ERISA And Life Insurance

Here is an opinion from the United States 5th Circuit dealing with ERISA.  This particular case discusses the Employee Retirement Income Security Act of 1974 (ERISA).  While the case is not a life insurance case, the ruling would also apply to life insurance situations.  The style of the case is Ramirez v. Inter-Continental Hotels.

Ramirez had filed suit in State Court, asserting various contract, tort, and statutory causes of action against his former employer and its insurance carrier, Travelers.  The Defendants removed the case to federal court, asserting ERISA.

Ramirez concedes, this lawsuit is essentially one to recover benefits from an ERISA plan.  As such, it comes within the scope of ERISA’s civil enforcement provision, Section 502(a)(1)(B), 29 U.S.C. Section 1132(a)(1)(B), which allows a civil action to be brought (1) by a participant or beneficiary (B) to recover benefits due to him under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.

There can be no dispute that Ramirez’s efforts to collect his medical benefits “relate to an employee benefit plan” and thus come within the scope of ERISA’s express preemption provision Section 514(a), 29 U.S.C. Section 1144(a), which declares that ERISA “supersede[s] any and all state laws insofar as they may now or hereafter relate to any employee benefit plan….”  As the Supreme Court explained in two recent decisions, “[t]he phrase `relate to’ … [must be] given its broad common-sense meaning, such that a state law `relates to’ a benefit plan, `in the normal sense of the phrase, if it has a connection with or reference to such a plan.'”

Ramirez contends, however, that the dismissal of his suit was improper because Tex. Ins. Code Ann. art. 21.21 Section 16, upon which he bases his right to recovery, is rescued from preemption as a statute that “regulate[s] insurance” within the meaning of the ERISA savings clause, Section 514(b)(2)(A), 29 U.S.C. Section 1144(b)(2)(A).

Relying upon case law interpreting the phrase “business of insurance” in the McCarran-Ferguson Act, 15 U.S.C. Section 1012(a), the Court in prior  cases has explained that a law regulates insurance when (1) it is specifically directed at the insurance industry; (2) it transfers or spreads policyholder risk; and (3) it affects an integral part of the policy relationship between insurer and insured.

Section 16 furnishes a private right of action and allows treble damages and attorneys’ fees to persons injured by certain enumerated “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance….”  Although the statute is contained within the Texas Insurance Code and therefore by its terms is directed specifically at the insurance industry, it also incorporates wholesale the Texas Deceptive Trade Practices Act, Tex. Bus. & Com. Code Ann. Section 17.46, a law of general application, and provides a remedy for violations of that law by an insurance company.

The detailed provisions of 502(a) set forth a comprehensive civil enforcement scheme that represents a careful balancing of the need for prompt and fair claims settlement procedures against the public interest in encouraging the formation of employee benefit plans.  The policy choices reflected in the inclusion of certain remedies and the exclusion of others would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA.

In sum, prior case law requires the Court to conclude that ERISA preempts section 16-based claims to recover benefits from an ERISA plan.  Thus, this Court joins three of it’s sister circuits and numerous district courts in holding that ERISA preempts state statutes that provide a private right of action for the improper handling of insurance claims.

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