Goodrich v. General Telephone Co. of California

• Decision Date: 22 September 1987
• Citation: 208 Cal.App.3d 505,241 Cal.Rptr. 640
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 208 Cal.App.3d 505 208 Cal.App.3d 505 James C. GOODRICH, Plaintiff and Appellant, v. GENERAL TELEPHONE COMPANY OF CALIFORNIA, a Corporation, et al., Defendants and Respondents. B020532.

Page 640

241 Cal.Rptr. 640

Previously published at 208 Cal.App.3d 505

208 Cal.App.3d 505

James C. GOODRICH, Plaintiff and Appellant, v. GENERAL TELEPHONE COMPANY OF CALIFORNIA, a Corporation, et al., Defendants and Respondents.

B020532.

Court of Appeal, Second District, Division 7, California.

Sept. 22, 1987.

As Modified on Denial of Rehearing

Oct. 21, 1987.

Review Granted Dec. 23, 1987.

McAlpin, Doonan & Seese and Daniel G. McMeekin, Covina, for plaintiff and appellant.

H. Ralph Snyder, Jr., Richard E. Potter, Thousand Oaks, Lawrence A. Valdivieso, Ventura, Robert H. Wyman, Thousand Oaks, Roberto N. Herrera, Oxnard, and Mark F. Sullivan, Westlake Village, for defendants and respondents.

JOHNSON, Associate Justice.

The question presented is whether ERISA precludes the courts of this state from awarding damages to a disabled employee for his employer's bad faith delay in processing his claim for benefits under the employer's long term disability insurance plan. In summary we hold:

I. There is no cause of action under ERISA that could be brought in state court for damages to Mr. Goodrich for the delay in processing his claims for benefits.

II. The common law causes of action against General Telephone for breach of the covenant of good faith and fair dealing and intentional interference with a protected property interest "relate to" an employee benefit plan but are not laws which "regulate insurance" and, therefore, are preempted by ERISA.

III. Mr. Goodrich may be able to amend his complaint to state a cause of action under Insurance Code section 790.03 subdivision (h)--a law which does "regulate insurance"--therefore the trial court erred in granting judgment on the pleadings without leave to amend. ¹

FACTS AND PROCEEDINGS BELOW

James C. Goodrich filed an action in superior court against The Travelers Insurance Company and his employer, General Telephone Company, for damages resulting from delays in processing his claim for disability benefits under a policy issued by Travelers to employees of General Telephone. The parties agree the disability insurance program is an employee benefit plan covered by Title I of the Employee Retirement Income Security Act of 1974, (ERISA), 29 U.S.C. 1001, et seq.

The complaint alleged causes of action against Travelers and General Telephone for breach of the covenant of good faith and fair dealing and intentional interference with a protected property interest. The claim against General Telephone was based on allegations it was Travelers' agent for purposes of processing and submitting the proper claim forms for disability benefits and, despite its knowledge Goodrich had a valid claim, General Telephone failed to submit the proper forms or take other necessary steps to obtain the benefits for which Goodrich was eligible.

Goodrich concedes he eventually received his benefits. Thus, his claim is not for benefits due under an employee benefit plan but for damages suffered from a delay in processing his claim.

The trial court granted General Telephone's motion for judgment on the pleadings on the ground Goodrich's causes of action were preempted by ERISA. As we explain more fully below, the trial court correctly determined the complaint failed to

state a cause of action over which the state courts have jurisdiction but incorrectly denied Goodrich the opportunity to amend to state a cause of action, if he can, under Insurance Code section 790.03.

DISCUSSION

I. THERE IS NO CAUSE OF ACTION UNDER ERISA THAT COULD BE BROUGHT IN STATE COURT FOR DAMAGES CAUSED BY THE DELAY IN PROCESSING A CLAIM FOR BENEFITS

The role of state courts in enforcement of ERISA is a limited one. Although ERISA provides employees numerous grounds for civil actions, the only ones cognizable in state courts are actions to recover benefits due, enforce rights or clarify rights "under the terms of the plan." (29 U.S.C. 1132(a)(1)(B), 1132(e)(1).) (Johnson v. Trans World Airlines, Inc. (1983) 149 Cal.App.3d 518, 530, 196 Cal.Rptr. 896.) The complaint in this case cannot be construed as an action to recover benefits due because it is admitted Mr. Goodrich has received the benefits to which he was entitled. Nor can the action be characterized as one to "enforce ... rights under the terms of the plan." (Sec. 1132(a)(1)(B).) The duty to avoid unreasonable delay in paying benefits does not, generally speaking, arise under the terms of the plan. ² It arises from the common law obligation to deal fairly and in good faith and from Insurance Code section 790.03 subdivision (h). (See Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658, 328 P.2d 198; Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 884, 153 Cal. Rptr. 842, 592 P.2d 329.)

While ERISA may provide a cause of action for improper processing of a claim for benefits, ³ that claim does not arise under 29 U.S.C. 1132(a)(1)(B) and, therefore, cannot be brought in a state court.

II. CALIFORNIA COMMON LAW CAUSES OF ACTION FOR BAD FAITH AND INTERFERENCE WITH PROTECTED PROPERTY INTERESTS ARE NOT LAWS WHICH "REGULATE INSURANCE" AND, THEREFORE, ARE PREEMPTED BY ERISA

The scope of ERISA's preemption of state law is delineated in three subsections of the statute. ERISA begins with the broad statement its provisions "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).) This sweeping language is modified by a "savings clause" which provides ERISA shall not be "construed to exempt or relieve any person from any law of any State which regulates insurance...." (29 U.S.C. § 1144(b)(2)(A).) The "savings clause" is in turn limited by the so-called "deemer clause." It provides no employee benefit 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...." (29 U.S.C. § 1144(b)(2)(B).)

To summarize: a state law is preempted if it "relate[s] to" an employee benefit plan unless it is a state law which "regulates insurance." However, a state cannot "deem" an employee benefit plan to be an insurer in order to regulate the plan under state laws regulating insurance companies.

The United States Supreme Court has interpreted the preemption provision and the exceptions quoted above. The Court has described the ERISA preemption provision as "deliberately expansive" (Pilot Life Ins. Co. v. Dedeaux, supra, 107 S.Ct. at p. 1552) and "intended to displace all state The Court has taken what it describes as a "common sense view" of the exception for laws which regulate insurance. (Metropolitan Life Ins. Co., supra, 471 U.S. at p. 740, 105 S.Ct. at p. 2390.) In Metropolitan Life Ins. Co., the court held a state law which "obvious[ly] ... regulates the terms of certain insurance contracts ... to be saved from preemption by the savings clause as a law 'which regulates insurance.' " (Ibid.) As we discuss below, the Court expanded on the meaning of laws which regulate insurance in Pilot Life Ins. Co. v. Dedeaux, supra.

                laws that fall within its sphere...."  (Metropolitan Life Ins. Co. v. Massachusetts (1985) 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728.)   The phrase "relate to" has been given a broad meaning such that a state law "relates to" a benefit plan "if it has a connection with or reference to such a plan."  (Shaw v. Delta Air Lines, Inc.  (1983) 463 U.S. 85, 97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490.)
                

Finally, the Court has interpreted the "deemer clause" as aimed solely at preventing states from regulating employee benefit plans, which they are prohibited from doing under section 1144(a), by "deeming" the plans' insurers in order to take advantage of the exception from preemption for laws regulating insurance companies. (Metropolitan Life Ins. Co. v. Massachusetts, supra, 471 U.S. at pp. 740- 741, 105 S.Ct. at pp. 2389-2390; Pilot Life Ins. Co. v. Dedeaux, supra, 107 S.Ct. at p. 1552.)

There is no dispute that the common law causes of action alleged in Goodrich's complaint "relate to" an employee benefit plan and therefore fall within ERISA's broad preemption clause. (Cf. Pilot Life Ins. Co., supra, 107 S.Ct. at p. 1553.)

Goodrich contends his common law causes of action are saved by the exception to preemption which spares laws regulating insurance. (29 U.S.C. 1144(b)(2)(A).) In light of the Supreme Court's decision in Pilot Life Ins. Co. v. Dedeaux, supra, we must reject Goodrich's interpretation of the insurance savings clause.

The facts in Pilot Life are much like those in the case at bar. Dedeaux's employer had a long term disability plan which it established by purchasing a group insurance policy from Pilot Life. The employer provided forms to its employees for processing disability claims and forwarded completed forms to Pilot Life which bore the responsibility of determining who would receive disability benefits. Dedeaux submitted a claim and began receiving disability benefits. However, after two years Pilot Life terminated Dedeaux's benefits and in the ensuing three years reinstated and terminated his benefits several times. (Pilot Life Ins. Co. v. Dedeaux, supra, 107 S.Ct. at p. 1551.)

Dedeaux brought suit against Pilot Life in federal court seeking damages for failure to pay benefits under the insurance policy. The suit was based on tort and breach of contract claims arising under Mississippi common law. (107 S.Ct. at p. 1551.) The district court granted Pilot Life's motion for summary judgment on the ground all of Dedeaux's claims were preempted by ERISA. The Court of Appeals reversed. When the case reached the Supreme Court on certiorari Dedeaux claimed only one of his causes of action-- the cause of action for "bad faith"--was protected from preemption. Dedeaux argued the cause of action for "bad faith," as developed by Mississippi case law, ⁴ is a law which "regulates insurance" and,...