Court: ERISA Preempts Participant State Law Claims

August 5, 2003 ( - ERISA preempts a terminally ill long-term disability (LTD) benefit plan participant's action seeking punitive damages under Montana law.

>The US 9th Circuit Court of Appeals determined ERISA barred the action because the participant sought remedies beyond those provided in ERISA.    This determination was based on US Supreme Court rulings that found ERISA Section 514 preempts state laws that “relate to” an employee benefit plan, except for those laws that regulate insurance, banking, or securities, according to Washington-based legal publisher BNA.

Cancer Stricken

>Stephanie Elliot was diagnosed with breast cancer in 1995. After undergoing various treatments, Elliot was deemed cancer-free on September 16, 1999. Eleven days after the cancer-free diagnosis, Elliott began work as a paralegal at the Crowley Law Firm.

>As an employee of Crowley, Elliot participated in a LTD plan administered by Fortis Benefits Insurance Co. The plan contained a preexisting condition clause that excluded benefits for any disability caused by a preexisting condition until three consecutive months without treatment had passed or the participant had been continuously insured under the plan for 12 consecutive months.

>In August 2000, Elliot was diagnosed with brain and bone cancer. She applied for benefits under the LTD plan and was denied by Fortis after it was determined that the brain and bone cancer was a preexisting condition.

>Elliot sued Fortis in the US District Court for the District of Montana asserting Fortis violated ERISA by denying her benefits. Elliot also asserted violations of Montana’s Unfair Trade Practices Act and sought compensatory and punitive damages under the state law. The district court ruled in Elliot’s favor on her ERISA claim but dismissed her state law claim as preempted by ERISA.

Appellate Court

>Affirming the lower court, the appeals court found that Montana’s Unfair Trade Practices Act would be preempted by ERISA because it was not a law that regulated insurance.   The decision was based primarily on its conclusion that Elliot’s state law claim was preempted by ERISA Section 502 because she sought remedies beyond those provided for under the civil enforcement provision.

“The instant action, which seeks non-ERISA damages for what are essentially claim processing causes of action, clearly falls under” ERISA Section 502 preemption, the court concluded.

The case is Elliot v. Fortis Benefits Insurance Co., 9th Cir., No. 02-35080, 8/1/03.