LEXIS 4137, at *13-14 (E.D. Pa. Mar. 18, 2003); Sprecher v. Aetna U.S. Healthcare, Inc., No. Civ. A. 02-580, 2002 U.S. Dist. LEXIS 15571, at *20 (E.D. Pa. Aug. 19, 2002);Smith v. Continental Casualty Co., No. Civ. A. 02-1915, 2002 U.S. Dist. LEXIS 22252, at *1-2 (E.D. Pa. Oct. 22, 2002); Tutolo v. Independence Blue Cross, No. Civ. A. 98-5928, 1999 U.S. Dist. LEXIS 6335, at *7 (E.D. Pa. May 5, 1999); Asprino v. Blue Cross Blue Shield Ass'n., No. Civ. A. 96-7788, 1997 U.S. Dist. LEXIS 6708, at *5-6 (E.D. Pa. May 7, 1997). But see Rosenbaum v. UNUM Life Ins. Co., No. Civ. A. 01-6758, 2002 U.S. Dist. LEXIS 14155, at *9 (E.D. Pa. July 29, 2002) (holding that the Pennsylvania bad faith statute is not preempted by ERISA).
The Pennsylvania bad faith statute provides:
In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:
(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
42 Pa. Const.Stat. § 8371.
The McCarran-Ferguson Act provides that "no Act of Congress shall be construed to invalidate . . . any law enacted by any State for the purpose of regulating the business of insurance." 15 U.S.C. § 1012(b).
Plaintiff contends that as a result of the Miller decision, the Pennsylvania bad faith statute is no longer preempted by ERISA. InMiller, the Supreme Court held that federal courts should no longer employ the McCarran-Ferguson Act factors, and instead only examine whether (1) the state law is specifically directed toward entities engaged in insurance, and (2) the state law substantially affects the risk pooling arrangement between the insurer and the insured. Miller, 2003 U.S. LEXIS 2710, at *21. By reducing the multi-factored test to a two-prong analysis, Miller clarified the factors that federal courts should consider in determining whether ERISA preemption is warranted.See Ercole v. Conectiv Coventry Health Care of Delaware, Inc., No. Civ. A. 03-186, 2003 U.S. Dist. LEXIS 8115, at *6 (D. Del. May 15, 2003). Since the Miller analysis focuses on the state law's affect on risk pooling arrangements between the insurer and the insured, we find our discussion of policyholder risk in Tutolo v. Independence Blue Cross instructive. 1999 U.S. Dist. LEXIS 6335. In Tutolo, we determined that "[t]he bad faith law does not serve to transfer or spread the policy holder's risk; it provides the policy holder with a remedy against the insurer" and constitutes "a resort to which the insured may turn when injured by its relationship with its insurer." Id. at *7. For these reasons, we likewise find that Pennsylvania's bad faith statute does not substantially affect the risk pooling arrangement between the insurer and the insured. See McGuican v. Reliance Standard Life Ins. Co., No. Civ. A. 02-7691, 2003 U.S. Dist. LEXIS 5718, at *6 (E.D. Pa. Apr. 9, 2003). Moreover, we agree with Defendants that, even if the Pennsylvania bad faith statute satisfies the Miller factors, the statute is nevertheless preempted by ERISA since it expands ERISA's exclusive remedy provisions by providing for an award of punitive damages against the insurer. 42 Pa.Cons.Stat. § 8371; see also Kirkhuff v. Lincoln Technical Institute, Inc., 221 F. Supp.2d 572, 574-75 (E.D. Pa. 2002); Sprecher, 2002 U.S. Dist. LEXIS 15571, at *19. Since the Pennsylvania bad faith statute permits individuals to obtain remedies not provided for in ERISA, it "violates ERISA's policy of inducing employers to offer benefits by assuring a predictable set of liabilities, under uniform standards of primary conduct and a uniform regime of ultimate remedial orders and awards when a violation has occurred." Rush, 536 U.S. at 379. We do not agree with Plaintiff that the Miller decision implicitly set aside this proposition. Thus, we find that the Pennsylvania bad faith statute is preempted by ERISA and Plaintiff's request to amend the Complaint to add a bad faith claim is futile.
Accordingly, we ORDER that Plaintiff's Motion for Leave to Amend the Complaint is DENIED.