471 U.S. 202 (1985), 83-1748, Allis-Chalmers Corp. v. Lueck

Docket Nº:No. 83-1748
Citation:471 U.S. 202, 105 S.Ct. 1904, 85 L.Ed.2d 206, 53 U.S.L.W. 4463
Party Name:Allis-Chalmers Corp. v. Lueck
Case Date:April 16, 1985
Court:United States Supreme Court

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471 U.S. 202 (1985)

105 S.Ct. 1904, 85 L.Ed.2d 206, 53 U.S.L.W. 4463

Allis-Chalmers Corp.



No. 83-1748

United States Supreme Court

April 16, 1985

Argued January 16, 1985



The bad-faith handling of an insurance claim, including a claim under a disability insurance plan included in a collective bargaining agreement, is a tort under Wisconsin law. Petitioner and a labor union, of which respondent employee of petitioner is a member, are parties to a collective bargaining agreement that incorporates a self-funded disability plan administered by an insurance company and providing benefits for nonoccupational injuries to employees. The agreement establishes a disability grievance procedure that culminates in final and binding arbitration. Respondent, after suffering a nonoccupational injury, entered into a dispute over the manner in which petitioner and the insurer handled his disability claim. Rather than utilizing the grievance procedure, respondent brought a tort suit against petitioner and the insurer in a Wisconsin state court, alleging bad faith in the handling of his claim and seeking damages. The trial court ruled in favor of petitioner and the insurer, holding that respondent had stated a claim under § 301 of the Labor Management Relations Act, which provides that suits for violations of collective bargaining agreements may be brought in federal district court. In the alternative, if the claim were deemed to arise under state law, rather than § 301, it was preempted by federal labor law. The Wisconsin Court of Appeals affirmed. The Wisconsin Supreme Court reversed, holding that the claim did not arise under § 301 as constituting a violation of a labor contract, but was a tort claim of bad faith. The court reasoned that, under Wisconsin law, the tort of bad [105 S.Ct. 1907] faith is distinguishable from a bad-faith breach-of-contract claim, and that, although a breach of duty is imposed as a consequence of the relationship established by contract, it is independent from that contract.

Held: When resolution of a state law claim is substantially dependent upon analysis of the terms of a collective bargaining agreement, that claim must either be treated as a § 301 claim or dismissed as preempted by federal labor contract law. Here, respondent's claim should have been dismissed for failure to make use of the grievance procedure or as preempted by § 301. The right asserted by respondent is rooted in contract, and the bad faith claim could have been pleaded as a contract claim under § 301. Unless federal law governs that claim, the meaning of the disability benefit provisions of the collective bargaining agreement

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would be subject to varying interpretations, and the congressional goal of a unified body of labor contract law would be subverted. Preemption is also necessary to preserve the central role of arbitration in the resolution of labor disputes. Pp. 208-221.

116 Wis.2d 559, 342 N.W.2d 699, reversed.

BLACKMUN, J., delivered the opinion of the Court, in which all other Members joined, except POWELL, J., who took no part in the consideration or decision of the case.

BLACKMUN, J., lead opinion

JUSTICE BLACKMUN delivered the opinion of the Court.

The Wisconsin courts have made the bad faith handling of an insurance claim a tort under state law. Those courts have gone further, and have applied this tort to the handling of a claim under a disability plan included in a collective bargaining agreement. The question before us is whether, in the latter case, the state tort claim is preempted by the national labor laws.



Respondent Roderick S. Lueck began working for petitioner Allis-Chalmers Corporation in February, 1975. He is a member of Local 248 of the United Automobile, Aerospace

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and Agricultural Implement Workers of America. Allis-Chalmers and Local 248 are parties to a collective bargaining agreement. The agreement incorporates by reference a separately negotiated group health and disability plan fully funded by Allis-Chalmers but administered by Aetna Life & Casualty Company. The plan provides that disability benefits are available for nonoccupational illness and injury to all employees, such as petitioner, who are represented by the union.

The collective bargaining agreement also establishes a four-step grievance procedure for an employee's contract grievance. This procedure culminates in final and binding arbitration if the union chooses to pursue the grievance that far. App. 18-29. A separate letter of understanding that binds the parties creates a special three-part grievance procedure for disability grievances. Id. at 43-44. The letter establishes a Joint Plant Insurance Committee composed of two representatives designated by the union and two designated by the employer. Id. at 43. The Committee has the authority to resolve all disputes involving "any insurance-related issues that may arise from provisions of the [Collective-Bargaining] Agreement." Ibid. An employee having an insurance-related complaint is to address it first to the Supervisor of Employee Relations. If the complaint is rejected or otherwise remains unresolved, the employee then may bring the dispute before the Insurance Committee. If the Committee does not resolve the matter, the employee may bring it to arbitration in the manner established under the collective bargaining agreement. As indicated, that agreement permits the union or the employer to request that a grievance be submitted to final and binding arbitration before a neutral arbitrator agreed [105 S.Ct. 1908] upon by the parties.1

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In July, 1981, respondent Lueck suffered a nonoccupational back injury while carrying a pig to a friend's house for a pig roast. He notified Allis-Chalmers of his injury, as required by the claims-processing procedure, and subsequently filed a disability claim with Aetna, also in accordance with the established procedure. After evaluating physicians' reports submitted by Lueck, Aetna approved the claim. Lueck began to receive disability benefits effective from July 20, 1981, the day he filed his claim with Aetna.

According to Lueck, however, Allis-Chalmers periodically would order Aetna to cut off his payments, either without reason, or because he failed to appear for a doctor's appointment, or because he required hospitalization for unrelated reasons. After each termination, Lueck would question the action or supply additional information, and the benefits would be restored. In addition, according to Lueck, Allis-Chalmers repeatedly requested that he be reexamined by different doctors, so that Lueck believed that he was being harassed. All of Lueck's claims were eventually paid, although, allegedly, not until he began this litigation.2

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Lueck never attempted to grieve his dispute concerning the manner in which his disability claim was handled by Allis-Chalmers and Aetna. Instead, on January 18, 1982, he filed suit against both of them in the Circuit Court of Milwaukee County, Wis., alleging that they "intentionally, contemptuously, and repeatedly failed" to make disability payments under the negotiated disability plan, without a reasonable basis for withholding the payments. App. 4. This breached their duty "to act in good faith and deal fairly with [Lueck's] disability claims." Id. at 3. Lueck alleged that, as a result of these bad faith actions, he incurred debts, emotional distress, physical impairment, and pain and suffering. He sought both compensatory and punitive damages. Id. at 4.

Ruling on cross-motions for summary judgment, the trial court ruled in favor of Allis-Chalmers and Aetna. The court held that Lueck stated a claim under § 301 of the Labor Management Relations Act of 1947 (LMRA), 61 Stat. 156, 29 U.S.C. § 185(a), and that, in the alternative, if his claim "were deemed to arise under state law instead of Section 301," it was "preempted by federal labor law." App. to Pet. for Cert. 26-27. The Wisconsin Court of Appeals, in a decision "[n]ot recommended for publication in the official reports," id. at 25, affirmed the judgment in favor of Aetna on the ground that it owed no fiduciary duty to deal in good faith with Lueck's claim. The court agreed with the Circuit Court that federal law preempted the claim against Allis-Chalmers.3

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[105 S.Ct. 1909] The Supreme Court of Wisconsin, with one justice dissenting, reversed. Lueck v. Aetna Life Ins. Co., 116 Wis.2d 559, 342 N.W.2d 699 (1984). The court held, first, that the suit did not arise under § 301 of the LMRA, and therefore was not subject to dismissal for failure to exhaust the arbitration procedures established in the collective bargaining agreement. The court reasoned that a § 301 suit arose out of a violation of a labor contract, and that the claim here was a tort claim of bad faith. Under Wisconsin law, the tort of bad faith is distinguishable from a bad faith breach-of-contract claim: though a breach of duty exists as a consequence of the relationship established by contract, it is independent of that contract. Therefore, it said, the violation of the labor contract was "irrelevant to the issue of whether the defendants exercised bad faith in the manner in which they handled Lueck's claim." Id. at 566, 342 N.W.2d at 703. The action, thus, was not a § 301 suit.

The court went on to address the question whether the state law claims nevertheless were preempted by §§ 8(a)(5) and (d) of the National Labor Relations Act (NLRA), 49 Stat. 452, as amended, 29 U.S.C. §§ 158(a)(5) and (d). Applying the standard for determining NLRA preemption as enunciated in San Diego Building Trades Council v. Garmon, 359 U.S. 236, 244-245 (1959), and Farmer v. Carpenters...

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