Harrison v. Teamcare et al
MEMORANDUM OPINION AND ORDER; 1)Central States' #41 Motion to Dismiss is GRANTED IN FULL; 2) HCSC's #40 Motion to Dismiss is GRANTED as to Harrison's claims for breach of contract, violation of the implied covenant of good faith and fair dealing, common law bad faith, and violation of the KCPA and DENIED w/respect to his KUCSPA claim. Signed by Judge David L. Bunning on 5/13/2016. (LST)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CIVIL ACTION NO. 15-60-DLB-CJS
MEMORANDUM OPINION AND ORDER
TEAMCARE–A Central States Health Plan, et al.
Defendant Central States Southeast and Southwest Areas Health and Welfare Fund
(“Central States”) moves to dismiss Count I of Plaintiff Rodney Harrison’s Amended
Complaint for failure to state a claim upon which relief may be granted. Central States
argues that Harrison cannot seek equitable relief under ERISA pursuant to § 502(a)(3)
because he is able to proceed under § 502(a)(1)(B), another of ERISA’s civil enforcement
mechanisms. Central States further insists that a claim under § 502(a)(1)(B) is premature
because Harrison has not exhausted his administrative remedies or demonstrated that
exhaustion would be futile. Defendant Health Care Service Corporation (“HCSC”), doing
business as Blue Cross and Blue Shield of Illinois, moves to dismiss Counts II through VI
of Harrison’s Amended Complaint, arguing that these state law claims are subject to conflict
preemption. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331 and
Factual and Procedural Background
Harrison participated in Central States’ Southeast and Southwest Areas Health and
Welfare Fund, a nationally administered employee benefit plan governed by the Employee
Retirement Income Security Act of 1974 (“ERISA”). (Id. at p. 3, ¶ 2, 7). HCSC, the third
party administrator for the plan, was responsible for “render[ing] advice with respect to
Claim Payments and mak[ing] Claim Payments on behalf of the plan administrator of the
Fund’s ERISA benefit plan.” (Doc. # 36 at 10). HCSC was “not the plan administrator of
the Fund’s separate ERISA welfare benefit plan,” nor was it “a named fiduciary with respect
to the Fund’s separate ERISA welfare benefit plan.” (Id.).
In March of 2012, Harrison was injured in a car accident. (Doc. # 1-1, p. 3, ¶ 7).
Central States paid some of the medical expenses he incurred as a result of that accident.
(Id.). Harrison sued the other party to the accident, and two years later, they reached a
settlement. (Id. at p. 3, ¶ 8). Under the terms of the plan, a subrogation lien in Central
States’ favor attached to the settlement funds. (Id.). Harrison and Central States then
settled this subrogation lien. (Id. at p. 4, ¶ 9). Harrison agreed to pay Central States
$57,628.45, and in exchange, Central States agreed to pay any outstanding medical
claims. (Id. at p. 4, ¶ 10). Central States also agreed to pay future claims pursuant to the
terms of Harrison’s major medical extension. (Id.).
On September 23, 2014, Central States received a check from Harrison for the
agreed-upon sum and confirmed that his medical claims would be processed and paid.
(Id.). Central States failed to pay the outstanding medical expenses the following month,
which adversely affected Harrison’s credit profile. (Id. at p. 4, ¶ 12, 13, 15). He notified
Central States of this problem in late October, and again in late November. (Id. at p. 4, ¶
12, 14). In early December, Central States assured Harrison that his claims had been
processed and checks submitted to the proper payees. (Id. at p. 4, ¶ 16). However, as of
January 14, 2015, only minimal payments had been made on the outstanding account
balance. (Id. at p. 5, ¶ 17). Central States promised Harrison that checks would be sent
to the proper payees on January 21, 2015, claiming that the delay was caused by
communication issues with HCSC, the plan’s third party administrator. (Id.). However,
Harrison still had a $12,000 balance with Commonwealth Orthopaedic Centers as of March
16, 2015. (Id. at p. 5, ¶ 18-20).
That same day, Harrison filed suit against Central States and HCSC, asserting
claims for breach of contract, breach of the implied covenant of good faith and fair dealing,
violations of the Kentucky Unfair Claims Settlement Practices Act, common law bad faith,
and violations of the Kentucky Consumer Protection Act. (Doc. # 1-1). On April 4, 2015,
Harrison’s outstanding bills from Commonwealth Orthopaedic Centers were paid in full.1
(Doc. # 47 at 2, n. 2). Shortly thereafter, HCSC removed this case to federal court on the
basis of federal question jurisdiction, asserting that “the crux of the lawsuit at issue is a
claim for benefits under an ERISA-based insurance policy.” (Doc. # 1). Central States
consented to the removal. (Doc. # 6).
Although HCSC removed the case to this Court on the basis of federal question
jurisdiction, the Court immediately noticed that Harrison’s complaint asserted only state law
claims. To ensure that removal was proper, the Court ordered the parties to submit
1) Although not mentioned specifically in the Complaint or the Amended Complaint, Harrison
apparently had additional outstanding bills from Rehab on the Road. (Doc. # 56). These bills were
paid on April 29, 2015. (Id.).
memoranda discussing the existence of federal question jurisdiction. (Doc. # 7). After
reviewing the memoranda, the Court sustained the removal, finding that Harrison’s state
law claims against Central States and HCSC were completed preempted by ERISA. (Doc.
# 26). The Court further ordered Harrison to file an amended complaint re-characterizing
his claims under ERISA. (Id.).
Approximately two weeks later, Harrison filed a Motion to Alter, Amend and/or
Vacate the Court’s Order. (Doc. # 28). Harrison admitted that his claims against Central
States should be re-cast in terms of ERISA, but insisted that his state law claims against
HCSC should remain undisturbed. The Court ultimately agreed with Harrison, reasoning
that he could not have brought his claims against HCSC under one of ERISA’s civil
enforcement mechanisms because HCSC is neither the plan nor the plan administrator.
Accordingly, the Court concluded that Harrison’s claims against HCSC were not completely
preempted, and thus, did not require re-characterization under ERISA. However, the Court
retained supplemental jurisdiction over these state law claims because they arose out of
the same facts as the ERISA-based claim against Central States.
Consistent with the Court’s Orders, Harrison filed his Amended Complaint on
October 27, 2015. (Doc. # 38). He asserted one ERISA-based claim for breach of
fiduciary duty against Central States. (Id.). He also brought state law claims for breach of
contract, violation of the implied covenant of good faith and fair dealing, violation of the
Kentucky Unfair Claims Settlement Practices Act, common law bad faith and violation of
the Kentucky Consumer Protection Act against HCSC. (Id.). In response, Central States
and HCSC filed the instant Motions to Dismiss,2 which are fully briefed and ripe for review.
(Docs. # 40, 41, 44, 45, 46 and 47).
Standard of Review
A complaint must include a “short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). It must also contain “sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)(quoting Twombly v. Bell Atl. Corp., 550 U.S. 544, 570
(2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. “[A] formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555.
Moreover, the Court “is not bound to accept as true
unwarranted factual inferences, or legal conclusions unsupported by well-pleaded facts.”
Terry v. Tyson Farms, Inc., 604 F.3d 272, 276 (6th Cir. 2010).
Central States’ Motion to Dismiss
ERISA’s Civil Enforcement Provisions
ERISA’s civil enforcement provisions “authoriz[e] civil actions for six specific types
of relief.” Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 376 (2002). They are set
2) The Court allowed Central States to submit supplemental authority on the issues raised in
briefing its Motion. (Docs. # 48 and 49). It then gave Harrison an opportunity to respond and
Cental States time to reply. (Docs. # 50, 51, 52, 53 and 54).
Persons Empowered to Bring a Civil Action.
A civil action may be brought–
by a participant or beneficiary–
for the relief provided for in subsection © of this section
[concerning requests to the administrator for
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
by the Secretary, or by a participant, beneficiary or fiduciary for
appropriate relief under section 1109 of this title [breach of
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;
by the Secretary, or by a participant, or beneficiary for
appropriate relief in the case of a violation of 1025© of this title
[information to be furnished to participants];
except as otherwise provided in subsection (b) of this section,
by the Secretary (A) to enjoin any act or practice which violates
any provision of this subchapter, or (B) to obtain other
appropriate equitable relief (I) to redress such violation or (ii) to
enforce any provision of this subchapter;
by the Secretary to collect any civil penalty under paragraph
(2), (4), (5), (6), (7), (8), or (9) of subsection © of this section or
under subsection(I) or (l) of this section.
29 U.S.C.A. § 1132(a). These provisions, more commonly known by their original section
number in the Act, § 502(a), create an “interlocking, interrelated and interdependent
remedial scheme.” Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985). This scheme
“represents a careful balancing of the need for prompt and fair claims settlement
procedures against the public interest in encouraging the formation of employee benefit
plans.” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987).
As the statute itself indicates, three of these avenues are open to plan participants
who, like Harrison, wish to sue the plan or plan administrator. First, they may sue to
recover benefits due, enforce their rights, or clarify their rights under the terms of the plan
pursuant to § 502(a)(1)(B). See 28 U.S.C.A. § 1132(a)(1)(B). However, plan participants
must exhaust their administrative remedies before bringing an action under § 502(a)(1)(B).
See Miller v. Metro. Life Ins. Co., 925 F.2d 979, 986 (6th Cir. 1991). Second, plan
participants may assert a claim for breach of fiduciary duty under § 502(a)(2). See 29
U.S.C.A. § 1132(a)(2). This subsection does not yield individualized relief – any benefits
from suit inure to the plan itself. See Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134,
143-45 (1985). Third, plan participants may seek “appropriate equitable relief” under §
502(a)(3). See 29 U.S.C.A. § 1132(a)(3). This may include individualized relief for breach
of fiduciary duties. See Varity Corp. v. Howe, 516 U.S. 489, 509 (1996). However, this
subsection is only available to plan participants who cannot proceed under either §
502(a)(1)(B) or § 502(a)(2). Id.
Harrison’s Amended Complaint
Harrison initially asserted state law claims for breach of contract, violation of the
implied covenant of good faith and fair dealing, violation of the Kentucky Unfair Claims
Settlement Practices Act (“KUCSPA”), common law bad faith, and violation of the Kentucky
Consumer Protection Act (“KCPA”) against Central States. (Doc. # 1-1). All of these
claims were predicated upon Central States’ failure to ensure that Harrison’s outstanding
medical expenses were paid in a timely fashion. (Id.). Harrison sought compensatory and
punitive damages, as well as costs, attorney’s fees, and “all other relief, both legal and
equitable, to which [he] may appear entitled.” (Id. at 8).
Upon finding that these state law claims were completely preempted by § 502(a),
the Court ordered Harrison to re-characterize his claims against Central States in terms of
ERISA. (Doc. # 26). Accordingly, Harrison filed an Amended Complaint setting forth one
claim for breach of fiduciary duty against Central States. (Doc. # 38). Harrison specifically
alleges that, as a result of Central States’ breach, he “was forced to pay minimal payments
out-of-pocket to medical providers that [Central States] was otherwise obligated to pay and
he suffered damage to his credit.” (Doc. # 38 at 5). He expresses an intent “to recover
benefits due to him under the terms of his plan/settlement agreement, to enforce his rights
under the terms of the plan/settlement agreement, attorney fees and costs, and any and
all other appropriate equitable relief including, but not limited to, prejudgment interest, a
surcharge, and any other make-whole relief,” broadly citing to 29 U.S.C. § 1132. (Id. at 56).
The Amended Complaint does not specifically identify which civil enforcement
mechanism Harrison seeks to utilize. It states that Harrison seeks to “recover benefits due
to him under the terms of his plan/settlement agreement” and to “enforce his rights under
the terms of the plan/settlement agreement.” (Id. at 6). Because this language parrots that
of § 502(a)(1)(B), one might assume that he is proceeding under that subsection.
However, he has labeled the claim as one for breach of fiduciary duty, which is only
available under § 502(a)(2) or § 502(a)(3).
Cognizant of this ambiguity, Central States insists that Harrison’s claim is essentially
one for the recovery of benefits under § 502(a)(1)(B), regardless of the label he has placed
on it. Central States then argues that Harrison’s claim must be dismissed because he has
not exhausted his administrative remedies. See Hill v. Blue Cross and Blue Shield of Mich.,
409 F.3d 710, 717-18 (6th Cir. 2005) (“[I]t is well settled that ERISA plan beneficiaries must
exhaust administrative remedies prior to bringing a suit for recovery on an individual claim”
unless “exhaustion would be futile.”). Alternatively, Central States contends that, even if
Harrison’s claim is properly read as one for breach of fiduciary duty, dismissal is
appropriate because § 502(a)(2) does not permit Harrison to recover the individualized
monetary relief that he seeks. Adcox v. Teledyne, 21 F.3d 1381, 1390 (6th Cir. 1994)
(upholding the district court’s decision to dismiss a claim for breach of fiduciary duty
because “a cause of action under 1132(a)(2) permits recovery to inure only to the ERISA
plan, not to individual beneficiaries”), overruled on other grounds by Winnett v. Caterpillar,
Inc., 553 F.3d 1000 (6th Cir. 2009).
Harrison responds that “Central States misunderstands the core of [his] . . . Breach
of Fiduciary Duties claim against them.” (Doc. # 45 at 2). He disclaims any intent to sue
for recovery of benefits under § 502(a)(1)(B) or for breach of fiduciary duty under §
502(a)(2). Instead, he seeks to sue Central States for breach of fiduciary duty under §
502(a)(3), asserting that the other two subsections do not provide him a remedy.
Accordingly, the remainder of the Court’s analysis of Central States’ Motion to Dismiss will
focus on whether Harrison may bring suit under § 502(a)(3).
Harrison’s Ability to Proceed Under § 502(a)(3)
By its terms, § 502(a)(3) simply allows plan participants to obtain “other appropriate
equitable relief” to “redress . . . violations” of “any provisions of this subchapter or the terms
of the plan” or enforce them. The United States Supreme Court held that this language
permits plan participants or beneficiaries to bring lawsuits seeking individualized relief for
breach of fiduciary obligations. Varity Corp. v. Howe, 516 U.S. 489, 509 (1996). However,
the Court cautioned that § 502(a)(3) is a “catch-all” provision or “safety net, offering
appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere
adequately remedy.” Id. at 515.
In Varity, the plaintiffs participated in an employee benefits plan administered by an
employer mired in financial trouble. Id. at 493-94. Hoping to solve its fiscal problems, the
employer advised the plaintiffs to transfer their employment and their non-pension benefits
to an insolvent subsidiary. Id. The subsidiary later went into receivership, causing the
plaintiffs to lose their benefits. Id. The Court held that the plaintiffs could sue their former
employer for breach of fiduciary duty under § 502(a)(3), reasoning that they would not be
able to obtain the individualized relief sought under ERISA’s other civil enforcement
provisions. Id. at 515. The Court explained that the plaintiffs could not proceed under §
502(a)(1)(B) because they were no longer members of the original plan and were not due
any benefits under the terms of the plan. Id. The Court further found that the plaintiffs
unable to proceed under § 502(a)(2) because that section does not provide an
individualized remedy for individual beneficiaries. Id.
Harrison claims that he is unable to proceed under § 502(a)(1)(B) because Central
States actually approved his claim for benefits.3 In making this argument, Harrison
suggests that § 502(a)(1)(B) functions solely as a mechanism to contest the denial of
It may be fair to say that most of the suits under § 502(a)(1)(B) focus on the
improper denial of benefits – likely because most plan participants who are approved for
benefits receive them without incident – but that does not necessarily lead to the conclusion
proffered by Harrison. This subsection plainly authorizes plan participants to bring a civil
action to recover benefits due under the terms of the plan, enforce rights under the terms
of the plan, or clarify rights to future benefits under the terms of the plan. 29 U.S.C.
1132(a)(1)(B). The Court simply does not see why Harrison’s suit to obtain the funds that
Central States promised to pay to his medical providers is not tantamount to a suit to
recover benefits or enforce his rights under the terms of the plan. See Pilot Life, 481 U.S.
at 53 (explaining that “[r]elief [under this subsection] may take the form of accrued benefits
due”) (emphasis added).
Nevertheless, Harrison insists that he cannot proceed under § 502(a)(1)(B) because
he would have to exhaust his administrative remedies before bringing suit, a futile effort in
his view. This argument confuses the concept of futility, which pertains to the timing of a
suit under § 502(a)(1)(B), with the question of availability, which asks whether an individual
can bring suit under this subsection at all. Compare Hill v. Blue Cross and Blue Shield of
Mich., 409 F.3d 710, 720 (6th Cir. 2005) (explaining that a plan participant must exhaust
3) Harrison also insists that he is unable to bring suit under § 502(a)(2) because it does not
authorize individualized relief. Having reviewed the Varity case, the Court concurs with his
conclusion. See Varity, 516 U.S. at 509. However, this does not impact the Court’s analysis
because Harrison is able to proceed under § 502(a)(1)(B), for reasons explained herein.
administrative remedies prior to filing suit under § 502(a)(1)(B) unless “it would be futile or
would furnish inadequate relief”) with Varity, 516 U.S. at 509 (finding that the plaintiffs could
not seek relief under § 502(a)(1)(B) because they were no longer members of the plan at
issue). In fact, the issue of futility seems to proceed on the assumption that relief is
otherwise available under § 502(a)(1)(B). See Hill, 409 F.3d at 720.
However, even if the Court may consider futility in determining whether Harrison may
bring suit under § 502(a)(1)(B), he bears the burden of proving that exhaustion is futile.
Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 419 (1998). “The standard for adjudging
the futility of resorting to the administrative remedies provided by a plan is whether a clear
and positive indication of futility can be made.” Id. Harrison’s bald assertions of futility do
not come close to meeting this standard. Thus, the Court concludes that Harrison could
have brought suit under § 502(a)(1)(B). This precludes him from proceeding under §
502(a)(3). Varity, 516 U.S. at 509. Although the Court could simply dismiss Harrison’s
claim against Central States based on this finding, it will proceed with its analysis due to
the somewhat unusual posture of this case. Assuming arguendo that Harrison can only
obtain relief under § 502(a)(3), the Court must next consider whether Harrison seeks
“appropriate equitable relief.” Id.
Equitable Relief Under § 502(a)(3)
“ERISA abounds with the language and terminology of trust law.” Firestone Tire and
Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989). Although “the courts of equity had
exclusive jurisdiction over virtually all actions by beneficiaries for breach of trust,” the United
States Supreme Court has held that the term “equitable relief” does not include “all relief
available for breach of trust at common law.” Mertens v. Hewitt Assoc., 508 U.S. 248, 25612
58 (1993) (observing that “there were many situations – not limited to those involving
enforcement of a trust – in which an equity court could establish purely legal rights and
grant legal remedies which would otherwise be beyond the scope of its authority”). Instead,
the Court chose to define “equitable relief” as “those categories of relief that were typically
available in equity.” Id. at 256 (emphasis in original).
To determine whether the remedy a plaintiff seeks is legal or equitable, courts must
consider the basis for the plaintiff’s claim and the nature of the underlying remedies sought.
Montanile v. Board of Trustees of Natl Elevator Indus. Health Benefit Plan, 136 S. Ct. 651,
657 (2016) (explaining that standard treatises on equity “establish the basic contours of
what equitable relief was typically available in premerger equity courts”) (internal quotations
omitted). These inquiries, separate in theory, often overlap in practice. See, e.g., GreatWest Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 217 (2002) (characterizing the
plaintiff’s claim as one for legal restitution, not equitable restitution, because it sought to
impose personal liability on the defendants for benefits conferred upon them, rather than
a constructive trust or equitable lien on particular property).
In Mertens, the Court identified restitution as a type of equitable relief. 508 U.S. at
256-58. However, the Court later clarified that “not all relief falling under the rubric of
restitution is available in equity.” Great-West, 534 U.S. at 213-14. The Court explained
that a plaintiff had a “right to restitution at law through an action derived from the commonlaw writ of assumpsit” where he “could not assert title or right to possession of particular
property, but in which nevertheless he might be able to show just grounds for recovering
money to pay for some benefit the defendant had received from him.” Id. at 213 (internal
quotations omitted). By contrast, “a plaintiff could seek restitution in equity, ordinarily in the
form of a constructive trust or an equitable lien, where money or property identified as
belonging in good conscience to the plaintiff could clearly be traced to particular funds or
property in the defendant’s possession.” Id.
As the above-cited case law suggests, equitable relief may take the form of money.
Id. However, the Court indicated that the funds sought must be identifiable and within the
defendant’s possession and control. Compare Great-West, 534 U.S. at 213-14 (finding that
the plaintiff’s claim was one for legal restitution because it sought to recover from the
defendants’ general assets) with Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356, 363
(2006) (concluding that the plaintiff’s claim was one for equitable restitution because it
sought to recover tort settlement funds that were specifically set aside in an investment
account pending the outcome of the ERISA suit brought by the plan fiduciary).
In this case, Harrison seeks to recover the funds that Central States promised to pay
his medical providers in settling the subrogation lien on his tort judgment.
essentially the inverse of the situation presented in Great-West and Sereboff. However,
case law suggests that Harrison may have “the modern-day equivalent of an ‘equitable lien
by agreement’” because he seeks to hold Central States to its promise to pay his
outstanding medical bills. See US Airways, Inc. v. McCutchen, 133 S. Ct. 1537, 1546
(2013) (explaining that an equitable lien by agreement “both arises from and serves to carry
out a contract’s provisions”). However, Central States has fulfilled its promise to pay his
outstanding medical bills, as Harrison himself admits. (Doc. # 56). Therefore, Harrison has
already obtained the relief he seeks. Central States may not have made the payments in
a timely fashion, but any sums awarded to Harrison for the stress he suffered and the
negative impact on his credit profile would be compensatory, and therefore legal, in nature.
See Mertens, 508 U.S. at 248 (characterizing compensatory damages as the “classic form
of legal relief”).
Nevertheless, Harrison argues that he is entitled to a “surcharge” under CIGNA
Corp. v. Amara.
In Amara, the Court held that funds awarded to already retired
beneficiaries qualified as equitable relief, even though the funds were not specifically
identifiable, because “[e]quity courts possessed the power to provide monetary
‘compensation’ for a loss resulting from a trustee’s breach of duty, or to prevent the
trustee’s unjust enrichment.” 563 U.S. 421, 441-42 (2011). However, Amara presented
very different facts from this case. The Amara plaintiffs sued their employer, challenging
its decision to convert a traditional defined benefit pension plan to a “cash balance”
retirement plan. Id. at 421-22. The district court reformed the plan and issued an injunction
“requir[ing] the plan administrator to pay to already retired beneficiaries money owed them
under the plan as reformed.” Id. The Court approved of this award, characterizing it as a
kind of “make-whole relief.” Id.
Given the differences between the facts of Amara and the present case, the Court
believes that Amara’s holding is of limited value to Harrison. However, even if Amara does
authorize the use of a surcharge in this situation, Harrison is not entitled to such an award
because he has already been made whole. As discussed above, Central States has paid
the promised sum to Harrison’s medical providers. Therefore, any further sums awarded
to him would compensate him for losses sustained in connection with the delayed payment.
Such an award would qualify as legal, rather than equitable, relief. Because any claim for
equitable relief that Harrison may have had is now moot, and because any further sums
could only be recovered under a legal theory, rather than an equitable theory, the Court
finds that Harrison is unable to proceed under § 502(a)(3). Accordingly, Central States’
Motion to Dismiss is granted.
HCSC’s Motion to Dismiss
ERISA also includes an express preemption4 provision, codified at 28 U.S.C. §
1144(a), that “preempts state law and state law claims that ‘relate to’ any employee benefit
plan as that term is defined therein.” Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d
1272, 1275 (6th Cir. 1991). “The phrase ‘relate to’ is given broad meaning such that a state
law cause of action is preempted if ‘it has connection with or reference to that plan.’” Id. at
1275-76. Only those claims “whose effect on employee benefit plans is merely tenuous,
remote or peripheral are not preempted.” Id. at 1276. The practical result is that “virtually
all state law claims relating to an employee benefit plan are preempted by ERISA.” Id.
However, the express preemption provision is followed by a savings clause, which
states in pertinent part:
Construction and application
(2)(A) Except as provided in subparagraph (B), nothing in this
subchapter shall be construed to exempt or relieve any person
from any law of any State which regulates insurance, banking,
Neither an employee benefit plan described in section 1003(a)
of this title, which is not exempt under section 1003(b) or this
title (other than a plan established primarily for the purpose of
providing death benefits), nor any trust established under such
4) The Court has also referred to this concept as conflict preemption. (Docs. # 26 and 37). It is a
defense to a state law claim that does not have jurisdictional consequences, unlike complete or field
preemption, which the Court discussed in its two previous Orders. See Ouellette v. Christ Hosp.,
942 F. Supp. 1160, 1163 (S.D. Ohio 1996).
a plan, shall be deemed to be an insurance company or other
insurer, bank, trust company, or investment company or to be
engaged in the business of insurance or banking for purposes
of any law of any State purporting to regulate insurance
companies, insurance contracts, banks, trust companies, or
29 U.S.C. § 1144(b)(2)(A).
Harrison asserts claims for breach of contract, violation of the implied covenant of
good faith and fair dealing, violation of the Kentucky Unfair Claims Settlement Practices
Act, common law bad faith, and violation of the Kentucky Consumer Protection Act against
HCSC. (Doc. # 38). He argues that these claims are not subject to conflict preemption
because they have only a remote and tenuous connection to the employee benefit plan.
However, Harrison overlooks the fact that he would have no claims at all against HCSC,
but for his participation in the employee benefit plan. For this reason, the Court finds that
Harrison’s state law claims against HCSC “relate to” the plan. That being the case, the
Court must now consider whether these claims fall within § 1144(b)(2)(a)’s savings clause.
For many years, the United States Supreme Court endorsed the following test to
determine whether a state law fell within § 1144's savings clause. First, the Court asked,
“whether, from a ‘common-sense view of the matter,’ the contested prescription regulates
insurance.” UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 367 (1999). Second, the
Court used three factors “to determine whether the regulation fits within the ‘business of
insurance’ as that phrase is used the McCarran-Ferguson Act.” Id. The relevant factors
were: (1) whether the practice has the effect of transferring or spreading a policyholder’s
risk; (2) whether the practice is an integral part of the policy relationship between the
insurer and the insured; and (3) whether the practice is limited to entities within the
insurance industry. Id.
In 2003, the Court decided to “make a clean break from the McCarran-Ferguson
factors” and endorse a new two-part test. Ky. Ass’n of Health Plans, Inc. v. Miller, 538 U.S.
329, 341-42 (2003). The Court held that “[f]or a state law to be deemed a ‘law . . . which
regulates insurance’ under 1144(b)(2)(A), it must satisfy two requirements.” Id. “First, the
state law must be specifically directed toward entities engaged in insurance.” Id.; see also
Am. Council of Life Ins. v. Ross, 558 F.3d 600, 605 (6th Cir. 2009) (explaining that “state
laws are ‘directed toward entities engaged in insurance’ if insurers are regulated with
respect to their insurance practices”). Second, “the state law must substantially affect the
risk pooling arrangement between the insurer and insured.” Miller, 538 U.S. at 341; see
also Ross, 558 F.3d at 606 (stating that the second prong is satisfied if the statute “alter[s]
the scope of permissible bargains between insurers and insureds”).
In this case, several of Harrison’s claims are based on state laws that are not
specifically directed towards entities engaged in insurance. Accordingly, § 1144's savings
clause does nothing to save his claims for breach of contract, breach of the duty of good
faith and fair dealing, Kentucky Consumer Protection Act (“KCPA”), and common law bad
faith. See Basham v. Prudential Ins. Co. of Am., Civ. A. No. 3:11-CV-00464-CRS, 2012
WL 5878158, at *6, n. 9 (W.D. Ky. Nov. 20, 2012) (concluding that the plaintiff’s common
law claims for breach of contract and breach of the duty of good faith and fair dealing did
not regulate insurance and were therefore preempted); Curry v. Cincinnati Equitable Ins.
Co., 834 S.W.2d 701, 706 (Ky. Ct. App. 1992) (finding that the plaintiff’s KCPA claim “is
also preempted by ERISA . . . because the Act regulates more than just the insurance
industry”); Pemberton v. Reliance Standard Life Ins. Co., Civ. A. No. 08-86-JBC, 2008 WL
4498811, at *9 (E.D. Ky. Sept. 30, 2008) (“Bad faith laws are rules of general applicability
and are not specifically directed at the insurance industry, and therefore, they are not
protected by the preemption savings clause.”) (citing Pilot Life Ins. Co. v. Dedeaux, 481
U.S. 41, 50-51 (1987)).5
However, Harrison’s claim under the Kentucky Unfair Claims Settlement Practices
Act (“KUCSPA”) requires more attention. “[T]here can be no doubt that [KUCSPA] was
intended to regulate insurance settlement practices.” Dearing v. Continental Assurance
Co., Civ. A. No. 90-0148-BG(H), 1993 WL 4168, at *2 (W.D. Ky. 1993); see also Curry, 834
S.W.2d 701, 707 (Ky. Ct. App. 1992) (stating that KUCSPA “pertains to and regulates
practices relating to the procedural aspects of claims processing and is intended to protect
the public from unfair trade practices and fraud”). Despite this assessment, several courts
sitting in Kentucky have held that KUCSPA claims were expressly preempted under Pilot
Life for failure to satisfy the McCarran-Ferguson factors. See Cummings v. Thomas Indus.,
Inc., 812 F. Supp. 99 (W.D. Ky. 1993); Curry, 834 S.W.2d at 707; Dearing, 1993 WL 4168,
By contrast, the new Miller test “requires only that the state law substantially affect
the risk pooling arrangement; it does not require that the state law actually spread the risk.”
538 U.S. at 339, n. 3. One of our sister courts observed that the provisions of KUCSPA
“dictate the method by which consent to enter into an insurance contract may be obtained,
5) The Court recognizes that the Curry case pre-dates the adoption of the Miller test. Accordingly,
the Kentucky Court of Appeals asked whether the KCPA regulated insurance, not whether it was
specifically directed at entities engaged in insurance. If the KCPA could not satisfy the former test,
it cannot satisfy the slightly more stringent latter test. Therefore, the Court believes that the ultimate
conclusion in Curry is still sound.
require an insured to be made aware of the terms of that contract through actual receipt,
and prohibit alteration of the terms of the contract.” Dublin Eye Assoc. v. Mass. Mut. Life
Ins. Co., Civ. A. No. 11-128-JBC, 2011 WL 3880491, at *2 (E.D. Ky. Aug. 31, 2011).
Because “[t]he provisions here dictate the conditions under which an insurance contract
may be deemed valid,” the court ultimately concluded that KUCSPA substantially affects
the risk-pooling arrangement between insurer and the insured. Id.
The Court finds the analysis in Dublin Eye Associates equally applicable here.
KUCSPA is a part of the Kentucky Insurance Code. Ky. Rev. Stat. Ann. § 304.12-230. It
is specifically intended to “regulate and protect the bargain struck between the insurer and
the insured.” Dublin Eye Assoc., 2011 WL 3880491, at *2. If § 1144's savings clause does
not capture KUCSPA claims, what state law claims would it capture? Indeed, would it
capture any state law claims at all? The Court suspects that it would not. This cannot be
the result that Congress intended in drafting § 1144's savings clause. Accordingly, the
Court finds that § 1144's savings clause captures Harrison’s KUCSPA claim and saves it
from preemption. Defendant HCSC’s Motion to Dismiss will be granted with respect to
Harrison’s claims for breach of contract, violation of the implied covenant of good faith and
fair dealing, common law bad faith, and violation of the KCPA, and denied with respect to
his KUCSPA claim.
Accordingly, for the reasons stated herein,
IT IS ORDERED that Central States’ Motion to Dismiss (Doc. # 41) be, and is,
hereby GRANTED IN FULL.
IT IS FURTHER ORDERED that HCSC’s Motion to Dismiss (Doc. # 40) be, and is,
hereby GRANTED as to Harrison’s claims for breach of contract, violation of the implied
covenant of good faith and fair dealing, common law bad faith, and violation of the KCPA
and DENIED with respect to his KUCSPA claim.
This 13th day of May, 2016.
K:\DATA\Opinions\Covington\2015\15-60 MOO re MTDs.wpd
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