Pilot Life Pushed ERISA’s Preemption Pendulum To The Top Of This Arc, But Didn’t Suspend The —–Law Of Gravity

Congress’ stated purpose for enacting the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 et seq. (ERISA), was to “protect…participants in employee benefit plans and their beneficiaries…by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the federal courts.” 1 Following the U.S. Supreme Court’s decision in Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987), the vast majority of lower courts have held state bad faith laws preempted by ERISA. This landmark decision removed the spectre of extracontractual damages as a remedy for bad faith conduct on the part of ERISA plan insurers, dramatically altering the remedies available to policyholders in disputes with group health and disability insurers. This federal statute has also been employed by health maintenance organizations (HMOs) to preempt state causes of action for medical negligence, while providing no corresponding federal remedy permitting an award of compensatory damages. 2 Recent decisions by the Supreme Court and, the author suspects, the proliferation of unprincipled claims handling resulting from the judicial insulation of the insurance industry from state bad faith claims (and their associated extracontractual remedies) have led some lower courts to reevaluate ERISA’s preemptive reach. This article will plumb the current ERISA preemption landscape and conclude with an examination of Florida’s unique “bad faith” statute. We begin, however with some generally applicable principals.

Preemption, for the moment, depends upon 1) the field of operation of the particular state bad faith law, 2) its effect on risk pooling, and 3) whether the law duplicates a cause of action available under ERISA or provides different or additional remedies for ERISA-protected rights. These guidelines were derived from both ERISA’s express preemption provisions and any implied preemption accomplished by the “exclusivity” of ERISA’s civil enforcement scheme.

Express Preemption: A study in Congressional Drafting & Judicial Vacillation

Whether a state law is subject to express preemption under ERISA requires analysis of three statutory provisions: 29 U.S.C. §1144(a) (preemption clause”); 29 U.S.C. §1144(b)(2)(A) (“saving clause”); and 29 U.S.C. §1144(b)(2)(B) (“deemer clause”). These provisions operate as follows: If a state law “relates to” employee benefit plans, it is preempted by ERISA’s broad preemption state laws that “regulate insurance”. The saving clause, in turn, excepts from preemption state laws that “regulate insurance.” Finally, the deemer clause makes clear that a state law that “purports to regulate insurance” cannot deem an employee benefit plant to be an insurance company. Pilot Life, 481 U.S. at 45.

Following more than a decade of judicial experimentation concerning the scope of the saving clause, a unanimous Supreme Court in UNUM Life Ins. Co. of America v. Ward, 526 U.S. 358 (1999), again sought to “clarify” the framework for determining whether a state law “regulates insurance” and thus escapes preemption under ERISA’s saving clause. This framework, which the Court drew from earlier decisions, required resolution of whether, from a “common-sense view of the matter,” the contested state law regulates insurance. Ward, 526 U.S. at 367, citing Metropolitan Life Ins. Co. v. Massachusetts, 477 U.S. 724, 740 (1985). A state law that “controls the terms of the insurance relationship” by “homing in” on the insurance industry (rather than merely having an impact on that industry) regulates insurance as a matter of common sense. Ward, 526 U.S. AT 368.

This common sense conclusion said Ward, is next verified by determining whether the state law regulates the “business of insurance” within the meaning of the McCarran-Ferguson Act, 15 U.S.C. §1011 et. seq. Whether a particular practice falls within the “business of insurance” required consideration of the following three criteria:

First, whether the practice has the effect of transferring or spreading a policyholder’s risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry.

Metropolitan Life, 471 U.S. 743 citing Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982).

Ward, however, announced for the first time that a state law need not satisfy all three McCarran-Ferguson factors in order to verify the common sense conclusion that it regulates insurance for purposes of ERISA’s saving clause. Ward, 526 U.S. at 373. Ward, cast the three factors as “guideposts” or “considerations to be weighed.” Id. The Supreme Court in Ward thus reinvigorated the saving clause, presumed dead by many lower courts after Pilot Life, by reiterating its earlier declination to impose “any limitation on the saving clause beyond those Congress imposed in the clause itself and in the “deemer clause’ which modifies it.” Metropolitan Life, 471 U.S. 746.3

Ward‘s “clarification” was short-lived. It seems that eons have passed since this Court could claim a “strict constructionist moniker, so perhaps it was not surprise when it (again) reconfigured ERISA saving clause analysis in Kentucky Association of Health Plans, Inc. v. Miller, 123 S. Ct. 1471 (2003). Miller involved a challenge to Kentucky’s “Any Willing Provider” (AWP) statutes, which prohibit a health insurer or health benefit plan from discriminating against any local provider willing to meet the terms and conditions for participation established by the health insurer. Id. at 1473-4. The HMOs challenged the Kentucky laws because they impair the HMOs’ ability to limit the number of providers with access to their networks, and thus their ability to offer high patient volume as the quid pro quo for the discounted rates that network membership entails. Id. at 1474. The Supreme Court granted certiorari to decide whether ERISA preempts these AWP statutes.

Speaking for another unanimous Supreme Court in Miller, Justice Scalia declared a “clean break” from the Court’s prior saving clause ju­risprudence and held that for a state law to be deemed a “law…which regulates insurance,” it must now satisfy two requirements. First, the state law must be specifically di­rected toward entities engaged in insurance. Id. at 1479. Second, the state law must substantially affect the risk pooling arrangement between the insurer and the insured. Id.4 Only time will tell whether this new test for application of ERISA’s saving clause provides the “clear guidance” to the lower courts envi­sioned by Miller. Id. at 1478. Given the marked departure from prior saving clause precedent, however, Florida courts may now be inclined to revisit the issue of ERISA pre­emption of F.S. §624.155. In order to be saved from preemption, then, §624.155 must be “specifically di­rected toward entities engaged in insurance.” Id. at 1479.

When Is a State Law Specifically Directed at the Insurance Industry?

At first blush, this inquiry seems straightforward. The Mississippi law of bad faith was held not to be saved from ERISA preemption in Pilot Life because it was not specifi­cally directed at the insurance in­dustry, but rather a law of general application available in any Missis­sippi breach of contract case. Pilot Life, 481 U.S. at 51. The Supreme Court later advised that a state law regulates insurance as a matter of common sense where it “controls the terms of the insurance relationship” by “homing in” on the insurance in­dustry~ Ward, 526 U.S. at 368.5

Despite that pronouncement, some lower courts have continued to rely on Pilot Life to preempt even those state bad faith laws codified to apply specifically to the insurance industry as laws nevertheless “rooted in the common law of con­tract and tort.” See, e.g., Walker v. Southern Co. Svcs., Inc., 279 F.3d 1289, 1293 (11th Cir. Ala. 2002). According to the 11th Circuit, Alabama’s bad faith statute 6 is not “specifically directed” at the insur­ance industry under the following test:

To determine whether a law is “specifi­cally directed” at the insurance indus­try, we look at whether the roots of the law are “firmly planted” in the general principles of the state’s tort and contract law, or whether the law sets forth “a rule mandatory for insurance contracts, not a principle a court may pliably employ when the circumstances so warrant.”

Gilbert v. ALTA Health & Life Ins. Co., 276 F.3d 1292, 1297 (11th Cir. Ala. 2001) (citations omitted). The Gilbert panel then wrote that the “roots of the Alabama tort of bad faith are found in the Alabama case law and common law indicating that under certain circumstances a sepa­rate and independent duty can arise in the context of a contract…, which duty can give rise to a tort action separate and independent from any action on the contract,” rendering the statute sufficiently similar to the Mississippi law held preempted by ERISA in Pilot Life. Gilbert, 276 F.3d at 1297 n.7.

This reasoning labored as it may be, will nevertheless be employed by insurers to target a bad faith statute, presumably even one enacted as part of a state’s insurance code, if that jurisdiction’s common law ever recognized a cause of action for bad faith breach of contract in a non-insurance case. The author suggests, however, that this “extension” of Pilot Life fails to meaningfully address whether a particular state law is “specifically directed at the insurance industry,” much less whether it regulates insurance, and has accordingly been eclipsed by higher authority.7 The analysis employed in Ward (and blessed by Miller), which culminated in the conclusion that California’s notice-prejudice rule distinctively governs the insurance relationship, provides the sounder approach.8

Passing the opportunity to further define Miller’s first requirement in favor of instruction by analogy, the Court provided an example of a state law and, presumably, is specifically directed at the legal profession.

Suppose a state law requires all licensed attorneys to participate in 10 hours of continuing legal education (CLE) each year. This statue “regulates” the practice of law – even though sitting through 10 hours of CLE classes does not constitute the practice of law-because the state has conditioned the right to practice law on certain requirements, which substantially affect the product delivered by lawyers to their clients.

Miller, 123 S. Ct. at 1477.

The Court then held the AWP statutes to be law specifically directed at the insurance industry because they impose “conditions on the right to engage in the business of insurance”: Those who wish to provide health insurance in Kentucky may not discriminate against any willing provider. Id. To be “specifically directed at the insurance industry,” then, a law must control the terms of the insurance relationship by homing in on the insurance industry, govern the insurance relationship distinctively or impose conditions on the right to engage in the business of insurance. Even if Florida’s statute satisfies one of those criteria, however, it must also “subsequently affect the risk pooling arrangement between the insurer and the insured” to be saved from preemption. It is to this second requirement that we now turn.

How Does a State Law Substantially Affect Risk Pooling?

Given Miller’s infancy, the law has yet to be written on this question. Scant guidance is provided by prior saving clause precedent, which largely ignored the first McCarran-Ferguson factor concerning spreading policyholder risk. Most courts confronting the issue of risk spreading with regard to a particular state law, moreover, favored conclusion over analysis, but Miller held that a state law need not actually spread risk to escape preemption. Miller, 123 S. Ct. at 1477 n.3. Electing not to further distill this requirement, the Court instead provided an example of a law specifically directed toward the insurance industry that nevertheless fails to affect a risk pooling arrangement:

A state law requiring all insurance companies to pay their janitors twice the minimum wage would not “regulate insurance,” even though it would be a prerequisite to engaging in the business of insurance, because it does not substantially affect the risk of pooling arrangement undertaken by insurer and insured.

Miller, 123 S. Ct. at 1477.

The Court then contrasted this hypothetical labor law with the AWP statutes at issue, the independent review provisions saved from preemption in Moran, and Ward’s notice-prejudice rule, concluding that these laws all alter the scope of permissible bargains and thus substantially affect risk pooling. Miller, 123 S. Ct. at 1477-78. The Court further noted that, like in Ward, a state law that dictates to the insurance company the conditions under which it must pay for assumed risk “certainly qualifies as a substantial effect on the risk pooling arrangement between the insurer and the insured.” Id. at 1477 n.3.

In short, Miller’s second requirement is in equal parts elastic and opaque, and provides little principle guidance to the lower courts. We now know that a state law need not alter or control the actual terms of insurance policies to be saved. Id. at 1477. We are left to wonder, however, whether state bad faith laws must affect premium calculations, impose additional obligations on insurers, or prohibit certain insurance practices in order to affect risk pooling.9 Then, of course, how substantially must the risk pooling arrangement be affected? Additional litigation over these questions doubtless looms, but the Court may have provided a convenient shorthand when it declared that sate laws that regulated insurers with respect to their insurance practices survive ERISA. See Moran, 122 S. Ct. at 2159; Miller, 123 S. Ct. at 1475.

Lest anyone conclude from the foregoing that §624.155 is now rescued from preemption under Miller, however, a significant hurdle remains.

ERISA’S Civil Enforcement Scheme

Preemption of state laws that otherwise satisfy ERISA’s saving clause first hatched, essentially without prior evolution, in Pilot Life. Dedeaux sued Pilot Life for tortious breach of contract, breach of fiduciary duties, and fraud in the inducement. Pilot Life, 481 U.S. at 43. The Supreme Court refined the question presented to be whether the Mississippi common law of bad faith “regulates insurance” so as to escape preemption under ERISA’s saving clause, id. at 48, and, as discussed above, held that Mississippi’s generalized common law of bad faith (based on the implied-in-law duty of good faith and fair dealing) neither regulated insurance as a matter of common sense nor upon consideration of the McCarran-Ferguson criteria. Having decided that Mississippi’s state law was not saved from ERISA exemption, the issue was effectively resolved.

The Court, however, went on to discuss “the role of the saving clause in ERISA as a whole,” Id. Relying on the Reagan Administration’s argument as amicus curiae for the United States, the Supreme Court concluded that ERISA’s civil enforcement provisions are the exclusive vehicle for actions by ERISA plan participants and beneficiaries for relief afforded by ERISA.

Under the civil enforcement provisions of 502(a), a plan participant or beneficiary may sue to recover benefits due under the plan, to enforce the participant’s rights under the plan, or to clarify rights to future benefits. Relief may take the form of accrued benefits due, a declaratory judgment on entitlement to benefits, or an injunction against a plan administrator’s improper refusal to pay benefits.

Pilot Life, 481 U.S. at 53. See also 29 U.S.C. §1132 (a).10

Pilot Life, thus established (whether in obiter dictum seems much in dispute) that state causes of action permitting remedies not found in ERISA are preempted by ERISA’s civil enforcement provision even if the denial was made in bad faith. Most courts then tolled the death knell for state bad faith claims against ERISA plan insur­ers-until Ward began a resurrec­tion.

In Ward, the Supreme Court spe­cifically referenced its prior “discus­sion” of the preemptive force of ERISA’s civil enforcement provision. In its famous footnote 7, the Court characterized the cause of action at issue in Pilot Life as one for “bad faith breach of contract,” a law not specifically directed to the insurance company and, accordingly, not saved from ERISA preemption. The Court also noted that the (new) solicitor general, as amicus curiae for the U.S. in support of Ward and by now a Clinton appointee,11 qualified the argument upon which the Supreme Court relied for that aspect of Pilot Life

Noting that LMRA §301 does not con­tain any statutory exception analogous to ERISA’s insurance savings provision, the Solicitor General now maintains that the discussion of §502(a) in Pilot Life does not in itself require that a state law that regulates insurance, and so comes within the terms of the savings clause, is nevertheless preempted if it provides a state law cause of action or remedy. (Internal citations and quotations omitted)

Ultimately the scope of “502(a)’s preemptive force” was left unre­solved because Ward sued for ben­efits under ERISA, not state law, and a definitive answer was never required. The Court’s foreshadowing of a possible retreat from Pilot Life’s “second holding,” however, could hardly have been irrelevant.

More recently, in Moran, the Court rejected the HMO’s conten­tion that Illinois’ independent re­view law, though arguably regulat­ing insurance, was nevertheless preempted because it impermissibly conflicted with ERISA’s exclusive remedial scheme. Summarizing its prior decisions concerning the pre­emptive reach of ERISA’s civil en­forcement provision, the Court reit­erated its concern that additional state claims or remedies for recovery of contractual benefits remain unavailable so as to avoid expand­ing the potential liability imposed upon employers beyond ERISA’s re­medial scheme.

The enquiry into state processes alleged to “supplement or supplant” the fed­eral scheme by allowing beneficiaries “to obtain remedies under state law that Congress rejected in ERISA” has, up to now, been more straightforward than it is here. The first case touching on the point did not involve preemption at all; it arose from an ERISA beneficiary’s reliance on ERISA’s own enforcement scheme to claim a private right of action for types of damages beyond those expressly provided. We concluded that Congress had not intended causes of action under ERISA itself beyond those specified in §1132(a). Two years later we determined in Metropolitan Life Ins. Co. v. Taylor that Congress had so completely preempted the field of benefits law that an ostensibly state cause of action for benefits was necessarily a “creature of federal law” removable to federal court. Russell and Taylor naturally led to the holding in Pilot Life that ERISA would not tolerate a diversity action seeking monetary damages for breath generally and for consequential emotional distress, neither of which Congress had authorized in §1132(a). These monetary awards were claimed as remedies to be provided at the ultimate step of plan enforcement, and even if they could have been character­ized as products of “insurance regula­tion,” they would have significantly ex­panded the potential scope of ultimate liability imposed upon employers by the ERISA scheme.

Moran, 122 S. Ct. at 2166 (internal citations omitted).

The Court also expressly acknowl­edged that it had not yet encountered a forced choice between the exclusive federal remedies provided by ERISA and the reservation of the business of insurance to the states, but sug­gested that the state insurance regu­lation would lose out if it allows plan participants “to obtain remedies… that Congress rejected in ERISA.” Moran, 122 S. Ct. at 2165. The un­derlying rationale for the Court’s reticence to allow additional rem­edies for bad faith benefit denials- limiting employer liability to induce them to offer group insurance to their employees-does not support preemption of those state laws that satisfy ERISA’s saving clause. These laws must be specifically directed at the insurance industry and are al­ready prohibited, by dint of the deemer clause, from applying to em­ployers or welfare benefit plans.12 In­surers are simply left to be regulated by the states with respect to their insurance practices. If Moran’s dicta is someday turned into holding, how­ever, state bad faith laws saved from express preemption as laws regulating insurance may nevertheless be preempted if they merely provide ad­ditional remedies for a bad faith de­nial of benefits.13 Given the forego­ing obstacles, including the 11th Circuit’s apparent eagerness to thwart the intended deterrence accomplished by state bad faith laws, does hope remain for Florida insureds seeking to secure more bal­anced treatment from ERISA-plan insurers than that accorded in the days since Pilot Life?

Florida’s Private Right of Action or Specified Violations of its UITPA

Florida was the first state to leg­islatively open the Unfair Insurance Trade Practices Act (UITPA) to pri­vate enforcement and, in the intervening years, has not been shy about statutory innovation. While Florida has recognized a common law cause of action for insurer bad faith in third party cases since 1938, its courts con­sistently refused to extend bad faith to first party cases.14 Insureds in first party cases were not given access to extracontractual remedies until the 1982 enactment of §624.155. The statute is referred to colloquially as the bad faith statute, but its actual title is “Civil Remedy.” Florida’s stat­ute has two central elements: a gen­eralized “failure to settle” provision found in §624.155(1)(b)1, and the creation, in §624.155(1)(a)1, of a pri­vate right of action for violation of selected portions of Florida’s UITPA that had been part of Florida’s in­surance code since 1974. In short­hand, (l)(b) and (1)(a) actions.

The insurance code provisions subject to private enforcement via (1)(a) regulate insurers (not employ­ers or benefit plans) by prohibiting (or mandating) certain conduct. Sig­nificantly, the obligations imposed upon insurers under these state laws are entirely distinct from the question of an insurer’s liability for contractual benefits or any other substantive aspect of ERISA.

624.155 Civil Remedy
(1) Any person may bring a civil action against an insurer when such person is damaged: (a) By a violation of any of the following provisions by the insurer:

1. Section 626.9541(1)(i), (0), or (x)

***

(3) Upon adverse adjudication at trial or upon appeal, the insurer shall be li­able for damages, together with court costs and reasonable attorney’s fees in­curred by the plaintiff.

(4) No punitive damages shall be awarded under this section unless the acts giving rise to the violation occur with such frequency as to indicate a gen­eral business practice and these acts are:

(a) Willful, wanton, and malicious;

(b)In reckless disregard for the rights of any insured; or

(c)In reckless disregard for the rights of a beneficiary under a life insurance contract.

626.9541. Unfair Methods of Competi­tion and Unfair or Deceptive Acts or Practices defined

(1) Unfair methods of competition and unfair or deceptive acts-The following are defined as unfair methods of com­petition and unfair or deceptive acts or practices:

(i) Unfair claim settlement practices-

1. Attempting to settle claims on the basis of an application, when serving as a binder or intended to become a part of the policy, or any other material docu­ment which was altered without notice to, or knowledge or consent of, the in­sured;

2. A material misrepresentation made to an insured or any other person having an interest in the proceeds pay­able under such contract or policy, for the purpose and with the intent of ef­fecting settlement of such claims, loss, or damage under such contract or policy on less favorable terms than those pro­vided in, and contemplated by, such con­tract or policy; or

3. Committing or performing with such frequency as to indicate a general business practice any of the following:

a. Failing to adopt and implement standards for the proper investigation of claims;

b. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;

c. Failing to acknowledge and act promptly upon communications with re­spect to claims;

d. Denying claims without conduct­ing reasonable investigations based upon available information;

e. Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after proof-of-loss statements have been completed;

f. Failing to promptly provide a rea­sonable explanation in writing to the insured of the basis in the insurance policy, in relation to the facts or appli­cable law, for denial of a claim or for the offer of a compromise settlement;

g. Failing to promptly notify the in­sured of any additional information nec­essary for the processing of a claim; or

h. Failing to clearly explain the nature of the requested information and the reasons why such information is necessary.15

Pre-Ward/Miller Decisions Within the 11th Circuit

A panel of the 11th Circuit first considered the applicability of ERISA’s saving clause to F.S. §624.155 in Anschultz v. Connecti­cut General Life Ins. Co., 850 F.2d 1467 (11th Cir. 1988). Anschultz, decided immediately in the wake of Pilot Life, involved a claim for wrongful denial of long term disability benefits under a group insurance policy. Id. at 1467. Anschultz sought benefits allegedly due under the plan as well as compensatory and punitive damages, interest, and at­torneys’ fees under F.S. §624.155. Id. at 1467-68. Conceding that §624.155 arguably regulates insur­ance as a matter of common sense, the Anschultz court nevertheless ruled that the statute failed to satisfy all of the McCarran-Ferguson factors and accordingly fell outside ERISA’s saving clause. Id. at 1469.

The 11th Circuit next examined the relationship between Florida’s insurance statutes and ERISA’s saving clause in Swerhun v. Guardian Life Ins. Co. of America, 979 F.2d 195 (11th Cir. 1992). Swerhun brought suit alleging breach of contract and bad faith denial of benefits under an ERISA plan, Id. at 196, and argued that her breach of contract claim was saved from ERISA preemption because Guardian’s denial of benefits for chiropractic care violated F.S. §627.419. This court recognized that F.S. §627.419 (declaring that insurance policies must be construed to include coverage for chiropractic services) “may very well be a law regulating insurance,” but held the Florida law irrelevant to Swerhun’s breach of contract claim because no private right of action existed for the violation and, moreover, Guardian’s policy covered chiropractic services. Id. at 198. Expressly relying on Anschultz’s requirement that all three McCarran-Ferguson factors be satisfied, this court simply restated its prior conclusion that §624.155 is not a law regulating insurance, thus fell outside of ERISA’s saving clause, and was preempted. Id. at 199.16 Ward and Miller have rendered these decisions ripe for reconsideration by the 11th Circuit.

Post-Miller Analysis

Assuming arguendo that §624.155 and the incorporated provisions of the UITPA “relate to” employee welfare benefit plans and are expressly preempted, there can be little doubt that these statutes are both specifically directed at insurers because they impose conditions on the right to engage in the business of insurance in Florida and that they substantially affect risk pooling agreements because they dictate to the insurance company the specific duties owed to its insureds. Simply put, the statutes regulate insurers with respect to their insurance practices and should accordingly be saved from express preemption. Under a traditional conflict (as opposed to field) preemption analysis, these state laws would not interfere with ERISA’s primary goal of protecting plan participants and beneficiaries, but rather would supplement federal remedies available only against insurance companies for unfair conduct. Gerosa v. Savasta & Co., inc., 2003 U.S. App. LEXIS 9558 (2d Cir. N.Y.); see also Humana, Inc. v. Forsyth, 525 U.S. 299(1999).

Florida’s insurance regulations thus present the “forced choice” described in Moran’s dicta. Neither ERISA’s text nor sound public policy, however, permit ERISA’s civil enforcement provision to trump the saving clause with respect to state laws regulating insurers. Courts would not be permitting remedies “that Congress rejected in ERISA” because the substantive violation by the insurance company is distinct from a claim for contractual benefits for which ERISA provides relief. Surely, Congress could not have intended to preempt state insurance laws (which the statute expressly saves) by fashioning a federal remedial scheme, however exclusive, that has nothing whatsoever to do with the state’s regulation of insurance carriers. Such a construction defies logic and draws no support from the text or underlying purpose of the federal law. The usual argument advanced by ERISA-plan insurers in favor of implied preemption-that insurers will pass along the costs of extracontractual liability in the form of higher premiums thereby discouraging employers from offering group insurance-is really no more than a compendium of well-varnished conclusions. Probably more persuasive is the thesis that competition in the marketplace will lead employers to obtain insurance at lower premiums from insurers who do not engage in unfair or bad faith conduct,17 but absent empirical evidence the courts may continue to choose the approach that best suits their conclusion.

Nor would the dichotomy between an initial claim for contractual benefits under ERISA and subsequent a cause of action under §624.155 require a novel approach, because settled Florida law requires that a first party coverage case-the sort of claim subject to ERISA preemption-must be resolved in the insured’s favor before a cause of action under §624.155 even arises. See Blanchard v. State Farm, 575 So. 2d 1289 (Fla. 1991). Put another way, until the first party insurer’s contractual liability is established, a cause of action does not exist under §624.155. Vest v. Travelers Ins. Co., 753 So. 2d 1270, 1275 (Fla. 2000).18 Florida’s scheme thus ensures that insurance carriers are not exposed to extracontractual liability in the absence of first party coverage. ERISA claims for benefits would thus parallel a standard first party coverage case.

Conclusion

ERISA’s text does not support any implied preemption of state insurance laws, like Florida’s, that sat­isfy the saving clause. Moran’s an­ticipatory dicta is simply wrong as a matter of statutory construction and public policy.19 The creative ar­guments employed by ERISA-plan insurers to a receptive federal judi­ciary have transformed a consumer protection statute into a shield against extracontractual liability. The sometimes severe abuses that have ensued, however, have resulted in a proliferating number of federal court decisions either refusing to preempt state law bad faith claims or lamenting an alternative.20 The 11th Circuit has not, post Ward, con­sidered ERISA preemption of §624.155 in any reported decision.21 The question accordingly remains open in this circuit and continuous unreasonable conduct by ERISA plan insurers may be the force that causes the pendulum’s swing to pause and change direction.

Jason S. Mazer is a senior associate at Ver Ploeg & Marino, P.A., Miami. He represents individual and corporate policyholders in insurance coverage and bad faith disputes, and civil rights plaintiffs in employment discrimination cases. Mr. Mazer practices in both state and federal court. He received his B.A. from Tufts University and graduated Order of the Coif from Washington University School of Law.

1 See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 44 (1987); §2, 29 U.S.C. §1001(B).

2 See, e.g., Difelice v. Aetna U.S. Healthcare, 2003 WL 22346402, *10 (3d Cir. Pa.).

3 The Court in Metropolitan Life first recognized the distinction between in­sured and uninsured (self-funded) plans, leaving the former open to indirect regu­lation by state insurance laws while the latter are not, but concluded that in so doing it was merely giving life to the distinction created by Congress in the deemer clause. Metropolitan Life, 471 U.S. at 747.

4 The Court also provided some addi­tional guidance: A state law need not al­ter or control the actual terms of an in­surance policy nor spread the policyholder’s risk within the meaning of the first McCarran-Ferguson factor to fall within the saving clause. Miller, 123 S. Ct. at 1477.

5 The Court has now recognized that this “common sense” inquiry rendered superfluous the third McCarran-Ferguson factor, which required the state law to be “limited to the insurance industry.” Miller, 123 S. Ct. at 1478 n.4.

6 Alabama’s codification of its bad faith law provides, in relevant part: “No in­surer shall, without just cause, refuse to pay or settle claims arising under cov­erages provided by its policies in this state and with such frequency as to indicate a general business practice in this sate.” ALA. CODE §27-12-24 (2001).

7 Additional support for this conclusion is found in the two most recent Su­preme Court decisions on the issue. See Rush Prudential HMO, Inc. v. Moran, 122 S. Ct. 2151, 2159 (2002) (“Although this is not the place to plot the exact perimeter of the saving clause, it is generally fair to think of the combined ‘common sense’ and McCarran-Ferguson factors as parsing the ‘who’ and the ‘what’: when insurers are regulated with respect to their insurance practices, the state law survives ERISA”) (emphasis supplied). The emphasized portion of the above quotation was again endorsed by the Court in Miller, 123 S. Ct. at 1475.

8 The Mississippi bad faith law at issue in Pilot Life would, of course, still fail this test.

9 See, e.g., Elliot v. Fortis Benefits Ins. Co., 337 F.3d 1138, 1145 (9th Cir. 2003) (recognizing that concept of “risk pooling” is broader than “risk spreading” and determining that Montana’s UTPA al­locates risk); Rosenbaum u. Unum Life ma Co., 2003 WL 22078557 ED, Pa.) (concluding that Pennsylvania’s “bad faith” statute substantially affects the risk pooling arrangement); but see Kidneigh v. Unum Life ins. Co., 2003 WL 22273320 (10th Cir. Colo.) (Two judges on the panel concluding that Colorado’s cause of action for bad faith fails to satisfy Miller’s second requirement, while remaining judge concluded that the state law satisfied ERISA’s saving clause).

10 ERISA’s civil enforcement provision, 29 U.S.C. §1132(a) provides in relevant part: ‘A civil action may be brought- “(1) by a participant or beneficiary-

“(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;

“(2) by the Secretary or by a participant, beneficiary or fiduciary for appropriate relief under section 1009 of this title

“(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan;”

11 The concept that the Supreme Court is willing to alter the law of the land to comport with the changing fashion of political administrations is probably worth a few chapters itself, but exceeds the scope of inquiry of this article.

12 That concern may explain, however, the Court’s choice to narrowly construe the “other appropriate equitable relief” available to plan participants and beneficiaries under ERISA in suits against plan fiduciaries to mean only relief typically available in equity in the days of a divided bench. See Great West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002)

13 Though beyond the scope of this article, an increasing number of U.S. circuit courts of appeal are narrowing the scope of state laws that “relate to” employee benefit plans, triggering express preemption, and holding that implied preemption under 502(a) of alternative state remedies exists only where those remedies “interfere with central ERISA purposes.” See e.g., Gerosa v. Savasta & Co., Inc., 2003 U.S. App. LEXIS 9558 (2d Cir. (N.Y.)) and cases cited therein. For an informative discussion of 15 Miller arguments against implied preemption of state bad faith laws otherwise saved from express preemption, see Donald T. Bogan, Saving State Law Bad Faith Claims from preemption, TRIAL MAGAZINE 52-58 (April 2003).

14 Efforts to secure a judicial evolution of a first party gad faith tort failed, whether founded on UITPA or third party grounds, in Cycle Dealers Inc. Inc. v. Bankers Ins. Co., 394 So. 2d 1123 (Fla. 5th D.C.A. 1981); Coira v. Florida Medical Assoc., 429 So. 2d 23 (Fla. 3d D.C.A. 1982); Shupak v. Allstate Ins. Co., 367 So. 2d 1103 (Fla. 3d D.C.A. 1979); Midwest Mutual Ins. Co. v. Brasecker, 311 So. 2d 817 (Fla. 3d D.C.A. 1975), cert. denied 327 So. 2d 31 (Fla. 1976); and Baxter u. Royal Indemnity Co., 285 So. 2d 652 (Fla. 1st D.C.A. 1973), cert. discharged, 317 So. 2d 725 (Fla. 1975). In Smith u. Standard Guaranty Ins. Co., 435 So. 2d 848,849 (Fla. 2d D.C.A. 1983), the court held: “At best, Standard’s handling of Smith’s claim was bungling and arbitrary. In any event, it was sufficiently callous that a jury would be justified in concluding that Standard was guilty of bad faith. However, our Florida courts have consistently held that a suit for punitive damages will not lie against an insurance company for bad faith in failing to pay a first party claim.”

15 Section 626.9541(1)(o) concerns illegal dealings in premiums and 626.9541(1)(x) addresses unlawful reasons for a carrier’s refusal to insure.

16 Various district courts within Florida have parroted this conclusion. See, e.g., Chilton v. Prudential Ins. Co. of Amer., 124 F.Supp. 2d 673 (M.D. Fla. 2000); Bridges v. Provident Life & Acc. Ins. Co., 121 F. Supp. 2d 1369 (M.D. Fla. 2000); and Chiroff v. Life Ins. Co. of North Amer., 142 F. Supp. 2d 1360 (S.D. Fla. 2000)

17 Bogan, Supra note 13, at 57-58.

18 In certain types of cases not applicable here, the extent of the plaintiff’s damages must also be determined. See Blanchard, 575 So. 2d 1289.

19 The Supreme Court’s treatment of this issue starkly illustrates the danger of “judicial legislating” under the guise of statutory construction. An equally creative example of this Court reaching out to protect business interests (especially insurers), which have ample influence with the legislative and execute branches of government, is State Farm Mut. Auto Ins. Co. v. Campbell, 123 S. Ct. 1513 (2003).

20 See, e.g., Difelice v. Aetna U.S. Healthcare, 2003 WL 22346402, *10 (3d Cir. Pa.) (concurring judge writing separately “to add my voice to the rising judicial chorus urging that Congress and the Supreme Court revisit what is an unjust and increasingly tangled ERISA regime.)

21 It was presented with an opportunity to confront this question in Chilton v. Prudential Ins. Co. of America, Case No. 01-10362, but elected not to decide whether the Florida statutes escaped preemption even though the magistrate judge and district court disagreed on the issue. See Chilton, 124 F. Supp. 2d 673 (M.D. Fla. 2000). The author’s firm appeared before the 11th Circuit as counsel for amicus curiae, the Academy of Florida Trial Lawyers.

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