Hawaiian Court Reverses Lower Court Ruling on ERISA Preemption

>Writing for the court, Judge James Duffy ruled that that state Insurance Commissioner JP Schmidt created remedies beyond those provided for in ERISA by forcing an insurance company to pay a participant’s legal fees, even though the participant’s claims were not enforced. Schmidt cited a state law – the Patients Bill of Rights and Responsibilities Act – to support his effort.

>The issue at hand revolves around the refusal of the Hawaii Management Alliance Association (HMAA) to provide coverage to an employee, Kevin Baldado, for a stem cell transplant to treat kidney cancer. HMAA cited the fact that the plan does not cover experimental or investigational procedures as a reason for not covering the treatment. Baldado appealed HMAAs ruling to Schmidt. After a review, the Commissioner sided with HMAA. However, he also forced the plan to pay more than $12,000 in legal fees incured by Baldado.

>HMAA then filed a lawsuit claiming that the Commissioner’s actions were preempted by ERISA. The Hawaii First Circuit Court ruled favor of Schmidt, asserting that state law was not preempted by the federal one. On appeal, however, the Hawaii Supreme Court ruled unanimously that although the law was not expressly preempted by ERISA, it was “impliedly” preempted because it created remedies that went beyond those provided by ERISA. Although the law clearly regulated insurance, the Commissioner still overstepped his bounds in forcing the company to pay legal fees for a participant, according to the court.

>Citing Supreme Court rulings as precedent, Duffy stated that “We believe that the Supreme Court intends to distinguish between state laws that (1) create a state law claim for relief against an employee benefit plan and (2) require insurers to provide certain procedural protection to insureds (even if the insurance is provided as a part of an ERISA-covered employee benefit plan).” Therefore, the Hawaiian law overstepped its bounds by allowing for judicial determination of a participant’s entitlement to benefits and was preempted by ERISA.

>The case, Hawaii Management Alliance Association v. Insurance Commissioner, Hawaii, No. 24801, is available here .

>ERISA preemption of state law is a common focus of court fights, as states and the federal government attempt to see how far their separate laws can reach. Most recently, a Pennsylvania judge threw out a widely followed lower court ruling allowing a benefits lawsuit to include a claim under Pennsylvania’s bad-faith statute (See Appellate Judges Throw Out ERISA Preemption Ruling ).