In this several-part blog series titled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health, accidental death and dismemberment & disability claim, from navigating a claim to handling a claim denial, through the subsequent appeal and litigation. In Part Sixteen of this series, we discuss ERISA’s preemption of state insurance law. Because ERISA is federal law, it can preempt state law. However, ERISA does not preempt all aspects of state insurance law, and someone involved with a disputed ERISA claim must be aware of which areas of law apply in which context.
Section 514(a) of ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). Because of the breadth of this language, the Supreme Court has attempted to create practical limits on the breadth of ERISA’s preemption by holding that a law “relates to” an employee benefit plan “if it has a connection with or reference to such a plan.” NY State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995) (internal quotation marks omitted). This has resulted in a two-prong test to determine whether a law is preempted. “To determine whether a law has a forbidden ‘reference to’ ERISA plans, we ask whether (1) the law ‘acts immediately and exclusively upon ERISA plans,’ or (2) ‘the existence of ERISA plans is essential to the law’s operation.’” Golden Gate Rest. Ass’n v. City & Cnty. of San Francisco, 546 F.3d 639, 657 (9th Cir. 2008).
To better understand this test, it helps to look at examples of the interaction between State law and ERISA. One example of potential preemption involves disputes when the designated beneficiary under a life insurance policy is someone other than the decedent’s spouse. One example of such a dispute is Orr v. Prudential Insurance Co. of America, 2012 WL 2122157 (D. Idaho June 12, 2012). The court in that matter concluded that the benefits from a life insurance policy acquired through an ERISA plan must be paid to the beneficiary listed in the plan records, irrespective of a state’s community property laws. Relying on the United States Supreme Court’s decision in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the Orr court held: “In accordance with Egelhoff, the Court finds that ERISA preempts Idaho community property laws when such laws require an ERISA plan administrator to pay ERISA life insurance proceeds to someone other than the designated beneficiary.” Orr, 2012 WL 2122157 at *2. The Orr court concluded that application of Idaho’s community property laws in that context would violate the rule that an ERISA plan must be administered pursuant to the plan documents. The Ninth Circuit Court of Appeal has reached a similar conclusion. See Metropolitan Life Ins. Co. v. Buechler, 19 F.App’x 678, 679-80 (9th Cir. 2001); Carmona v. Carmona, 603 F.3d 1041, 1062 (9th Cir. 2010). State community property laws cannot compel a plan to give a life insurance benefit to anyone other than the designated beneficiary under the plan. ERISA preempts the laws of the states in that context.
Another example of potential preemption is the standard of review. The standard of review is often controlled by a clause in an insurance contract and establishes the burden of proof that a claimant must meet in order to convince the court to grant them the benefits that an insurer/plan previously denied them. A court can examine the denial of benefits under the de novo standard of review (i.e., reach its own conclusion without deference to the insurer’s position) or review the claim for an abuse of discretion, which is a much stricter standard of review that favors claim denials. Many states, such as California, have laws that prevent insurance companies from selling disability and medical insurance policies containing abuse of discretion clauses. However, does this state law apply to disability and medical insurance provided through employer benefit plans? The Ninth Circuit has ruled that it does. See Orzechowsky v. The Boeing Company Non-Union Long-Term Disability Plan, Plan Number 625, an ERISA Plan, 856 F.3d 686 (9th Cir. 2017). In Orzechowsky, the Ninth Circuit addressed California’s law that eliminates abuse of discretion clauses from medical and disability insurance contracts. The Ninth Circuit explained that ERISA “has a saving clause that saves from preemption ‘any law of any State which regulates insurance, banking, or securities.’” Id. at 692. The Ninth Circuit concluded that the California law regulated “entities engaged in insurance,” but the law also addressed the scope of permissible insurance contracts in the state, as opposed to relationships between ERISA plans and their participants. See id. at 692-95. Consequently, the Ninth Circuit held that medical and disability insurance contracts provided via ERISA plans in the State of California are governed by the de novo standard of review.
ERISA preempts a wide variety of state laws. Whereas most substantive claims will be preempted, some aspects of state law are still relevant for an ERISA claim. Ultimately, the interchange between state and federal law is very complicated and this blog only provided a very basic overview of this topic. The complicated nature of these claims is why working with attorneys who are experts in these matters is critical when attempting to resolve an ERISA dispute. Please contact an experienced California ERISA attorney, such as the attorneys at the McKennon Law Group PC, if you require assistance with your ERISA claim denial, appeal or litigation.