Insureds obligingly pay premiums on their life, health and disability insurance policies and dutifully provide updated information upon request by their insurers, but often do not enjoy the same courtesy when they file an insurance claim.  In extreme cases, antagonistic insurers engage in a host of tactics, including appointing claims examiners who refuse to return phone calls, conducting intrusive surveillance, accusing insureds of filing false claims or inundating the insured’s employer and treating doctors with document demands—only to deny the insured’s claim.  Astonished by this treatment, many insureds wonder if they can sue them for emotional distress damages.  The short answer is yes—but there are hurdles.

California law imposes in every insurance contract a covenant of good faith and fair dealing, and a wrongful denial may be in “bad faith.”  The bad faith claim potentially allows the insured to seek emotional distress damages.  However, there may be another approach: sue the insurer for intentional infliction of emotional distress.  To succeed on such a claim, insureds must establish:  (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff’s severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct.

Policies governed by the Employee Retirement Income Security Act of 1974 (“ERISA”) present additional hurdles.  First, Section 514(a) provides that the ERISA federal statutes “supersede[s] any and all State laws insofar as they may … relate to any employee benefit plan.”  Second, ERISA does not contain a comparable statutory recourse for bad faith by an insurer.  Accordingly, insurers routinely defeat emotional distress claims and insurance bad faith claims by asserting that ERISA preempts these state law claims, as such claims directly relate to the insured’s denial of benefits.  However, a relatively unsung line of cases show that in cases where the insurer’s actions are so far removed from the claims handling function, an insured may escape ERISA preemption and seek damages typically available under California, but not federal, law.

In his recent Order, United States District Judge William Alsup ruled that ERISA does not preempt (or, in other words, defeat) an insured’s claim for intentional infliction of emotional distress in certain cases, even though the insurance policy is otherwise governed by ERISA.  Daie v. The Reed Grp., Ltd., No. C 15-03813 WHA, 2015 WL 6954915 (N.D. Cal. Nov. 10, 2015).  After Aetna denied his claim for disability benefits and appeal under an employer-sponsored plan, Plaintiff filed suit asserting only one cause of action for intentional infliction of emotional distress.  Plaintiff’s complaint alleged, among other things, that Defendants accused Plaintiff of lying about and exaggerating his condition, pressured him to take experimental medications and forced him to undergo rigorous medical examinations without considering the results.

Defendants moved to dismiss the claim based on federal preemption under ERISA.  Judge Alsup denied the motion, explaining that ERISA completely preempts a state-law only if:  (1) an individual at some point could have brought the claim under ERISA Section 502(a)(1)(B), which allows an ERISA “participant or beneficiary” to bring a civil action to recover benefits due, enforce his rights, or clarify his rights under the plan and (2) no other independent legal duty is implicated.  Here, neither prong was satisfied.  First, Plaintiff’s claim hinged on the Defendants’ harassing and oppressive conduct unrelated to the claims handling function.  Second, Defendants had a duty not to engage in tortious conduct, which was independent of the Defendants’ duties under ERISA.  Judge Alsup further noted that absent the denial of benefits, Daie would still have a claim for intentional infliction of emotional distress.

Other cases offer insight as to what type of actions by insurers may survive ERISA preemption.  One example involves an insurance company who engaged in surveillance tactics, including falsely impersonating a bank lender to obtain personal information about a plaintiff (Dishman v. Unum Life Insurance Co. of America, 269 F.3d 974 (9th Cir. 2001)).  Sarkisyan v. CIGNA Healthcare of California, Inc., 613 F. Supp. 2d 1199, 1208-09 (C.D. Cal. 2009) distinguishes what claims may, or may not be, preempted.  In Sarkisyan, CIGNA denied authorization for a liver transplant for Plaintiff’s daughter, upheld the denial, and the girl passed away days later.  The grief-stricken parents brought suit alleging several causes of action, including intentional infliction of emotional distress.  CIGNA removed the case to federal court, then filed a motion to dismiss, contending Plaintiffs’ claims were expressly preempted by ERISA.  The District Court ruled that Plaintiff’s state law claims for intentional infliction of emotional distress based on wrongful denial of coverage under their CIGNA health insurance plan related directly to CIGNA’s denial of benefits, and thus were preempted by ERISA.  However, Plaintiffs’ state law claim for intentional infliction of emotional distress based on the verbal abuse, heckling, and “lewd hand gesture” by CIGNA employees was not preempted, because the claim was based on events occurring after the coverage decision, and thus did not directly relate to the claim decision.

These cases demonstrate that where a plaintiff’s allegations of intentional infliction of emotional distress clearly implicate an independent legal duty owed by the insurer, distinct from actions directly related to the claim for benefits, ERISA preemption does not defeat the claim.  Indeed, these holdings are consistent with public policy concerns and serve as a disincentive to insurers who mistreat their insureds, or risk liability in the form of extra-contractual damages for intentional infliction of emotional distress.