Rhode Island Bar Journal
50 RI Bar J., No. 1, Pg. 5 (September, 2001).
You have a new client. She is self-employed. Her husband runs a small business. She claims to have been wrongfully denied insurance benefits. You draft a complaint for breach of contract and perhaps even bad faith. You file in state court and demand a jury.
A few weeks later you get notice that the action has been removed to federal court because the Employee Retirement Income Security Act of 19741 ("ERISA") preempts and bars your client's common or state statutory law claims. Unbeknownst to you or your client, the insurance policy at issue was part of an employee benefit plan. Welcome to ERISA. The Supreme Court has described this federal statute as being "enormously complex and detailed."2 In addition to being a comprehensive substantive law, ERISA has spawned its own federal procedural law.3
As a result of ERISA preemption, you may need to inform your client that she has lost her right to a jury.4 Her ability to recover consequential and punitive damages may have been lost.5 The evidence you can use at trial may now be limited to the administrative record developed before you were retained.6 The court's standard of review may not be de novo, but deferential in favor of the insurer or administrator.7 Further, your client's failure to exhaust administrative remedies may be fatal to her claim.8 You focus less on discovery and eventual trial and begin preparing for the probable defendant's motion to dismiss or for summary judgment.
Generally speaking, ERISA controls claims concerning the formation, operation or management of group benefit plans, no matter how large or small the group may be. Whenever a client seeks benefits under an insurance policy or benefit program that has been sponsored or paid for in whole or in part by an employer or employee organization, the practitioner should prepare to address ERISA issues. What may have at first appeared to be a simple breach of contract action may soon involve complicated matters of federal law and procedure.
Knowing when ERISA governs is not always clear. Justice Stewart's remarks about pornography - "I know it when I see it"9 - come to mind. ERISA, however, is considerably more subtle than pornography. You don't always know it when you see it. Even seasoned ERISA practitioners and courts can disagree over when ERISA applies. The exact parameters are difficult to define. Every practitioner would be well advised to know the hallmarks of an ERISA claim so they are better prepared to manage the case when federal law controls.
ERISA is the first body of law enacted by Congress to regulate completely the field of group benefit plans.10 It is derived from and reflects the common law of trusts.11 It empowers participants, beneficiaries and fiduciaries to bring civil actions to enforce the terms of an employee benefit plan and to redress breaches of fiduciary duties.12
ERISA PREEMPTIONERISA leaves little room for state law.13 In conjunction with its enforcement provisions, ERISA's preemption provision states:
[T]he provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan [regulated hereunder]...
For purposes of this section:
(1) The term 'State law' includes all laws, decisions, rules, regulations, or other State action having the effect of law, of any State.14
In construing this provision, the Supreme Court held that "[a] law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan."15 The court explained that Congress intended the phrase "relate to" to have broad application and to preempt state laws of general application as well as laws specifically designed to regulate employee benefit plans. In a unanimous decision, Pilot Life Insurance Co. v. Dedeaux, the court held that ERISA preempts all state and common law claims relating to employee benefit plans.16
The Eleventh Circuit has gone so far as to describe ERISA preemption as "super preemption."17 The First Circuit and its district courts also enforce ERISA preemption strictly. ERISA has been held to preempt: a contract damages claim for an employee's exclusion from a pension plan;18 an Americans With Disabilities Act19 challenge to a health benefit determination;20 a claim of negligent refusal to pre-certify psychiatric treatments;21 a claim under a Massachusetts severance pay ("tin parachute") statute;22 a claim under a Massachusetts mechanics' lien statute for plan contributions;23 a common law breach of contract claim for benefits under a plan;24 and a negligence claim concerning cash distributions from a retirement account.25
ERISA's preemption provision contains a narrowly construed savings clause exempting "any law of any State which regulates insurance, banking, or securities"26 from its preemptive scope. The Supreme Court, for example, has construed this provision as saving a California law barring denial of coverage due to late notice in the absence of prejudice to the insurer. Because the California law "is grounded in policy concerns specific to the insurance industry," a unanimous court agreed that it fell within the savings clause.27 The same court, however, found Mississippi's bad faith law, although applied specifically to the insurance industry, to be rooted "in the general principles of...tort and contract law" and therefore not so insurance - specific to be saved from preemption.28
THE EMPLOYEE BENEFIT PLANForemost, an ERISA claim or defense must be based on the existence of an employee benefit plan. An employee benefit plan can take the form of an "employee welfare benefit plan" or an "employee pension benefit plan" or a combination of the two.29
An "employee welfare benefit plan" is defined broadly as:
any plan, fund, or program...established or maintained by an employer or by an employee organization... for the purpose of providing for its participants or their beneficiaries through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment....30
An "employee pension benefit plan" is similarly broadly defined:
any plan, fund, or program which...is...established or maintained by an employer or by an employee organization to the extent that [it]-
(i) provided retirement income to employees, or
(ii)results in a deferral of income by employees for periods extending to the termination of covered employment or beyond....31
ERISA also defines the following key terms:
Beneficiary means "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder."32
Employee means "any individual employed by an employer."33
Employer means "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan..."34
Participant means "any employee or former employee of an employer or any member of an employee organization who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit."35