:: Plaintiff’s Professional Liability Claims Against Insurance Agent Avert ERISA Preemption Defense

The Court finds that plaintiffs’ claims against Hillyer do not fall within the scope of ERISA § 502(a) because they do not implicate a relationship governed by ERISA and because their resolution does not require interpretation of an ERISA plan. The gravamen of plaintiffs’ claims against Hillyer is that Hillyer failed to procure the increase in policy limits that plaintiffs specifically requested and that he then misrepresented that the increase had taken effect when in fact it had not. . . . Similar to the plaintiffs in Perkins and Hobson, the plaintiffs here have brought run-of-the-mill state law tort claims that are only peripherally connected to an ERISA plan.

Gulf Coast Plastic Surgery v. Std. Ins. Co., 2008 U.S. Dist. LEXIS 43314, 20-21 (E.D. La. June 3, 2008)

This recent district court case illustrates an important distinction in ERISA preemption caselaw that prevents defendants in professional liability cases from turning to ERISA as an affirmative defense.

In this case, an physician sued his insurance agent alleging that the agent failed to procure an increase in coverage. The defendant removed the case to federal court, asserting ERISA preemption as an affirmative defense. The district court granted the plaintiffs’ motion to remand, stating:

Plaintiffs’ claims do not require the interpretation or administration of an ERISA plan and they do not implicate a relationship between ERISA entities. They arise from the alleged acts and omissions of an independent insurance agent whose duties toward plaintiffs are governed entirely by state law and do not require the interpretation of plaintiffs’ disability policy. Hillyer has not cited a single case in which a court has concluded that ERISA § 502(a) completely preempts claims against an independent insurance agent similar to those that plaintiffs bring here. As discussed, supra, the cases in which courts have found complete preemption have involved claims brought against ERISA entities that require interpretation of ERISA plans. Because plaintiffs’ claims against Hillyer do not implicate ERISA they do not raise a federal question. Therefore, the Court has no basis to exercise jurisdiction over this case and must remand it to state court.

Note: The district court correctly interpreted the growing body of authorities to the effect that claims against service providers should not be restated as ERISA claims under the complete preemption doctrine. The court provides an excellent overview of the sometimes confusing distinction between complete preemption and conflict preemption:

ERISA may preempt state law claims in one of two ways. See Giles v. NYLCare Health Plans, Inc., 172 F.3d 332, 336 (5th Cir. 1999) (citing McClelland v. Gronwaldt, 155 F.3d 507 (5th Cir. 1998), overruled in part on other grounds by Arana v. Ochsner Health Plan, 338 F.3d 433, 440 n.11 (5th Cir. 2003)); Cotner v. Hartford Life and Annuity Ins. Co., Civ. A. No. 3:07-CV-0487-G, 2008 WL 59174, at *3 (N.D. Tex. Jan. 4, 2008).

[#1] First, it may “occupy a particular field, resulting in complete preemption under [ERISA] § 502(a), 29 U.S.C. § 1132(a).” Giles, 172 F.3d at 336 (citing Met. Life Ins., 481 U.S. 58; McClelland, 155 F.3d at 516-17). See also Arana, 338 F.3d at 437. Even if a complaint does not refer to federal law, a federal statute that completely preempts a field effectively “‘recharacterizes’ preempted state law claims as ‘arising under’ federal law for the purposes of making removal available to the defendant.” McClelland, 155 F.3d at 516. See also Giles, 172 F.3d at 337 n.7. “[C]omplete preemption exists when a remedy falls within the scope of or is in direct conflict with ERISA § 502(a), and therefore is within the jurisdiction of federal court.” McGowin v. Man Power Int’l, Inc., 363 F.3d 556, 559 (5th Cir. 2004). [*8] ERISA § 502(a) provides several causes of action that may be brought by an ERISA plan beneficiary, participant, the Secretary of Labor, or plan administrator or fiduciary. Relevant to this case is ERISA § 502(a)(1)(B), which provides that “[a] civil action may be brought by a participant or beneficiary . . . to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). Any state cause of action that seeks the same relief as a cause of action authorized by ERISA § 502(a), “regardless of how artfully pleaded as a state action,” is completely preempted. Giles, 172 F.3d at 337. Thus, if a plan beneficiary or participant seeks to recover benefits from an ERISA plan under a state law cause of action, those claims are completely preempted and subject to removal. But only when ERISA § 502(a) completely preempts a state law claim does it raise a federal question providing a basis for removal jurisdiction. Giles, 172 F.3d at 336. See also Anderson v. Electronic Data Systems Corp., 11 F.3d 1311, 1315 (5th Cir. 1994) Other circuits are in accord. [*9] See, e.g., Danca v. Private Health Care Sys., Inc., 185 F.3d 1, 4-5 (1st Cir. 1999); Lupo v. Human Affairs Int’l, Inc., 28 F.3d 269, 272 (2d Cir. 1994); Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 355 (3d Cir. 1995); Warner v. Ford Motor Co., 46 F.3d 531, 535 (6th Cir. 1995); Jass v. Prudential Health Care Plan, 88 F.3d 1482, 1487 (7th Cir. 1996); Cotton v. Massachusetts Mutual Life Ins. Co., 402 F.3d 1267, 1281 (11th Cir. 2005).

[#2] The second form of ERISA preemption is known as “ordinary” or “conflict” preemption. It exists when ERISA provides an affirmative defense to state law claims and involves ERISA § 514(a), 29 U.S.C. § 1144(a). Giles, 172 F.3d at 337. Section 514(a) provides that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employer benefit plan.” The Fifth Circuit in Giles made clear, however, that the existence of conflict preemption under § 514 of ERISA does not, by itself, create an exception to the well-pleaded complaint rule. “‘State law claims [that] fall outside the scope of ERISA’s civil enforcement provision § 502, even if preempted by § 514(a), are still governed by the well-pleaded complaint rule and, therefore, [*10] are not removable under the complete-preemption principles established in Metropolitan Life.’” Id. (quoting Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 355 (3d Cir. 1995)). See also Franchise Tax Board, 463 U.S. at 23-27 (explaining that even though ERISA § 514(a) may preclude enforcement of a state law claim, removal of a claim that falls outside the scope of ERISA § 502(a) is inappropriate). The mere presence of conflict preemption does not raise a federal question. Instead of “transmogrifying a state cause of action into a federal one — as occurs with complete preemption — conflict preemption serves as a defense to a state action.” Giles, 172 F.3d at 337. (citing Soley v. First Nat’l Bank of Commerce, 923 F.2d 406, 407-08 (5th Cir. 1991); Rice v. Pachal, 65 F.3d 637, 639-40 (7th Cir. 1995)).

In the case at bar, the plaintiff could not identify any ERISA claim that the plaintiffs’ claims duplicated.

The Court observes at the outset that Hillyer, despite having submitted three rounds of briefs, has not identified which cause of action under ERISA § 502(a) completely preempts plaintiffs’ state law claims. Instead of explaining how plaintiffs’ claims fall within the scope of ERISA § 502(a), Hillyer’s arguments hew closely to the question of whether plaintiffs’ claims “relate to” the disability insurance plan within the meaning of ERISA § 514(a).

Thus, the case did not provide a basis for removal.

In order for a district court to exercise removal jurisdiction, complete preemption must exist. “When the doctrine of complete preemption does not apply, but the plaintiff’s state claim is arguably preempted under § 514(a), the district court, being without removal jurisdiction, cannot resolve the dispute regarding preemption.” Id. In the absence of complete preemption, the district court “lacks power to do anything other than remand to the state court where the preemption issue can be addressed and resolved.” Id. (citing Dukes, 57 F.3d at 355). When a case involves “solely arguably conflict-preempted causes of action,” remand is appropriate.

Compare – Here is another discussion of this issue from a previous post (see.:: Promises Of Coverage To Employees – What Happens When The Coverage Falls Through? (Part 1):

– Employer Versus Carrier and Broker

In a separate opinion, the district court addressed the cross claims asserted by the employer against Standard and WGA. The court applied a similar analysis to that employed in ruling on the motions against the employee.

– Insurance Consultant’s Motion To Dismiss Denied

WGA filed a motion to dismiss based upon ERISA preemption. The court’s rationale in denying the motion is aptly summarized in the following excerpt:

. . . Cubic Wafer’s cross-claims alleges that WGA owed Cubic Wafer a fiduciary duty to properly advise the Company with regard to the scope of insurance and employee benefit products and services sold by WGA. Because WGA is not an ERISA entity, see Hampers v. W.R. Grace & Co., Inc., 202 F.3d 44, 53 (1st Cir.2000) (citing Stetson v. PFL Ins. Co., 16 F.Supp.2d 28, 33 (D.Me.1998)) (explaining that the “primary ERISA entities are the employer, the plan, the plan fiduciaries, and the beneficiaries of the plan”), and because WGA played no role in administering plan benefits provided under Standard’s insurance policy, any fiduciary duty WGA allegedly owed Cubic Wafer arose, if at all, independently of the ERISA plan. The claim is therefore not sufficiently “related” to an ERISA plan to justify preemption . . .

This reasoning is correct and in accord with the authorities considering the issue. See, e.g., Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1467 (4th Cir.1996) (plaintiff’s malpractice claim against insurance professional not preempted because it does not “relate to” an employee benefit plan within the meaning of ERISA’s preemption provision)