According to a report in the Legal Intelligencer, the debate heated up with a new ruling from US District Judge Ronald Buckwalter. Buckwalter contended that because Pennsylvania’s bad-faith statute creates “additional remedies” for plaintiffs, it should be considered “categorically pre-empted” by ERISA.
Buckwalter’s ruling in Sprecher vs Aetna U.S. Healthcare Inc. follows a closely watched July 30 ruling by Senior US District Judge Clarence Newcomer in Rosenbaum versus UNUM Life Insurance Co. Both Buckwalter and Newcomer are based in Philadelphia.
“Pennsylvania’s bad faith statute, authorizing punitive damages and interest penalties, would significantly expand the potential scope of ultimate liability imposed upon employers by the ERISA scheme,” Buckwalter wrote. “Therefore, because Pennsylvania’s bad faith statute provides a form of ultimate relief in a judicial forum that adds to the judicial remedies provided by ERISA, it is incompatible with ERISA’s exclusive enforcement scheme.”
Meanwhile, while acknowledging that courts in prior cases had ultimately gone the other way on whether ERISA would prohibit suing a benefits provider for punitive damages, Newcomer contended the US Supreme Court’s recent line of related cases still necessitated a rethinking of the underlying legal issues.
In the UNUM decision, Newcomer argued that the US Supreme Court had effectively changed the required test to decide whether a particular state law qualified for ERISA’s “savings clause” which keeps from being pre-empted any state law regulating insurance. While the Pennsylvania statute had never been found to qualify for the ERISA “savings clause,” Newcomer said it should now be shielded from ERISA pre-emption. The ruling was viewed as significant in that it held that workers can now seek punitive damages when suing the insurer that provides their benefits.
Second Judge: First Opinion Unconvincing
However, in the second opinion, Buckwalter said his fellow jurist was off base. Buckwalter said he was unpersuaded by Newcomer’s argument that the Pennsylvania law should be shielded from ERSIA pre-emption.
Buckwalter ruled that the bad-faith statute creates “additional remedies” and is therefore “categorically pre-empted” by ERISA’s exclusivity provisions. Buckwalter held that the Pennsylvania statute’s imposition of punitive damages and interest penalites went beyond ERISA’s design – a result that would, in and of itself, constitute an impermissable expansion of ERISA’s “exclusive enforcement scheme.”
“Because Pennsylvania’s bad-faith statute provides a form of ultimate relief in a judicial forum that adds to the judicial remedies provided by ERISA, it is incompatible with ERISA’s exclusive enforcement scheme ,”Buckwalter wrote.