When someone files a lawsuit on a Disability Insurance or Life insurance claim that was denied, the law that governs their case depends on how they bought their insurance. If they bought the insurance on their own from a private insurance agent, state insurance law applies to their case. However, if they bought their insurance through an employer’s group employee disability insurance or life insurance benefit plan, a federal law called ERISA – the Employee Retirement Income Security Act – applies to their case. ERISA is a sweeping federal law that overrides most state laws because of something called preemption. So, what is ERISA preemption?
Any law that impacts employee benefit plans is converted to ERISA
Usually, a lawsuit filed under state law to challenge an insurance denial is filed as a claim for breach of the contract. The insurance policy is a nothing more than a contract. When an insurer fails to pay a claim, they breached the contract between it and its insured. However, this does not apply when the insurance denial involves an employee benefit plan.
Something called the doctrine of complete preemption changes a state law claim, such as a breach of contract lawsuit, into a federal law claim. Federal courts have ruled that certain federal laws are so sweeping that they preempt or override state laws entirely. That “preemptive force is so extraordinary that it converts an ordinary state law claim into a statutory federal claim.” Connecticut State Dental Ass’n v. Anthem Health Plans, Inc., 591 F.3d 1337, 1343 (11th Cir. 2009). When it comes to any type of law that impacts an employee benefit plan, ERISA is one of those federal laws.
ERISA’s complete preemption comes from the statute that Congress passed to give people the power to sue over employee benefit denials, ERISA § 502(a). Courts have held that it has such extraordinary preemptive power that it converts an ordinary state common law complaint into an ERISA claim when employee benefits are involved. One court explained it this way: “Regardless of its characterization as a state law matter, a claim will be re-characterized as federal in nature if it seeks relief under ERISA.” Ehlen Floor Covering, Inc. v. Lamb, 660 F.3d 1283, 1287 (11th Cir. 2011)
Why does ERISA convert any law impacting employee benefits into a federal ERISA law?
The concept behind ERISA is to allow employers to have one uniform benefit plan, regardless of where they are. ERISA was passed to protect larger companies and unions that operated in multiple states. Congress relied upon the Commerce Clause of the Constitution for its authority to regulate employee benefits. Oddly, after ERISA was adopted in 1974, courts allowed ERISA to apply to companies that only had one location in one state, despite the lack of interstate commerce. The rationale is that they are part of interstate commerce, including when they buy insurance from large insurance companies. Congress wanted uniformity, and did not want employers to have to be subject to 50 states’ law when it came to employee benefits and enforcing one’s rights to get those benefits.
Supreme Court test for complete preemption
The Supreme Court laid out the test for complete preemption in the context of employee benefits as follows: “[I]f an individual, at some point in time, could have brought his claim under ERISA § 502(a)(1)(B), and where there is no other independent legal duty that is implicated by a defendant’s actions, then the individual’s cause of action is completely preempted by ERISA § 502(a)(1)(B).” Aetna Health Inc. v. Davila, 542 U.S. 200, 210, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004); see also Conn. State Dental, 591 F.3d at 1345 (“The Davila test thus requires two inquiries: (1) whether the plaintiff could have brought its claim under § 502(a); and (2) whether no other legal duty supports the plaintiff’s claim.”). So, what does that mean?
First, the plaintiff’s claim must fall within the scope of ERISA, and the plaintiff must have standing to sue under ERISA. In other words, the claim has to be related to an employee benefit plan, and the person who is filing the lawsuit must be one of the groups of people that is authorized to file a lawsuit under ERISA. An employee who is filing suit for benefits that were provided under an employer’s disability or life insurance plan definitely falls within this explanation.
An employee making such a claim is clearly authorized under ERISA § 502(a) to bring a civil suit. That statute authorizes plan participants (employees) to file suit “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).
If an employee files a lawsuit to recover benefits under an employer plan, it almost certainly is an ERISA claim
When the purpose of a plaintiff’s Complaint is their desire to recover disability or life insurance benefits under an insurance policy which funds an employer’s plan, this is what is called a “colorable claim for benefits” which gives rise to standing to sue under ERISA. In other words, a plan participant who contends he was denied benefits owed him under an employer’s plan or the employer’s group insurance policy has statutory standing to sue under ERISA.
Unless there is some other legal duty to pay benefits, ERISA preemption applies
The second prong of Davila provides that for ERISA complete preemption to exist, there must be “no other independent legal duty that is implicated by a defendant’s actions.” Davila, 542 U.S. at 210. If all of an employee’s claims asserted against a plan insurer depend on a breach of the ERISA plan and that plan is the basis and source for payment of the benefits claimed in the lawsuit, there is no duty independent of ERISA to pay. See, e.g., Davila, 542 U.S. at 213 (finding “no other legal duty” test satisfied where defendants’ potential liability “derives entirely from the particular rights and obligations established by the benefit plans,” such that the plaintiffs’ “causes of action are not entirely independent of the federally regulated contract itself”); Borrero v. United Healthcare of New York, Inc., 610 F.3d 1296, 1304 (11th Cir. 2010) (finding no independent legal duty, notwithstanding plaintiffs’ argument that their contract claims turned on state law rather than ERISA, because “the content of the claims necessarily requires the court to inquire into aspects of the ERISA plans,” in that those claims concern “wrongfully denied benefits based on determinations of medical necessity” and “relate directly to the coverage afforded by the ERISA plans”).
State laws that give insured’s more rights or more claims are preempted.
The most important aspect of ERISA preemption is that employees and beneficiaries are stripped of rights and remedies they may have under state law. ERISA civil enforcement statute, § 502(a), allows someone to recover the benefits that are owed to them, but nothing more than that. Under state law, there are often other laws which allow other types of damages. An obvious example is state bad faith law that may allow someone to recover punitive damages. Because these types of state laws provide legal remedies that Congress did not authorize under ERISA, courts have uniformly held that they are preempted.
BUT….Federal claims are not preempted.
An important feature of preemption is that ERISA preempts state laws, but not other federal laws. For example, ERISA preemption does not extend to a claim under a federal law such as the Americans with Disabilities Act. See 29 U.S.C. § 1144(d); Panckey v. Aetna Life Insurance Co., No. 6:16-cv-1011-Orl-37GJK, 2016 WL 6822479 (M.D. Fla. 11/18/2016); see also Sirva Relocation, LLC v. Richie, 794 F.3d 185, 197 (1st Cir. 2015); Olson v. Dex Imaging, Inc., 63 F. Supp.3d 1353, 1361–62 (M.D. Fla. 2014).
ERISA preemption will apply to any claim that an employee or employer plan beneficiary tries to make. This applies to pension claims, as well as disability, life, and other insurance benefits. ERISA limits a participant’s or beneficiary’s rights, and plan administrators will use ERISA preemption to pull every claim they can into ERISA’s scope.