Cramer v. Association Life Ins. Co.
| Decision Date | 08 November 1990 |
| Docket Number | No. 90-CC-0804,90-CC-0804 |
| Citation | 569 So.2d 533 |
| Parties | Charles R. CRAMER, Jr. and Neva Gage Cramer v. ASSOCIATION LIFE INSURANCE COMPANY. 569 So.2d 533, 59 U.S.L.W. 2340 |
| Court | Louisiana Supreme Court |
Christine Lipsey, Breazeale, Sachse & Wilson, Baton Rouge, for Association Life Ins. Co., Inc., defendant-applicant.
Allen M. Posey, Jr., Baton Rouge, for Charles Cramer and Neva Cramer, plaintiff-respondent.
Richard Tyler, amicus curiae.
David Radlauer, amicus curiae.
Woodrow E. Eno, amicus curiae.
W. Shelby McKenzie, amicus curiae.
ON WRIT OF CERTIORARI TO THE
COURT OF APPEAL, FIRST CIRCUIT
On September 24, 1986, plaintiffs, Charles and Neva Cramer, Jr., filed suit against defendant, Association Life Insurance Company, Inc. (ALIC), claiming benefits due under a health insurance policy purchased by Mr. Cramer's employer, Advertising By Computer, Inc. (ABC). Plaintiffs also sought penalties and reasonable attorney's fees pursuant to La.R.S. 22:657 because of defendant's alleged arbitrary and capricious failure to pay their claim. Defendant, in its original answer, denied any obligation to plaintiffs. In an amended and supplemental answer, defendant asserted plaintiffs do not have a cause of action for penalties and mandatory attorney's fees under La.R.S. 22:657 because such claims are preempted by the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C.A. Sec. 1001, et seq. (ERISA).
On December 15, 1988, defendant filed the peremptory exception raising the objection of no cause of action, and, alternatively, a motion for partial summary judgment, claiming plaintiffs' claim for statutory penalties and attorney's fees under R.S. 22:657 was preempted by ERISA. At the same time, defendant filed a motion in limine requesting the trial court to deny plaintiffs' demand for a jury trial because the case is governed by ERISA and the federal common law interpreting ERISA precludes a trial by jury. Plaintiffs filed a cross motion for partial summary judgment, opposing defendant's exception and motion for summary judgment, and requested an order of the court declaring ERISA inapplicable to the instant case.
The trial court ruled that ERISA was inapplicable to the instant case, denied defendant's exception, denied defendant's motion for partial summary judgment and its motion in limine to preclude a jury trial, and granted plaintiffs' motion for summary judgment. Defendant then applied for supervisory writs to the Court of Appeal, First Circuit. The Court of Appeal issued a writ of certiorari to review the trial court's ruling on the following issues:
1) whether ERISA applies to the case at bar, thus requiring the application of ERISA's civil enforcement provisions and thereby preempting plaintiffs' claim for penalties and mandatory attorney's fees under La.R.S. 22:657;
2) if ERISA applies, are plaintiffs precluded from having a jury trial;
3) if ERISA applies, should the evidence at trial be limited to that before defendant at the time of its final claims decision, thus precluding a de novo trial court review and requiring application of an arbitrary and capricious standard of review to the claims decision made by defendant?
After reviewing the case, the Court of Appeal ruled 1) ERISA applies to the case at bar because an "employee benefit plan," as the term is defined in ERISA, existed at the time the plaintiffs' claims arose; 2) plaintiffs' claim for penalties and mandatory attorney's fees is not preempted by ERISA; 3) plaintiffs are entitled to a jury trial of those issues pertaining to benefits under the Louisiana Insurance Code, but are not entitled to a jury trial of any issue governed by ERISA; and 4) the evidence at trial should not be limited to that before the defendant at the time of its final claims decision, and the arbitrary and capricious standard is not applicable in the instant case.
Defendant applied to this Court for supervisory writs to challenge the rulings of the Court of Appeal. Specifically, defendant challenges 1) the Court of Appeal's ruling that ERISA does not preempt plaintiffs' state law claim for penalties and mandatory attorney's fees under La.R.S. 22:657; and 2) the Court of Appeal's ruling that plaintiffs are entitled to a jury trial of the claim under R.S. 22:657. Plaintiffs, in their response to defendant's arguments, do not challenge the Court of Appeal's ruling that ERISA applies to the instant case. Therefore, the primary issue before this Court is whether ERISA preempts La.R.S. 22:657. If La.R.S. 22:657 is preempted by ERISA, then plaintiffs have no cause of action for penalties and mandatory attorney's fees, and are not entitled to a jury trial.
The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1001, et seq., is a comprehensive set of regulations governing employee pension and welfare plans. An employee welfare-benefit plan is defined in ERISA as one which provides to employees "medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability [or] death," whether these benefits are provided "through the purchase of insurance or otherwise." ERISA imposes upon pension plans a variety of substantive requirements relating to participation, funding, and vesting. 29 U.S.C. Secs. 1051-1086. Additionally, ERISA establishes various uniform procedural standards concerning reporting, disclosure, and fiduciary responsibility for both pension and welfare plans.
To effectuate the substantive and procedural provisions of ERISA, Congress created within the Act an extensive civil enforcement scheme. 29 U.S.C. Sec. 1132. Under the civil enforcement provisions of ERISA, a plan participant or beneficiary may sue to recover benefits due under the plan, to enforce the participant's rights under the plan, or to clarify rights to future benefits. Relief may take the form of accrued benefits due, a declaratory judgment on entitlement to benefits, or an injunction against a plan administrator's improper refusal to pay benefits. Additionally, in an action under the civil enforcement provisions, the court in its discretion may allow an award of attorney's fees. Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). However, the civil enforcement provisions do not allow exemplary damages. Sommers Drug Stores Co. Employees Profit Sharing Trust v. Corrigan Enterprises, Inc., 793 F.2d 1456, 1464 (5th Cir.1986), cert. denied 479 U.S. 1034, 107 S.Ct. 884, 93 L.Ed.2d 837, and 479 U.S. 1089, 107 S.Ct. 1298, 94 L.Ed.2d 154 (1987).
Recognizing that the broad provisions of ERISA overlap with numerous state regulatory laws, Congress put in ERISA three provisions relating to the preemptive effect of the federal legislation, often referred to as the pre-emption clause, the savings clause, and the deemer clause. The pre-emption clause 1 states:
Except as provided in subsection (b) of this section [the savings clause], the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ... (Emphasis added.)
The savings clause 2 states:
Except as provided in subparagraph (B) [the deemer clause], nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities. (Emphasis added.)
The deemer clause 3 states:
Neither an employee benefit plan ... nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer ... or to be engaged in the business of insurance ... for purposes of any law of any State purporting to regulate insurance companies [or] insurance contracts ... (Emphasis added.)
As noted by the United States Supreme Court, the three pre-emption sections of ERISA are not a model of legislative drafting. Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). 4 However, the sections generally can be said to work as follows: if a state law relates to employee benefit plans it is preempted unless the law "regulates insurance," in which case the savings clause saves the law from pre-emption; but, a state law that purports to regulate insurance may not deem an employee benefit plan to be an insurance company.
In this case, plaintiffs seek punitive damages and attorney's fees for defendant's alleged arbitrary and capricious failure to pay medical benefits under an employee welfare benefit plan. Plaintiffs rely on La.R.S. 22:657 for the recovery of such damages. R.S. 22:657 provides, in pertinent part:
All claims arising under the terms of health and accident contracts issued in this state ... shall be paid not more than thirty days from the date upon which written notice and proof of claim ... are furnished to the insurer unless just and reasonable grounds ... exist. Failure to comply with the provisions of this Section shall subject the insurer to a penalty payable to the insured of double the amount of the health and accident benefits due under the terms of the policy or contract during the period of delay, together with attorney's fees to be determined by the court.
The above-cited portion of Sec. 657 provides for mandatory attorney's fees and penalties in cases where an insurance company arbitrarily fails to pay benefits. As noted above, however, the ERISA civil enforcement provisions do not allow punitive damages for the arbitrary failure to pay employee welfare benefits, and attorney's fees in such actions are discretionary not mandatory. Thus, a concern in resolving the issue in the present case is whether La.R.S. 22:657 is a law which "regulates insurance" within the meaning of the savings clause such that the provision is not preempted by ERISA.
In interpreting the pre-emption clauses of ERISA, we have the benefit of two United States Supreme Court cases which clarify...
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In re Managed Care Litigation
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Hollaway v. UNUM Life Ins. Co. of America, 98,120.
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