Health Administration Responsibility Project
New ERISA Strategies

      The refusal of many federal courts to apply State insurance bad faith law to insurers and HMOs which contract with ERISA plans, in spite of ERISA's "insurance saving clause", 29 USC 1144(b)(2)(A), is due primarily to their interpretation of the Supreme Court's decision in Pilot Life v. Dedeaux. They have assumed that ERISA's weak civil enforcement provisions, 29 USC 1132(a), were meant to be exclusive.

      Two recent cases suggest that this was not the Supreme Court's intent, and arguments based on them should be vigorously pursued in cases based on state insurance law.

      In Unum v. Ward Ward missed UNUM's deadline for filing a LTD claim, but a California law, the "Notice-Prejudice Rule", stated that insurers can't deny an untimely clam unless they can show actual injury due to the delay. UNUM claimed the rule was preempted by ERISA, because it provided an alternative remedy.

      The court disagreed. It said that the basic action was under 29 USC 1132(a)(1)(B) "to recover benefits due...under the terms of his plan", and that the state law merely provided the "relevant rule of decision". Where a case is framed as an action under 29 USC 1132(a), this can be a powerful argument to introduce pro-plaintiff State procedural rules.

      A federal district court in Hill v. Blue Cross Blue Shield of Alabama (117 F.Supp.2d 1209) held that

This also provides a guideline for states attempting to draft insurance laws. They should apply ONLY to insurance companies and HMOs, and they should be in the Insurance code, not in the general Civil Procedure code sections.

      In Humana v. Forsyth the plaintiff asserted a federal RICO claim. Humana claimed that the McCarran- Ferguson Act, (which bars the application of any federal statute which would "invalidate, impair, or supersede" any state law regulating the business of insurance) barred the RICO action.

      The court ruled that RICO claims were not barred because "a federal law which proscribes the same conduct as state law but provides materially different remedies [does not] 'impair' state law under McCarran-Ferguson", and that the remedies could co-exist. Though the presumed preemption goes the other direction, this decision provides a basis for the argument that State law remedies for insurance bad faith and ERISA's remedies can coexist without impairing ERISA's scheme.

      Where applicable, these arguments should be made in addition to those more basic arguments outlined by Sharon Arkin

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