Court Lays Out Blueprint for ERISA Preemption of State Court Remedies

Martinez v. Unum Life Insurance Company of America, No. H-07-1988 (S. D. Tex. November 9, 2007)

I do not usually comment on cases featuring health and disability claimants trying to bust through the ERISA-preemption barrier (because it almost never works), but this case so clearly lays out the legal hurtles (in the 5th Circuit at least) that it is worth a look.  As a rule, Judge Atlas's opinions are well reasoned and supported with relevant case authority.

The court notes that Mark Martinez appears to be a sympathetic plaintiff.  He is insured under a Group Long Term Disability Insurance Policy purchased by his employer from Unum Life.  He alleges that he suffers from advanced heart failure and uncontrolled diabetes.  He received benefits for these ailments until they were "arbitrarily terminated" in 2002.  His doctors provided written opinions that he needed intensive medical therapy and could not engage in any productive work.  The insurer refused to reinstate his benefits.  Mr. Martinez sued in state court for negligence and gross negligence, breach of contract, breach of the common law duty of good faith and fair dealing, fraud and misrepresentation, as well as deceptive trade practices under Texas consumer protection provisions in the Insurance Code.

Unum Life removed the case to federal court and asserted that all state law claims be dismissed because the plaintiff's sole remedies are those provided under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sec. 1101("ERISA").  Basically, any health and disability insurance benefits provided under an employment benefit plan are governed by ERISA.  The plaintiff argued that ERISA contains a "savings clause": "Except as provided [elsewhere in the ERISA statute], nothing in this title shall be construed to exempt or relieve any person from any law of any state which regulates insurance . . ."  However, the court says, "Despite the sympathetic facts Plaintiff presents about his condition, Plaintiff's arguments are unavailing."  The court then marshals the following legal precedents that doom the Plaintiff's arguments:

• Section 502 [of ERISA], by providing a civil enforcement cause of action, completely preempts any state cause of action seeking the same relief, regardless of how artfully pleaded as a state action.  McGowin v. ManPower Int'l, Inc., 363 F.3d 556, 559 (5th Cir. 2002);
• ERISA preempts any state laws insofar as they relate to any employee benefit plan, and a claim "relates to a plan" when the claim itself is premised on the existence of an employee benefit plan.  Christopher v. Mobil Oil Corp., 950 F.2d 1209, 1220 (5th Cir. 1992);
• Negligence and gross negligence claims based on a plan administrator's handling of claims are completely preempted by ERISA.  Haynes v. Prudential Health Care, 313 F.3d 330, 336-37 (5th Cir. 2002);
• ERISA preempts claims related to denial of benefits brought under the Texas Deceptive Trade Practices Act and the Texas Insurance Code.  Hogan v. Kraft Foods, 969 F.2d 142, 144-45 (5th Cir. 1992);
• Good faith and fair dealing and fraud/misrepresentation claims are also preempted.  McGowin, 363 F. 3d at 559; Hogan, 969 F.2d at 144-45;
• State law extracontractual claims for punitive damages are preempted by ERISA.  Rogers v. Hartford Life & Accident Ins. Co., 167 F.3d 933, 944 (5th Cir. 1999)

Why do claimants want to break out of ERISA?  Because they must prove that the plan administrator's denial of benefits was arbitrary and capricious (which is tougher to prove than negligence), and if they win, they get the benefits they should have had, plus (maybe) attorneys' fees.