Courts consistently strike down state laws that create claims for relief against ERISA-covered employee benefit plans, even if those state laws also regulate insurance. In 2004, the Hawaii Supreme Court found that the Employee Retirement Income Security Act (ERISA) preempted Hawaii’s statute providing review by the Insurance Commissioner pursuant to the Patient’s Bill of Rights and Responsibilities Act (Haw. Rev. Stat. Chap. 432 E). See Hawaii Management Alliance Assoc. v. The Insurance Commissioner, 106 Hawaii 21, 100 P.3d 952 (2004). This ruling foreclosed a more favorable standard of review utilized by the Insurance Commissioner under state law for employees challenging denial of coverage under health plans.
It is rare to find a health plan excluded from ERISA coverage. The Fifth Circuit found such a plan, however, in a recent case, Shearer v. Southwest Service Life Ins. Co., No. 07-20646 (5th Cir., Jan 31, 2008). There, the insured, a 50% owner of the company, obtained health insurance for himself and family from Defendant-Insurer. Other employees were not covered by the plan. The company paid the premiums for the insured’s policy. The insured’s son required hospitalization and surgery, but the insurer refused to pay all of the claims.
The insured sued in state court on state law claims of misrepresentation, breach of contract, unfair and deceptive trade practices, and unfair claim settlement practices. The insurer removed the case to federal court and argued the policy was covered by ERISA, thereby preempting the insured’s state law claims. The district court granted the insurer’s motion for summary judgment, ruling that the insured’s claims failed to meet the ERISA standard for relief. The insured appealed, contending the district court lacked jurisdiction because the insurance policy was not an ERISA plan.
Under ERISA, state law is preempted as it relates to any employee benefit plan. Here, the evidence showed that the company did nothing more than pay premiums on the policy. The company did not even issue a booklet regarding the plan. Consequently, the company did not intend to establish and maintain a plan to benefit its employees. The bare bones purchase of insurance was insufficient to create an ERISA plan. Accordingly, the district court lacked jurisdiction.
