Chapter 22 - § 22.4 • ERISA PREEMPTION UNDER COLORADO STATUTES

• Jurisdiction: Colorado

§ 22.4 • ERISA PREEMPTION UNDER COLORADO STATUTES

As discussed in Chapter 20, two statutes enacted by the General Assembly in 2008, C.R.S. §§ 10-3-1115 and -1116, created a statutory right of action against insurers for unreasonable delay or denial of payment of first-party claims. It appears that the architects of these statutes were aware of the issue of ERISA preemption, because the statutes specifically state that they are laws "regulating insurance." C.R.S. §§ 10-3-1115(4) and 10-3-1116(7). Despite this specific expression of legislative intent, federal courts have declined to find that the statutes actually do regulate insurance under the test applied in Pilot Life and Kelley.

Because the statutes relate solely to insurance, they satisfy the third prong of the test. Arguably, C.R.S. § 10-3-1116(2) and (3) also satisfy the second prong of the test because they control the substantive terms of the insurance contract in that these subsections contain both proscriptive and prescriptive language regarding the terms of health, disability, and life insurance policies. However, it is doubtful that the statutes satisfy the first prong of the test. Like the UCSPA, the primary purpose of these statutes appears to be to prevent and remedy unfairness in the insurance industry rather than to spread policyholder risk.

Moreover, even if a state law does regulate insurance, it is doubtful whether a claim brought under such a law will be saved from preemption. As the U.S. Supreme Court stated in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), "Under ordinary principles of conflict pre-emption, then, even a state law that can arguably be characterized as 'regulating insurance' will be pre-empted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA's remedial scheme." Id. at 217-18.

When a dispute arises over payment of benefits under an employer-sponsored benefit plan, a careful analysis must be conducted to determine whether the plan falls within the scope of ERISA. If the insured is a participant in or beneficiary of an ERISA plan, it is doubtful that he or she will be entitled to maintain either statutory claims for delay or denial of benefits, or common law actions for breach of contract or bad faith.

In Shafer v. Metropolitan Life Insurance Co., 80 F. Supp. 3d 1244 (D. Colo. 2015), the court held that the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001, et seq., preempts C.R.S. §...