Senior US District Judge Clarence Newcomer ruled that ERISA does not pre-empt a legal claim filed under Pennsylvania’s bad-faith statute by plaintiff Joel Rosenbaum challenging the denial of long-term disability benefits.
Newcomer said his decision was despite the fact that he and other federal jurists in his district had repeatedly ruled in other cases that claims under the Pennsylvania statute were pre-empted by ERISA.
The change came about because of a federal law change articulated in several US Supreme Court cases, Newcomer said. The key difference, according to Newcomer: how judges are supposed to decide whether a state law being tested regulates insurance matters and is not vulnerable to an ERISA pre-emption.
A Three-Part Test
Newcomer said the Supreme Court cases held that state laws didn’t have to strictly meet a three-prong test from the McCarran-Ferguson Act to judge whether the law regulated insurance.
- whether the practice has the effect of transferring or spreading a policyholder’s risk
- whether the practice is an integral part of the policy relationship between the insurer and the insured
- whether the practice is limited to entities within the insurance industry.
Now the three-part test is to be used as “consideration to be weighed” in deciding a law’s insurance relationship, Newcomer said.
Newcomer’s ruling means Rosenbaum can proceed with his lawsuit under the Pennsylvania law, which includes the right to award punitive damages and attorneys fees.
The case is Rosenbaum v. UNUM Life Insurance Co.
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