ERISA • Employment Law

Plan Sponsor’s Contractual Dispute with Insurance Carrier Subject to ERISA Preemption

21 Nov 2016

The United States District Court for the Eastern District of Pennsylvania recently issued an opinion holding that a contractual dispute between a health plan sponsor and the insurance carrier that it contracted with to provide health benefits to its employees was subject to ERISA preemption. See Shore v. Independence Blue Cross, Case No. 16-5224, 2016 U.S. Dist. LEXIS 160585 (E.D. Pa. November 18, 2016). A copy of the opinion may be downloaded here.

The Shore plaintiff is a law firm that sponsored a group health plan (“the Plan”) for the benefit of its employees. As such, the Plan is governed by ERISA. Plaintiff entered into a contractual relationship with Independence Blue Cross (“IBC”) to serve as the Plan’s insurer and claim fiduciary. Plaintiff contended that IBC violated their contract by accidentally denying coverage for some claims that it was obligated to pay per the terms of the Plan. IBC subsequently offered in writing to freeze Plaintiff’s premium rates for 16 months as compensation for its prior mistake. Plaintiff accepted Defendant’s rate freeze offer. IBC later advised Plaintiff that it would not honor the premium freeze agreement because it had a mistake.

Plaintiff sued IBC in state court for common law fraud, breach of contract, statutory bad faith, promissory estoppel, breach of fiduciary duty, and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. IBC responded by removing the action to federal court and moving to dismiss it by claiming that ERISA preempted Plaintiff’s state law claims. Plaintiff then moved to remand the action to the Court of Common Pleas.

The Court held that ERISA completely preempted Plaintiff’s state law claims. It stated:

A claim is preempted where (1) it could have been brought under ERISA’s Section 502(a) (see 29 U.S.C. § 1132), and (2) it alleges breach of a legal duty that is not independent of the ERISA plan. Pascack Valley Hosp. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 398 (3d Cir. 2004), as amended (Dec. 23, 2004). Applying this test, I find that the rate freeze agreement at issue here cannot be evaluated without an understanding of the underlying plan. Furthermore, because Plaintiff’s claims could have been brought under ERISA, and because they rest on a legal duty dependent upon the existence of an ERISA plan, they are necessarily preempted by federal law.

Shore, 2016 U.S. Dist. LEXIS at 4. The Court reasoned that Plaintiff was suing to enforce a “plan benefit” – the rate freeze – and, thus, the claim could have been brought under ERISA Section 502(a)(3), 29 U.S.C. 1132(a)(3). Plaintiff’s claims were not independent of the existence of an ERISA plan because they were dependent upon the existence of the Plan. Thus, the motion to remand the matter to state court was denied, some of Plaintiff’s state law claims were dismissed outright, and several other claims were reformed as claims for equitable relief under ERISA Section 502(a)(3). Plaintiff was also granted leave to amend its complaint to further conform its claims to ERISA.

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