Appellate Judges Throw Out ERISA Preemption Ruling

September 9, 2004 ( - A federal appeals court has thrown out a widely followed lower court ruling allowing a benefits lawsuit to include a claim under Pennsylvania's bad-faith statute.

The US 3 rd Circuit Court of Appeals  ruled that contrary to the decision by Senior US District Judge Clarence Newcomer, the Employee Retirement Income Security Act (ERISA) does preempt bad-faith claims under the Keystone State’s bad-faith statute (See 3rd Circuit Could Settle ERISA Pre-Emption Imbroglio  ). The preemption issue is significant because bad-faith suits allow plaintiffs to pursue punitive damages when ERISA does not.

In an opinion penned by Chief Circuit Judge Anthony Scirica, the appeals court said the US Supreme Court’s June 2004 ruling in  Aetna Health Inc. v. Davila – in which the justices said a Texas plaintiff had no right to sue his HMO in state court under the Texas Health Care Liability Act – settled the issue. The Texas plaintiff’s claims were properly an ERISA matter, the high court said.

Scirica concluded that Davila     “confirmed that state laws that supplement ERISA’s civil enforcement scheme conflict with Congress’ intent to make the ERISA remedy exclusive.”

The case at issue in the 3 rd Circuit ruling involved a dispute between plaintiff James Barber and the Unum Life Insurance Company of America . Barber sued Unum after the company cut off his disability benefits because it claimed he was no longer disabled. The suit included both a breach of contract allegations as well as a bad faith claim under the Pennsylvania statute.

Scirica found that under the Davila case, “conflict preemption applies to any ‘state cause of action that provides an alternative remedy to those provided by the ERISA civil enforcement mechanism’ because such a cause of action ‘conflicts with Congress’ clear intent to make the ERISA mechanism exclusive.'”

He wrote that a state law is preempted if it provides “a form of ultimate relief in a judicial forum that added to the judicial remedies provided by ERISA,” or if it “duplicates, supplements or supplants the ERISA civil enforcement remedy.” Pennsylvania’s bad-faith statute “is such a statute,” Scirica asserted, “because it is a state remedy that allows an ERISA plan participant to recover punitive damages for bad faith conduct by insurers, supplementing the scope of relief granted by ERISA.”