The Employee Retirement Income Security Act (ERISA) is a comprehensive federal law that governs employer-sponsored fringe benefits. ERISA was originally intended to apply only to retirement benefits, but as the law was approaching its final passage during the summer of 1974, the scope of the ERISA law was broadened to encompass what are characterized as employee welfare benefit plans, which the law defines to mean:

any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained 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, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services,

29 U.S.C. § 1002 (1) – For most employees, that means their employer-sponsored health, life, and disability insurance benefits are governed by ERISA. The two major exceptions are benefit plans for federal, state, and local government employees (including public school teachers), and employees of religious organizations.

While there had initially been some belief that ERISA only governed self-funded plans, the definition quoted above clearly encompasses insured plans. Thus, as Judge Richard Posner wrote in 1989 in a case entitled “Brundage-Peterson v. Compcare Health Service Insurance Company:

All this is not to deny the strangeness, as an original matter, of transforming disputes between employees and insurance companies over the meaning of the insurance contract into suits under ERISA. But the Supreme Court crossed this Rubicon in Metropolitan Life Ins. Co. v. Taylor, supra, reversing Taylor v. General Motors Corp., 763 F.2d 216 (6th Cir. 1985), which had held that a suit under the group insurance policy was not a suit under the ERISA plan pursuant to which the policy had been issued. Although we find it difficult to understand why such cases should be litigated in federal court, we are unable to escape the pull exerted by the statute, the administrative regulation, and the precedents.

But that is only part of the story. The other part is the impact of ERISA preemption on the litigation of employee benefit claims.

What Is ERISA Preemption; and What Are its Limits?

The ERISA law contains a provision stating that ERISA preempts all state laws that “relate to” employee benefit plans. That section of the statute means that any state laws that may implicate benefit issues are ineffective if they conflict with ERISA. An example from a case heard by the Supreme Court several years ago called Egelhoff v. Egelhoff which involved a Washington state law that automatically voided a spousal life insurance beneficiary designation upon the entry of a judgment for dissolution of marriage. Because Mr. Egelhoff did not take any action to remove his ex-wife as his life insurance beneficiary following their divorce, upon his death, both the former wife and Egelhoff’s children, who were contingent life insurance beneficiaries, fought over who was entitled to the life insurance.  Mrs. Egelhoff maintained that the Washington law was preempted by ERISA while the Egelhoff children argued that they were the rightful beneficiaries based on state law. Mrs. Egelhoff was ultimately declared the winner because the Supreme Court held the Washington law related to employee benefit plans and was therefore preempted.

Another type of law that is preempted is laws that allow claimants to sue insurance companies for “bad faith” and seek damages beyond the amount of insurance coverage involved in the claim in the event their claims are denied without a reasonable basis. That type of preemption is known as complete preemption; meaning that laws that either supplant or supplement the statutory remedies under ERISA are automatically preempted.  Laws that compel employers to make a forced choice, such as a law that requires employers to provide specified types of insurance for their employees, are also preempted. However, if the employer has a choice or an alternative, such laws are deemed to only indirectly affect employee benefit plans and are not preempted.

In addition, laws that affect separate claims that may arise in connection with a benefit claim are also not preempted unless such claims are inextricably intertwined with the benefit claim.  An example is the case of Dishman v. Unum, which involved a claim for invasion of privacy that was brought together with a claim for disability insurance benefits under an employer-sponsored plan. The 9th Circuit U.S. Court of Appeals ruled that the invasion of privacy claim was distinct from the benefit claim and that the outcome of the invasion of privacy claim was wholly independent of the outcome of the claim for benefits. Thus, the court found no preemption.

There is also no preemption of state laws that regulate the content of insurance policies. The section of the ERISA law involving preemption states that insurance laws are “saved” from preemption. However, that exemption is inapplicable to self-funded plans. In order for a state law regulating insurance to be saved, it must be specifically directed toward insurance coverage. Thus, a law relating to contract interpretation generally would not be preempted by ERISA. The law must also affect “risk pooling,” meaning the risk insured against.  Thus, state laws that mandate specific benefits that must be included in health insurance plans are not preempted. In addition, laws that prohibit the inclusion of certain provisions in insurance policies would also fall within the savings clause.

Conclusion

It should be obvious from the discussion above that ERISA preemption is a complex topic. Preemption issues have confounded courts since ERISA was enacted in 1974.  Anyone who has a claim for employee benefits where ERISA preemption issues arise is advised to consult with an attorney experienced in handling ERISA matters and who has the expertise to offer informed advice and counsel. The attorneys at DeBofsky Law, who have decades of ERISA experience, are well-versed in ERISA preemption issues affecting your employee benefits claims and have helped many clients steer their way through the ERISA preemption thicket.

Related Articles

ERISA 2023 Year in Review

ERISA 2023 Year in Review

Introduction The Employee Retirement Income Security Act of 1974 (ERISA) [1] directly impacts the lives of most Americans, yet few are familiar with ERISA despite its governance of pensions and retirement plans, along with other employer provided fringe benefits such...

Verizon Benefits Ruling Clears up Lien Burden of Proof

Verizon Benefits Ruling Clears up Lien Burden of Proof

On Jan. 29, a judge in the U.S. District Court for the District of Rhode Island recently wrote an opinion in a sort of "man bites dog" Employee Retirement Income Security Act case, Verizon Sickness & Accident Disability Benefit Plan v. Rogers.[1] Rather than the...

Reservation of Rights: Disability Insurance Claimant Guide

Reservation of Rights: Disability Insurance Claimant Guide

Applicants for disability insurance can often receive a mystifying response to their claim for benefits, an approval under a “reservation of rights.” After submitting a claim and providing a treating doctor’s certification of disability along with other medical evidence supporting a favorable claim determination, the expectation is that the claim will be approved. […]