In two recent decisions, judges of the U.S. District Court for the Northern District of California have brought clarity to the doctrine of ERISA preemption expanding the legal recourses available to ERISA policyholders. In both Kresich v. Metro. Life Ins. Co, 2016 U.S. Dist. LEXIS 45503, and Daie v. Reed Group Ltd., 2015 U.S. Dist. LEXIS 152607, District Judges MariaElena James and William Alsup ruled that state intentional tort causes of action are not preempted by ERISA in some circumstances. These decisions upset the longstanding position held by many insurers that ERISA preemption immunizes them from all state law claims, regardless of the facts alleged. The rulings in Kresich and Daie are potentially devastating for insurers that have engaged in conduct beyond the unfair claims denials standards typical in bad faith cases. Extreme and outrageous conduct has become increasingly common among insurers based on the belief that they are completely insulated from intentional tort actions in ERISA governed claims.
In 1974, Congress enacted the Employee Retirement Income Security Act to provide a uniform regulatory regime for employee benefit plans. The legislation was initially lauded for simplifying the administration of multistate employee insurance plans. Then, in Pilot Life v. Dedeaux, 481 U.S. 41 (1987), the U.S. Supreme Court ruled that ERISA not only sets uniform claim standards, but also preempts state laws enacted to regulate the business of insurance. The Pilot Life decision insulated insurers from bad faith lawsuits seeking compensatory or punitive damages. Insurers also became immune from state law claims prohibiting behavior such as conducting biased claim investigations, misrepresenting policy provisions and engaging in unfair claim denials. As a result of Pilot Life, many insurers began shamelessly engaging in extreme and outrageous behavior toward claimants for the purpose of deterring their claims and intimidating them into submission.
In ERISA litigation, the odds are already stacked in favor of insurance carriers. Plaintiffs do not have the right to a jury trial, the right to obtain external discovery, or the right to seek exemplary damages. ERISA preemption gave insurers a monetary incentive to engage in tactics that would otherwise be prohibited under state insurance laws.
The Kresich case exemplifies the horrors that can result from an industry unchecked by tort liability. Plaintiff, a seniorlevel corporate executive, began suffering from degenerative spinal conditions that clearly disabled him from working in his occupation. Accordingly, he filed an ERISA claim with his employer’s insurance provider, MetLife. The plaintiff alleges that MetLife responded with a campaign of harassing conduct in an effort to cause him emotional distress and to force him to abandon his claim. MetLife refused to approve, deny or give plaintiff an update on the status of his claim for more than 19 months without any explanation. During that time, the plaintiff was without income or insurance benefits and could not support his family. He began liquidating his assets and retirement savings in an attempt to make ends meet.
In his complaint, the plaintiff contends that MetLife was well aware that he was suffering from severe anxiety and clinical depression. He became distraught by MetLife’s unethical behavior and spiraled into a nearly permanent depressed state. In late 2015, he suffered three transient ischemic attacks tied to anxiety. For the last of these episodes, the plaintiff was hospitalized and informed that he will most likely suffer a major stroke within the next year. Defendant MetLife was informed of the plaintiff’s declining health, yet it still refused to speak with him or his attorneys about the claim. Without having been denied disability benefits, the plaintiff had no available recourse under ERISA. The plaintiff filed an action for intentional infliction of emotional distress against MetLife. The insurer quickly responded with a motion for judgment on the pleadings, citing ERISA preemption of the state law claim.
Insurers like MetLife have been emboldened by the judiciary’s often broad interpretations of ERISA preemption since Pilot Life. In the view of many insurers, any state law claim is preempted if a complaint even mentions an ERISA plan or ERISA claim handling in passing. This permits insurers to routinely evade tort liability for conduct that would be seen as tortious, fraudulent or oppressive in any other context.
On April 4, District Judge MariaElena ruled that the plaintiff’s emotional distress claim is not preempted by ERISA. Following the 9th U.S. Circuit of Appeals opinion in Dishman v. Unum Life Ins. Co. of America,
269 F.3d 974 (2002) and Daie, she held that the purpose of ERISA “was not to provide [claim administrators] with blanket immunity from garden variety torts which only peripherally impact daily plan administration.” The fact that alleged conduct occurred during the course of ERISA claim administration does not automatically mean that a tort claim is preempted. Instead, courts must look deeper at the legal duties being implicated by a plaintiff’s claim. The true question underlying preemption is whether a plaintiff’s claim relies on a legal duty that arises independently of ERISA, which would exist whether or not an ERISA plan existed.
All individuals have a general duty not to engage in tortious conduct, whether that be assault, battery or intentional infliction of emotional distress. Therefore, District Judges James and Alsup reason that plaintiffs have a legal right to assert an emotional distress cause of action if the claim arises from ERISA plan administration or not. The existence of an ERISA plan is inconsequential to the underlying question of tort liability.
While Daie and Kresich both concern intentional infliction of emotional distress causes of action, the principles underlying the decisions should apply equally to all intentional tort claims. If courts begin holding insurers accountable for tortious conduct in the ERISA context, we may see a paradigm shift toward the fair treatment of all insurance claimants, whether their claims arise under an ERISA plan or not. For now, the Daie and Kresich opinions make it clear that ERISA insurers do not have absolute tort immunity in the Northern District. The decisions are far from being an extension of tort liability. Rather, they have clarified the existing, but often confusing, framework of ERISA preemption rules already established in the 9th Circuit.