ERISA Pre-Emption of Bad Faith Claims
Wyoming Bad Faith Claims Against Employee Benefit Plans are Pre-empted by ERISA
by Michael Commins, Paralegal and Sara E. Van Genderen, Esq.
In the case of Moffett v. Halliburton Energy Services, Inc., 291 F. 3d 1227 (10th Cir. 2002), the Tenth Circuit Court of Appeals upheld a decision by the U. S. District Court for the District of Wyoming that in Wyoming, claims for bad faith against employer-sponsored benefit plans are pre-empted by ERISA (Employee Retirement Income Security Act, 29 U.S.C. §§ 1001, et. seq.).
The plaintiff, Douglas Moffett, sued Halliburton, which had been his employer before his disability. He also sued Halliburton’s designated plan administrator and Hartford Life and Accident Insurance Company, which provided insurance under Moffett’s plan. Moffett’s complaint included, inter alia, claims against Hartford for “the tort of insurance bad faith” and for breach of the statutory duty to accept or reject insurance claims under W.S. § 26-15-124. The court held the claims against Hartford were properly dismissed because ERISA comprehensively regulates employee benefit plans that, through the purchase of insurance, provide medical care. To facilitate ERISA’s comprehensive regulation, Congress enacted a preemption clause which preempts any state law relating to any employee benefit plan. ERISA does contain exceptions to the preemption clause; however, ERISA preemption is deliberately expansive. ERISA’s saving clause excepts state laws that regulate insurance.
Moffett argued that Wyoming’s bad faith law regulated insurance so as to escape ERISA’s preemption clause. Moffett’s argument relied on the case of Unum Life Ins. Co. v. Ward, 526 U.S. 358 (1999), in which the United States Supreme Court explained that to regulate insurance, a law must home in on the insurance industry, not just have in impact on it. Unum involved California’s notice-prejudice rule. The notice-prejudice rule stated that an insurer must prove prejudice from an insured’s failure to give timely notice of a claim in order to enforce its proof-of-claim requirements. The Supreme Court held that California’s notice-prejudice rule did specifically regulate insurance and was therefore not preempted by ERISA . The Moffett court, in applying the guidelines set forth in Unum, found that bad faith law in Wyoming does not regulate insurance such that it falls within the ERISA saving clause. Moffett’s claim for bad faith against Hartford, the insurance provider in Moffett’s employee benefit plan, was therefore pre-empted by ERISA.
This article was first published in Wyoming Lawyer, the official publication of the Wyoming State Bar Association.