Pre-Emption Under ERISA - Can You File a Lawsuit in State Court or Does it Have to be Federal Court?

What is Pre-Emption?

Pre-emption is basically when a federal law overrides and trumps a state law.  In the context of the Employee Retirement Income Security Act of 1974 (ERISA), pre-emption basically means that if you file a lawsuit that falls within the purview of ERISA, then it has to be filed in federal court instead of state court.  If the lawsuit is filed in state court and the claims fall within the purview of ERISA, then most likely the Defendant in that lawsuit (most ERISA Defendants are insurance companies) will file a motion to "remove" the lawsuit from state court and put it in its proper place of federal court.  

Most Plaintiffs in ERISA lawsuits are people who have had their insurance benefits or claim denied for an insurance benefit that was part of an employee benefit package.  Most plaintiffs would ideally like their claim for insurance claim denials to be brought in state court.  This is because state laws, especially Ohio (where the attorneys at Harris & Engler practice), are much more favorable to individuals than federal law.  In Ohio, state law for insurance policies requires that anytime there is a confusing or ambiguous provision in the insurance policy, then it has to be interpreted in favor of the insured (and against the drafter).  This makes it a lot easier for folks who have had their insurance claims denied to win a lawsuit against the insurance company.

This is contrasted to the federal ERISA law, which through the years of various important federal court decisions has come to be very much in favor of insurance companies.  Whereas under state law when there is an ambiguous term in an insurance policy, and the insurance company denies your claim based on that confusing term, the person has a good shot of beating the insurance company in court.  In federal court, under ERISA, all the insurance company has to do is do their best to enforce the terms of the insurance policy in a non-arbitrary and capricious way.  The dictionary defines "capricious" as "given to sudden and unaccountable changes of mood or behavior," so naturally this is not very favorable to ERISA plaintiffs.  That's why ideally, most folks would rather try their insurance denial cases in state court rather than federal court.  However, if it is an employee benefit related insurance denial then it's got to be tried in federal court.  Despite ERISA's favorable interpretation for insurance companies, Evan T. Engler, the ERISA attorney at Harris & Engler, has had much success and obtained favorable results for his clients in bringing Plaintiff side federal ERISA cases.

What Kind of Cases Have To Be Brought In Federal Court Under ERISA?

Pursuant to 29 U.S.C. 1144(a), ERISA pre-empts all state laws that "relate to" employee benefit plans.  ERISA defines an "employee welfare benefit plan" as follows, in pertinent part:

"Any plan fund, or program ... established or maintained by an employer or by an employee organization ... for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeships or other training programs, or day care centers, scholarship funds, or prepaid legal services[.]"

29 U.S.C. 1002(1).  Employee welfare benefit plans cover generally all employee benefits (except for government workers and other certain exceptions).  Most of the time ERISA lawsuits are brought for wrongful denial of medical, disability, or life insurance benefits.  

The ERISA pre-emption clause is laid out in 29 U.S.C. 1144(a), and the exceptions to that clause are laid out in what are referred to as the "savings clause" and "deemer clause."  

The pre-emption clause provides, in pertinent part:  "The provisions of [ERISA] shall supercede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan[.]"  29 U.S.C. 1144(a).

The savings clause provides in part, as follows: "[n]othing in this chapter shall be construed to exempt or relieve any person from any law of any state which regulates insurance, banking, or securities."  29 U.S.C. 1144(b)(2)(A).  The savings clause basically says that if there is a state law that regulates insurance, banking, or securites, then ERISA does not trump those specific laws. 

The deemer clause in 29 U.S.C. 1144(b)(2)(B) basically says that an employee benefit plan or a trust established under an employee benefit plan shall not be deemed to be an insurer, bank, trust company, or investment company nor shall be considered to be in the business of banking or insurance under state law.  

What Does All of This ERISA Pre-Emption Mean?

ERISA pre-emption basically boils down to this: when you've had an insurance claim denied, does state law apply or federal law?  If you're a person and not an insurance company, then you probably want state law to apply.  However, most of the time that health insurance, disability insurance, and life insurance claims are denied then it is governed under federal ERISA law.  If your claim was denied under federal ERISA law and you live in Ohio, then you can give attorney Evan T. Engler, partner at Harris & Engler, a call at (614) 610-9988 to discuss your case.

Why Life Insurance Claims Get Denied - Conversion, Beneficiary Designation, and Policy Cancellation Issues

Life insurance claims can get denied for a number of reasons.  In Ohio, some of the most litigated reasons why life insurance claims get denied include (a) failure to properly convert the life insurance policy from employer provided to individual; (b) disputes over who is the proper beneficiary; (c) improper notification by the insurance company of termination or cancellation of the policy; or (d) disputes about the amount that is properly payable under the life insurance policy.

The law firm of Harris & Engler is located in Columbus, Ohio, and its attorneys help individuals who are listed as beneficiaries of life insurance policies fight for their right to the insurance proceeds.  Many people initially sign up for life insurance policies through their employer.  These life insurance policies are governed by a federal law known as the Employee Retirement Income Security Act of 1974 (ERISA).  For these life insurance policies, if something goes wrong and the beneficiary of the policy needs to go to court in order to force the insurance company to pay out the insurance proceeds, then the beneficiary has to take the insurance company to federal court.  For almost all other life insurance policies that were purchased individually, then those policies are governed under state law.  The attorneys at Harris & Engler only practice in Ohio, and accordingly, can only help those individuals who live in Ohio or where the insurance company that denied the proceeds is located in Ohio.  You can talk to an attorney at Harris & Engler about your life insurance claim by calling (614) 610-9988.

Failure to Properly Convert Life Insurance Policy

Most individuals originally sign up for life insurance through an employee benefit plan provided by their employer.  If that individual ever gets fired, retires, or changes jobs from the original employer with whom they signed up for the policy, then they have a certain period of time to convert the policy from a group life insurance policy to an individual policy.  In Ohio district courts, one of the most popular reasons why life insurance proceeds are denied to the beneficiary is where the insurance company claims that the individual did not convert their policy to be an individual policy within the applicable time limits after they left their place of employment.  

Because the application of law is different depending on whether the life insurance policy was provided as part of an employee benefit plan (where the federal ERISA law applies) or whether it is an individual life insurance plan (where state law applies), it is actually more advantageous to have state law apply and accordingly convert the policy to an individual policy.  This is because ERISA is notoriously favorable to insurance companies and it usually applies an Arbitrary and Capricious standard of review where the Court will simply look at whether the insurance company made an arbitrary or capricious decision in denying life insurance benefits.  Only if it was an arbitrary or capricious decision on the part of the insurance company will the Court be able to award the beneficiary the life insurance proceeds.  Under Ohio state law, the application of the law is much more favorable to individuals than under the federal law.  Under Ohio law, the courts will simply look to the insurance policy itself and look at what has been done and then award life insurance proceeds appropriately.  

Disputes Over the Proper Beneficiary for Life Insurance Proceeds

Lawsuits will also be filed against insurance companies for failure to properly pay over life insurance proceeds when there is a dispute about who is the proper beneficiary.  These cases often involve the case of the policy holder switching over the beneficiary at the last minute and failing to notify the previous beneficiary.  In case of a last minute change of beneficiary, sometimes the previous beneficiary will file a lawsuit against the insurance company in order to seek a declaratory judgment that they are the proper beneficiary.  A last minute change of beneficiary can be especially suspect if the beneficiary was changed from the policy holder's child or spouse to, for example, a caretaker who was providing medical care for the individual at the end of their life.  

Another reason there may be a dispute over the proper beneficiary is if the policyholder gets a divorce and remarries but never changed the beneficiary in their life insurance policy.  Usually in these types of cases where it is clear that either one person or the other is the proper beneficiary, then once a lawsuit is filed the insurance company will pay over the life insurance proceeds and deposit them with the Court and then let the Judge decide who the proper beneficiary is.

Improper Notication of Termination or Cancellation of Policy

Improper Notification that the life insurance policy is being terminated is similarly tied to failure to properly convert the policy from an employer provided group policy to an individual policy.  As a practical matter, if an individual is working, and then gets sick and has to take off work and uses whatever disability benefits are available, eventually if they are unable to return to work then they will get terminated from their employment.  Leaving employment is a trigger point for having to convert the life insurance policy to an individual policy.  If someone is sick and has been unable to work for some time, then having money to pay the premium is usually an issue.  However, if the insurance company never properly provided notice that the life insurance policy was going to be cancelled or terminated, or notice that the individual had the right to convert the policy, then that individual may still have a right to those life insurance benefits.  One of the fundamental obligations of a life insurance policy administrator is to provide notice about potential cancellation of the policy and obligations with regard to conversion of the policy.  See Vasu v. Am. United Life Ins. Co. (N.D. Ohio, 2017).  

Disputes Over the Proper Amount Owed Pursuant to a Life Insurance Policy

Another common reason lawsuits are filed against insurance companies for payment of life insurance benefits is because of a disagreement between the beneficiary and the life insurance company over the proper amount that is owed to the beneficiary.  In Brown v. United of Omaha Life Ins. Co. (S.D. Ohio, 2015), an individual signed up for life insurance with Omaha Life Insurance Company for an amount that was 3x their annual salary.  The individual went on to work at the company for a long time, and their salary increased many times of the years.  At some point, unfortunately, the individual died.  The insurance company offered to pay 3x their annual salarly at the time they signed up for the policy.  The beneficiaries argued that they were entitled to 3x the policy holder's annual salary at their time of death.  Ultimately, an insurance company has financial incentives to try to pay as little as possible on life insurance claims under the circumstances.  It is helpful for beneficiaries of a life insurance policy to have an experienced ERISA life insurance attorney look over the policy and determine what they should properly be paid.

Ohio Life Insurance Attorneys

If you are the beneficiary of a life insurance policy and you are having a dispute with the insurance company, then call an attorney at Harris & Engler who is experienced in both ERISA cases and in the state law application to life insurance policies.  You can talk to a life insurance dispute attorney today by calling (614) 610-9988.

Arbitrary and Capricious Standard of Review under ERISA - The Factors That Must be Met to Overturn ERISA Claim Denial

The Employee Retirement Income Security Act of 1974 (ERISA) provides a cause of action for employees to challenge a wrongful denial of benefits under an employee benefits plan in a federal district court.  The standard of review applied by the district court will have a profound impact on the possibility of winning the lawsuit for the employee/claimant.

A standard of review is the measure of deference the court gives to the ruling of the lower court.  In the ERISA litigation context, the standard of review determines how much credit the court has to give to the decision of the insurance plan administrator in admitting or denying a claim for benefits.

There are two different standards of review that can be applied in an ERISA case: de novo review and deferential review.  De novo review basically means that the district court judge gives no credence whatsoever to the plan administrator's decision to deny benefits.  Under de novo review, the judge looks at the administrative record and makes their own decision.  De novo review is very much preferred by employees/claimants who have been denied their insurance benefits.  However, most of the time the standard of review is deferential, and the decision of the plan administrator will only be overturned by a judge if the plan administrator's decision was arbitrary and capricious.

Firestone v. Brusch

ERISA was enacted by Congress to promote the interest of employees and their beneficiaries.  in 1989, the United States Supreme Court decided the case of Firestone v. Brusch, and this decision would end up devastating the original intended purposes of ERISA.  

The Court rules in Firestone v. Brusch that a denial of disability benefits challenged in federal court will be reviewed by the federal court under a de novo standard ... unless the insurance plan gives the insurance plan administrator discretionary authority to determine eligibility for benefits or to construct the terms of the plan.  Firestone v. Brusch, 489 U.S. 101, 115 (1989).  

Ever since the United States Supreme Court decided the case of Firestone v. Brusch in 1989, if an insurance company inserts language in their insurance policy stating that the plan administrator has absolute discretion to admit or deny a claim for benefits, then a deferential arbitrary and capricious standard of review will apply.  Ever since this decision, nearly all insurance companies insert this special language into their insurance policies in order to get the arbitrary and capricious standard of review.  However, not all insurance companies have this language and some insurance companies do not do a good enough job of putting the language in the policy to actually get the deferential arbitrary and capricious standard of review.  Some insurance companies have a short little blurb about giving plan administrators some sort of discretion in admitting or denying claims for benefits.  Insurance companies sometimes make the language ambiguous because they want employers to sign up for their insurance plans.  However, most courts will find that the language in an insurance policy has to be crystal clear and unambiguous in granting a plan administrator discretion in granting or denying insurance benefits.

6th Circuit's Modified Arbitrary and Capricious Standard

The United States Court of Appeals for the 6th Circuit (the highest level of federal court (under the U.S. Supreme Court) in Kentucky, Michigan, Ohio, and Tennessee) has somewhat of a more favorable to employee standard of deference.  In McClain v. Eaton Corp. Disability Plan (6th Cir. 2014), the court held that the decision of an insurance plan administrator is accorded extreme deference, but it will only be upheld if the decision resulted from a principled reasoning process.  

The arbitrary and capricious standard of deference is overall very bad for workers trying to get their ERISA benefits because it makes it very hard for the benefit claimants to win cases.  However, it is a step in the right direction for workers that the 6th Circuit at least requires a "deliberate sensible reasoning process ... supported by substantial evidence."  McClain v. Eaton Corp. Disability Plan (6th Cir. 2014).  

Conflict of Interest

Some courts across the country apply a modified arbitrary and capricious standard of review when there is a conflict of interest with the plan administrator.  There is usually an inherent conflict of interest with plan administrators.  The plan administrator is usually the insurance company.  Most typically, if the insurance company pays out benefits, they lose money.  If the insurance company denies claims, they save money.  When a plan administrator is saving their employer money by denying valid benefit claims, it presents a pretty serious conflict of interest.  Courts will weigh in that conflict of interest as a factor in whether and how much deference they will afford the plan administrators.

Ohio ERISA Lawsuit Attorney

If you've been denied benefits that were part of an employee benefit plan, then you should consult with an ERISA lawsuit attorney.  You can speak with an ERISA lawsuit attorney today by calling (614) 610-9988.  The law firm of Harris & Engler helps people across Ohio with ERISA related issues.   



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