Barber v. Unum Life Ins. Co. of America, 03-4363.

• Decision Date: 07 September 2004
• Docket Number: No. 03-4363.,03-4363.
• Citation: 383 F.3d 134
• Parties: James BARBER v. UNUM LIFE INSURANCE COMPANY OF AMERICA, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

383 F.3d 134

James BARBER v. UNUM LIFE INSURANCE COMPANY OF AMERICA, Appellant.

No. 03-4363.

United States Court of Appeals, Third Circuit.

Argued May 25, 2004.

September 7, 2004.

Appeal from the United States District Court for the Eastern District of Pennsylvania, Clarence C. Newcomer, J.

COPYRIGHT MATERIAL OMITTED

E. Thomas Henefer, (Argued), Stevens & Lee, Reading, PA, for Appellant.

Joseph F. Roda, (Argued), Roda & Nast, Lancaster, PA, for Appellee.

Glen D. Nager, Jones Day, Washington, DC, for Amicus Curiae-Appellant, Chamber of Commerce of the United States.

Arnold R. Levinson, Pillsbury & Levinson, San Francisco, for Amicus Curiae-Appellee, United Policyholders.

Before SCIRICA, Chief Judge, RENDELL and ALARCON,^* Circuit Judges.

OPINION OF THE COURT

SCIRICA, Chief Judge.

At issue is whether ERISA preempts Pennsylvania's bad faith statute for insurance claims, 42 Pa.C.S. § 8371, through express or conflict preemption. The District Court denied defendant's Fed.R.Civ.P. 12(b)(6) motion moving for dismissal of plaintiff's bad faith claim based on ERISA preemption. Barber v. UNUM Life Ins. Co. of Am., No. 03-3018 (E.D. Pa. filed Sept. 9, 2003). Because we hold 42 Pa.C.S. § 8371 is conflict preempted by ERISA, or alternatively expressly preempted under ERISA § 514(a), we will reverse the judgment of the District Court and remand with instructions to dismiss Barber's bad faith claim.

I. Facts

This matter involves a dispute over disability benefits provided to plaintiff James Barber by his employer under an employee benefit plan governed by the Employee Retirement Income Security Act of 1974, as amended 29 U.S.C. §§ 1001-1461. Benefits under the plan were insured under a group long-term disability policy Barber's employer obtained from defendant UNUM Life Insurance Company of America.

After Barber became disabled, he applied for and received long-term disability benefits. But UNUM subsequently terminated the benefits after determining Barber was no longer disabled under the policy's terms. Barber brought suit for breach of contract and for bad faith, requesting punitive damages under 42 Pa.C.S. § 8371 for UNUM's alleged bad faith in denying benefits.¹

UNUM moved under Fed.R.Civ.P. 12(b)(6) to dismiss the bad faith claim, citing ERISA preemption. UNUM contends conflict preemption applies because 42 Pa.C.S. § 8371's remedial scheme conflicts with Congress' intent in enacting ERISA's exclusive civil enforcement provision in § 502(a), 29 U.S.C. § 1132(a). § 502(a) allows an ERISA-plan participant to recover benefits, to obtain a declaratory judgment that he is entitled to benefits, and to enjoin an improper refusal to pay benefits. 29 U.S.C. § 1132(a). UNUM contends ERISA preempts 42 Pa.C.S. § 8371 because it is a separate enforcement scheme with a punitive damages provision that adds to the detailed provisions of ERISA's remedial mechanism.

Citing express ERISA preemption, UNUM also contends 42 Pa.C.S. § 8371 falls outside the protective ambit of ERISA's saving clause. ERISA § 514(a), the express preemption clause, broadly provides that "[e]xcept as provided in subsection (b) of this section, the provisions of this title ... shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). In apparent tension, however, and reflecting its concern with limiting states' rights to regulate insurance, banking, or securities, Congress drafted a saving clause, ERISA § 514(b)(2)(A), that provides: "Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." 29 U.S.C. § 1144(b)(2)(A).² Barber responds that 42 Pa.C.S. § 8371, the bad faith statute, "regulates insurance" and accordingly falls within the saving clause's parameters.

Procedural Background

In Rosenbaum v. UNUM Life Insurance Co. of America, No. 01-6758, 2003 U.S. Dist. LEXIS 15652, 2003 WL 22078557 (E.D.Pa. Sept. 8, 2003) ("Rosenbaum II"),³ the District Court held 42 Pa.C.S. § 8371 satisfied the saving clause and found conflict preemption did not apply. Id. at *10-25.⁴ The order in Rosenbaum II was certified for interlocutory appeal, but the ruling came after parties had advised the District Court they had settled the matter, eliminating a case or controversy. But the district judge in Rosenbaum II was also assigned to this lawsuit. On September 9, 2003, the District Court denied UNUM's motion to dismiss for the reasons provided in Rosenbaum II. Barber v. UNUM Life Ins. Co., No. 03-3018, 2003 WL 22078557 (E.D. Pa. filed Sept. 8, 2003). The District Court certified the issue for interlocutory review. Id. We granted the petition for allowance of appeal.⁵

II.

A. Conflict Preemption

Under the doctrine of conflict preemption, a state law may be preempted "to the extent that it actually conflicts with federal law," English v. Gen. Elec. Co., 496 U.S. 72, 79, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990), that is, where it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941). UNUM contends conflict preemption applies because 42 Pa.C.S. § 8371 is a separate enforcement scheme that enlarges the remedies otherwise available under the detailed civil enforcement provision of ERISA § 502(a).

Until the Supreme Court's recent decision in Aetna Health Inc. v. Davila, ___ U.S. ___, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004), the debate over ERISA conflict preemption centered on two Supreme Court cases-Pilot Life, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39, and Rush Prudential, 536 U.S. 355, 122 S.Ct. 2151, 153 L.Ed.2d 375. In Pilot Life, an insurance company terminated an injured employee's disability plan. 481 U.S. at 43-44, 107 S.Ct. 1549. The employee brought a common law tort and contract action asserting improper processing of a benefits claim. Id. The Court found the saving clause did not save the bad faith claim because it did not "regulate insurance." Id. at 50, 107 S.Ct. 1549. But stating it was obliged to consider "the role of the saving clause in ERISA as a whole," the Court noted an "understanding of the saving clause must be informed by the legislative intent concerning [ERISA's] civil enforcement provisions," which, the Court said, were "intended to be exclusive." Id. at 51-52, 107 S.Ct. 1549. In ruling that punitive damages in a bad faith cause of action constituted an additional remedy, the Court explained:

[The provisions of ERISA] 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 under the federal scheme would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA.

Id. at 54, 107 S.Ct. 1549. The Court stated the "`six carefully integrated civil enforcement provisions found in § 502(a) of the [ERISA] statute as finally enacted ... provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.'" Id. (quoting Mass. Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 146, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985)) (emphasis in original). Accordingly, the Court found the state claims permitting punitive damages were preempted by ERISA. Id. at 57, 107 S.Ct. 1549.

The Supreme Court revisited conflict preemption in Rush Prudential, 536 U.S. 355, 122 S.Ct. 2151, 153 L.Ed.2d 375, narrowly reaffirming the applicability of conflict preemption in the ERISA context. The Court "recognized a limited exception from the savings clause for alternative causes of action and alternative remedies," describing this exception as "Pilot Life' s categorical preemption." Id. at 380-81, 122 S.Ct. 2151. The Court noted:

Although we have yet to encounter a forced choice between the congressional policies of exclusively federal remedies and the reservation of the business of insurance to the States, we have anticipated such a conflict, with the state insurance regulation losing out if it allows plan participants "to obtain remedies ... that Congress rejected in ERISA."

Id. at 378, 122 S.Ct. 2151 (quoting Pilot Life, 481 U.S. at 54, 107 S.Ct. 1549) (citation and internal quotations omitted). The Court explained the civil remedies provided in ERISA § 502(a) are an "`interlocking, interrelated, and interdependent remedial scheme,'" id. at 376, 122 S.Ct. 2151 (quoting Mass. Mutual, 473 U.S. at 146, 105 S.Ct. 3085), that" `represent[s] 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.' "Id. at 376, 105 S.Ct. 3085 (quoting Pilot Life, 481 U.S. at 54, 107 S.Ct. 1549). ERISA § 502(a)'s civil enforcement provisions are the "sort of overpowering federal policy" that is so strong it even "overrides a statutory provision designed to save state law from being preempted." Id. at 375, 107 S.Ct. 1549.⁶

The parties here have focused on whether the Supreme Court treatment of conflict preemption in Pilot Life and Rush Prudential is dicta, noting Rosenbaum II found it to be "dicta" that was "unpersuasive." Rosenbaum II, 2003 WL 22078557, at *7, 2003 U.S. Dist. LEXIS 15652, at *20-21.⁷ Whatever the outcome of that debate, it is no longer material because in Aetna Health, ___ U.S. ___, 124 S.Ct. 2488, 159 L.Ed.2d 312,⁸ the Court confirmed that state laws that supplement ERISA's civil enforcement scheme conflict with Congress' intent to make the ERISA remedy exclusive. Id. at 2495.

In Aetna Health, the Court held the plaintiffs' claims under...