This court does not agree that Plaintiff’s negligence cause of action nor his bad faith cause of action is directed specifically towards entities engaged in insurance. With regard to the bad faith claim in particular, all contracts—not just those pertaining to insurance—in South Carolina contain an implied covenant of good faith and fair dealing, the breach of which can give rise to a common law cause of action. Adams v. G.J. Creel & Sons, 465 S.E.2d 84, 85 (S.C. 1995).
Finally, this court does not find persuasive Plaintiff’s argument that his causes of action, because they “tell [insurers and insureds] what bargains are acceptable,” (ECF No.16 at 11), “substantially” affect the risk pooling arrangement between the insurer and insured. Kentucky Ass’n of Health Plans, Inc., 538 U.S. at 342.Hendrix v. Res. Real Estate Mgmt., Inc., No. 3:15-CV-01173-JMC, 2016 WL 1045739, at *8 (D.S.C. Mar. 16, 2016)
This case presented a dispute over denied benefits provided under a group insurance policy. The plaintiff filed several state law claims and marshaled various theories in an attempt to avoid ERISA preemption.
Savings clause argument (29 U.S.C. § 1144(b)(2)(A))
Plaintiff argued that his state law causes of action for bad faith, attorneys’ fees, and negligence and recklessness survived ERISA preemption under the savings clause as applied in Unum Life Insurance Co. of America v. Ward, 526 U.S. 358 (1999). (The Unum cased involved California’s notice-prejudice rule, under which insurer must show that it was prejudiced by untimely proof of claim before it can avoid liability.)
. . . rejected by the Court
Plaintiff’s state law causes of action, even if one could find that they “regulate insurance,” do not survive ERISA preemption under Unum Life Insurance Co. of America v. Ward, 526 U.S. 358 (1999). See Aetna Health Inc. v. Davila, Aetna health Inc., 542 U.S. 200, 208 (2004) (“Under ordinary principles of conflict pre-emption…even a state law that can arguably be characterized as ‘regulating insurance’ will be preempted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA’s remedial scheme.”).
And neither are Plaintiff’s claims saved from ERISA preemption under Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003). This is because this court is not persuaded by Plaintiff’s argument that from a “common sense view,” the laws from which his state causes of action spring regulate insurance and substantially affect risk pooling.
Fraudulent procurement argument
The Plaintiff also argued that his bad faith failure to pay, negligence and recklessness, and liability for attorneys’ fees should not be preempted by ERISA because of fraudulent procurement, citing Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1469 (4th Cir. 1996).
The Court rejected this argument as well.
Because all of Plaintiff’s causes of action seek benefits—not insurance—under the plan, this court furthermore does not accept Plaintiff’s argument that ERISA preemption is not appropriate here because some of the state law claims involve “fraudulent act[s] in the procurement of an insurance policy.”
Regulatory exception argument
In cases of limited employer involvement, an insurance arrangement may be excluded from ERISA. The Plaintiff argued this position, but since the employer paid the premiums and showed other involvement, the Court held the exceptions inapplicable.
29 C.F.R. § 2510.3-1(j) does not shield Plaintiff’s claims from ERISA coverage here because he does not satisfy all of the regulatory conditions, as he is required to do so for these exceptions to apply. See, e.g., Hansen v. Continental Ins. Co., 940 F.2d 971 (5th Cir. 1991) (“Group insurance plans which meet each of these [29 C.F.R. § 2510.3-1(j)] criteria are excluded from ERISA coverage.”); Vazquez v. Paul Revere Life Ins. Co., 289 F. Supp. 2d 727 (E.D. Va. 2001).
In sum, this court concludes that ERISA governs Plaintiff’s claims here and furthermore preempts them. Removal therefore was proper.
Note: The Court applied the Fourth Circuit test for preemption stated in Sonoco Prod. Co. v. Physicians Health Plan, Inc., 338 F.3d 366, 372 (4th Cir. 2003):
(1) the plaintiff must have standing under [ERISA] § 502(a) to pursue its claim; (2) its claim must fall[ ] within the scope of an ERISA provision that [it] can enforce via § 502(a); and (3) the claim must not be capable of resolution without an interpretation of the contract governed by federal law, i.e., an ERISA-governed employee benefit plan.