1 District Judge of the Western District of Louisiana, sitting by designation.

2 Employee Retirement Income Security Act of 1974. 88 Stat. 829, as amended, 29 U.S.C. §

1001 et seq. United States Court of Appeals,

Fifth Circuit.

No. 92-4413.

James M. TINGLE, Sr. and Yvette Cecile Tingle, Plaintiffs-Appellees,

and

Lafayette General Medical Center, Intervenor-Plaintiff-Appellee, Cross-Appellant,

v.

PACIFIC MUTUAL INSURANCE CO., Defendant-Appellant, Cross-Appellee.

July 23, 1993.

Appeals from the United States District Court for the Western District of Louisiana.

Before WISDOM and DUHÉ, Circuit Judges, and DOHERTY 1 , District Judge.

WISDOM, Circuit Judge:

In this case, the plaintiffs/appellees, James M. Tingle, Sr. and his wife, Yvette Cecile Tingle,

sued to recover medical expenses under a health insurance policy provided through Tingle's employer.

When Tingle's wife suffered injuries to her back, Tingle filed a claim for her medical expenses with

his insurance company, Pacific Mutual Insurance Company ("Pacific"), the defendant/appellant

.

Pacific responded by not ifying Tingle that his policy had been ret ro act ively cancelled based on its

discovery that he had misrepresented his wife's medical history on his insurance application. Tingle

filed suit in state court to recover under his insurance policy. Pacific removed the case to the Western

District of Louisiana where the case was tried to the court. At trial, the district co urt applied

Louisiana law and concluded that Tingle was entitled to recover under the policy. We hold that the

Employee Retirement Income Security Act ("ERISA") 2 preempts state law in this case. Therefore,

we reverse and remand with instructions to the district court to apply federal law instead of Louisiana

law.3 This agent was not an employee of Pacific Mutual. He was an independent insurance broker

licensed to sell Pacific insurance. I.

In September 1987, Tingle was employed by Coastal Tubular Services ("Coastal"). Coastal

maintained a group health care policy for its employees and their families. When Coastal failed to pay

its insurance premiums, causing its policy to lapse, Pacific supplied the replacement policy. Coastal

informed its employees that there would be no lapse in their coverage.

On September 3, 1987, Coastal summoned all of its employees from their jobs to meet with

Coastal's insu r ance agent. 3 The agent gave each of the employees a Pacific enrollment form to

complete and waited about fifteen minutes to collect the forms. The form required the employees to

answer questions regarding their medical histories and t heir covered family members' medical

histories. Pacific agreed to provide health insurance to Tingle and his wife based on this application.

In April 1988, Mrs. Tingle injured her back while attempting to pull on her girdle. When she

saw her doctor three days later, he admitted her to Lakewood Hospital. Because the hospital was

unable to treat her, it transferred her to Lafayette General Medical Cen ter ("Lafayette General ").

There she was found to have a herniated disc, not brought on by her previous back condition. She

was operated on to correct this condition. Mrs. Tingle was hospitalized again on two separate

occasions because of com plications arising from the surgery. Pacific pre-approved each separate

treatment. The total cost of Mrs. Tingle's treatments amounted to $71,300. Tingle filed a claim for

these costs with Pacific.

When Pacific received Tingle's claim for these expenses, it investigated Mrs. Tingle's medical

history and discovered several discrepancies between her medical history and the information Tingle

had provided on his enrollment form. Pacific denied Tingle's claim and retroactively cancelled his

policy based this discovery. Tingle filed suit in state court to recover under his policy. Pacific

removed the case to the Western District of Louisiana under 29 U.S.C. § 1132(e) and (f) (ERISA)

and 28 U.S.C. § 1331. The Tingles executed an assignment o f health care benefits in favor of

Lafayette General, which intervened at trial.4 29 U.S.C. § 1144(a). This section provides: "Except as provided in subsection (b) of this

section, the provisions of this subchapter and subchapter III of this chapter shall supersede any

and all State laws insofar as they may now or hereafter relate to any employee benefit plan

described in section 1003(a) of this title and not exempt under section 1003(b) of this title. This

section shall take effect on January 1, 1975." The district court found that Tingle had misrepresented his wife's medical history on his

enrollment form. Mrs. Tingle was a borderline diabetic and had continuing back problems. Yet,

when asked whether or not Tingle or his wife suffered from any form of diabetes or back or spine

disorder, Tingle answered in the negative to both of these questions. In addition, he failed to mention

that his wife suffered from obesity. At t rial, Tingle testified that he thought his wife was taking

medication to avoid becoming a diabetic; thus, he did not believe she was diabetic. Further, he stated

that he thought her previous back problems had been merely the result of pulled muscles; hence, he

did not believe that they constituted a "disorder". Tingle also testified that he overheard Coastal's

insurance agent t elling another Coastal employee to report only major surgeries and illnesses. Based

on this testimony, the district court found that Tingle did not have the actual intent to deceive Pacific

when he made the misrepresentations.

The district court held that ERISA did not preempt the applicable state law. Consequently,

interpreting La.R.S. 22:619 to require an actual intent to deceive in order to bar recovery, the district

court concluded that Pacific was liable on the policy i n spit e o f Tingle's misrepresentations. The

district court enter ed judgment in favor of the Tingles and Lafayette General for the $71,300 in

medical expenses and for reasonable costs but not attorneys' fees.

Pacific appeals the court's award al lo wing recovery under the policy and Lafayette cross

appeals the court's decision to deny attorneys' fees.

II.

Pacific argues that ERISA preempts the otherwise applicable Louisiana law in this case. We

agree. As a general rule, ERISA preempts any state law that relates to an employee benefit plan. 4

However, ERISA's "insurance saving clause" expressly exempts state laws that regulate insurance5 29 U.S.C. § 1144(b)(2)(A). This section provides: "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, or securities."

6 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985).

7 Id. at 743-44, 105 S.Ct. at 2391. The Court sought guidance from federal jurisprudence

interpreting the phrase "business of insurance" as used in the McCarran-Ferguson Act, 15 U.S.C.

§ 1012(a). See also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48-49, 107 S.Ct. 1549, 1553, 95

L.Ed.2d 39 (1987).

8 Id. 471 U.S. at 740-743, 105 S.Ct. at 2389-2391.

9 Id. at 729, 105 S.Ct. at 2383. The Massachusetts statute provided: "Any blanket or general

policy of insurance ... or any policy of accident and sickness insurance ... or any employees' health

and welfare fund which provides hospital expense and surgical expense benefits and which is

promulgated or renewed to any person or group of persons in this commonwealth ... shall,

provide benefits for expense of residents of the commonwealth covered under any such policy or

plan, arising from mental or nervous conditions as described in the standard nomenclature of the

American Psychiatric Association....". from preemption. 5 The district court held that La.R.S. 22:619 is exempt from ERISA preemption

because it falls within the insurance savings clause. We disagree.

In Metropolitan Life Insurance Co. v. Massachusetts, 6 the Supreme Court enumerated the

requirements a statute must meet to fall within the ERISA insurance savings clause. The Court took

a two-pronged approach. First, the court determined whether the statute in question fit t ed t he

common sense definition of insurance regulation. Second, it looked at three factors: (1) Whether

the practice (the statute) has the effect of spreading the policyholders' 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 limit

ed to entities within the insurance industry. 7 If the statute fitted the common sense

definition of insurance regulation and the court answered "yes" to each of the questions in the three

part test, then the statute fell within the savings clause exempting it from ERISA preemption. 8

In Metropolitan Life, the Court considered a Massachusetts statute that mandated insurers

to include minimal mental health care benefits in all policies issued to Massachusetts residents. 9 The

Court held that ERISA did not preempt this statute because the statute fell within the insurance

savings clause. The Court found that t he st at ut e was directed solely to the insurance industry; it

spread the risk of mental health care costs among all pol icyho lders in the state; and it formed an10 Id. at 743, 105 S.Ct. at 2391.

11 Pilot Life, 481 U.S. at 50, 107 S.Ct. at 1554. Mississippi law allows the recovery of punitive

damages in insurance contract actions where the insurer acted with arbitrarily an in bad faith in

denying a claim for benefits

12 Id. The state law at issue in Pilot Life failed other prongs of the Metropolitan Life test in

addition to failing to spread the risk. Thus, the Court's holding that ERISA preempted the state

law is grounded on more than one defect.

13 See Cramer v. Association Life Ins. Co., 569 So.2d 533, 537 (La.1990), "As we appreciate

the term "spreading of risk" in the context of an insurance policy, the risk focused upon is that

risk for which the insurance company has specifically contracted to reimburse the insured. In

Union Life Ins. Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982), the

Supreme Court interpreted the phrase "spreading of policyholder risk" in the context of the

McCarran-Ferguson Act. The Court stated, "[t]he transfer of risk from insured to insurer is

effected by means of the contract between the parties—the insurance policy—and that transfer is

complete at the time that the contract is entered." The Court went on to note, "... the

fundamental principle of insurance [is] that the insurance policy defines the scope of risk assumed

by the insurer from the insured." Thus, when looking to see if a particular practice [statute] acts

to "spread the risk," we must focus upon the actual risks that were transferred from the insured to integral part of the insurer-insured relationship. Specifically in reference to the risk factor, the Court

reasoned that because the statute caused the cost of mental health care to be shared by all

policyholders in the state, it met the risk spreading factor. 10 In contrast, in Pilot Life, the Supreme

Court held that ERISA preempted the state law at issue (the Mississippi common law of bad faith and

torti ous breach of contract) in part because it did not serve to spread the risk. 11 The Court stated that

"[u]nlike the mandated-benefits law at issue in Metropolitan Life, the Mississippi common law of bad

faith does not effect a spreading of policyholder risk". 12

The statute at issue in the instant case, La.R.S. 22:619(B), provides:

In any application for life or health insurance made in writing by the insured, all statements

therein made by the insured shall, in the absence of fraud, be deemed representations and not

warranties. The falsity or any such st atement shall not bar the right to recovery under the

contract unless such false statement was made with actual intent to deceive or unl ess i t materially affected either the acceptance of the risk or the hazard assumed by the insurer.

Pacific contends that this statute does not act to spread policyholder risk. Thus, it argues, the statute

is preempted by ERISA. We agree. Unlike the mandated benefits statute in M etropolitan Life, the

instant statute does not spread the cost of health care among the policyholders in the state. Although

the statute does shift the burden of innocent misrepresentations (the legal risks) onto the insurer, it

does not spread the risk of insurance (health) coverage for which the parties contracted. 13 Thus, thethe insurer and determine if the practice [statute] acts to alter the contractual apportionment of

those risks.

14 Pacific argues that the statute also does not form an integral part of the insurer-insured

relationship. Because we hold that the statute fails the risk spreading factor, we need not address

this argument.

15 Pilot Life, 481 U.S. at 56, 107 S.Ct. at 1557.

16 538 So.2d 210, 214 (La.1989).

17 Id. at 214, n. 9. statute is more akin to the Mississippi law at issue in Pilot Life, which defined the criteria necessary

for an insured to collect punitive damages from an insure r. Although the statute fi ts the com m on

sense definition of insurance regulation, it fails t o sat isfy at least one prong of the three part

Metropolitan Life test 14 . Thus, the statute does not fall within the ERISA insurance savings clause

and is, therefore, preempted by ERISA.

Tingle argues that because there is little or no federal common law developed in this area and

ERISA is silent concerning misrepresentation, this type of state law is what the ERISA preemption

exception was intended to preserve. This argument entirely overlooks the M etropolitan Life holding.

Moreover, in Pilot Life, the Court noted that Congress intended that "a federal common law of rights

and obligations under ERISA-regulated plans would develop ..." with the passage of ERISA. 15

The only case offered by Tingle to support his position actually supports Pacific's argument.

In Soniat v. Travelers Ins. Co., 16 the Louisi ana Supreme Court considered whether La.R.S.

22:213(B)(7) came under ERISA's insurance savings clause exempting it from ERISA preemption.

At the time the case was decided, the statute provided in pertinent part:

Cancellation : ... [When the insurer cancels a policy], [s]uch cancellation shall be without

prejudice to any claim originating prior thereto.

The Court held that the statute fitted within the savings clause and therefore, was not preempted by

ERISA. Although the Court listed the M etropolitan Life factors and made a cursory finding that the

statute in questi on satisfied each of the factors 1 7

, it incorrectly relied on the statute's presence in

Louisiana Insurance Code to conclude that it "regulated insurance" and thus fell within the savings18 Id. at 214.

19 See Gahn v. Allstate Life Insurance Company, 926 F.2d 1449, 1454 (5th Cir.1991).

20 Id. at 1450.

21 890 F.2d 760 (5th Cir.1989).

22 Id. at 763-64; see also Hansen v. Continental Ins. Co., 940 F.2d 971 (5th Cir.1991). (In

this case, the statute at issue was part of the Texas Insurance Code. In spite of this fact, the

Court held that ERISA preempted it.). clause. 18 Tingle relies on this reasoning to argue that because the statute in the instant case is also

a part of the Louisiana Insurance Code, it too should fall within the i nsurance savings clause.

Although this Court subsequently held that La.R.S. 22:213(B)(7) fell within the savings clause and

was no t preempt ed by ERISA, agreeing with the final outcome in S oniat, it did so based on the

Metropolitan Life factors, not the mere fact that the statute was part of Louisiana's Insurance Code. 19

Further, the Soniat statute, unlike the instant st at ut e, did in fact spread the risk of health care

coverage. It was designed to force insurers to provide coverage to all po licyholders for medical

expenses stemming from illnesses the insured contracted (such as cancer as in Gahn ) 20 while under

coverage of an insurance policy. In effect, the statute acted to spread the risk of these illnesses.

Moreover, this Court has held before that the mere fact that a statute is part of a

comprehensive state insurance code will not exempt it from preemption. In R amirez v. InterContinental Hotels, 21 the Court held that ERISA preempted a Texas Insurance Code provision that

furnishes a private right of action to persons injured by unfair methods of competition and deceptive

practices in the insurance industry. 22 The Court noted that although the statute was arguably directed

to the insurance indust ry, it failed to satisfy the other two factors. It did not transfer or spread

policyholder risk and it did not form an integral part of the insurer relationship. Thus, in spite of the

statute's presence in the state insurance code, it did not fit the insurance savings clause's definition

of "regulating insurance" and was therefore preempted by ERISA.

Even were we to look to Louisiana law for guidance, we would not reach Tingle's suggested

conclusion. One year after the Louisiana Supreme Court rendered the Soniat decision, it changed23 569 So.2d 533 (La.1990).

24 Ramirez, 890 F.2d at 762-63.

25 Anschultz v. Connecticut General Life Ins. Co., 850 F.2d 1467 (11th Cir.1988) (The Court

held that a Florida statute that provided specific civil remedies to insureds for alleged breach of

insurance contracts was preempted by ERISA. The Court held that it fell outside the savings

clause because it failed to meet two of the three factors: it did not act to spread the risk, and it

was not an integral part of the parties relationship. The Court noted that the statute did not

purport to regulate the content of the policies but rather to regulate breach for any type of

insurance contract. The fact that the statute was part of the Insurance Code was held to be

merely evidence that one of the three factors had been satisfied (the direct regulation of the

insurance industry)).

McMahan v. New

England Mut. Life Ins. Co., 888 F.2d 426, 428-30 (6th

Cir.1989) (The Court held that Kentucky case law that holding that ambiguous terms in an

insurance contract are to be construed against the insurer was preempted by ERISA. The

Court applied the three part test and found that law did not spread policyholders' risk but

rather forces the insurer to bear the legal risks associated with ambiguous policy language.

Further the Court noted that the law was not aimed directly at the insurance industry

because it derived from general state law.).

Kelley v. Sears, Roebuck and Co., 882 F.2d 453 (10th Cir.1989) (The Court held

that a Colorado statute which defines and prohibits unfair or deceptive practices in the

insurance industry was preempted by ERISA. The Court held that the statute failed the

three part test in spite of the fact that it was directed towards the insurance industry. The

Court noted that the statute did not spread policyholder risk and it was not an integral part

of the parties relationship because it did not control the substantive terms of the policies.).

Brew er v. Lincoln Nat. Life Ins. Co., 921 F.2d 150 (8th Cir.1990), cert. denied,

--- U.S. ----, 111 S.Ct. 2872, 115 L.Ed.2d 1038 (1991) (The Court held that a Missouri law

requiring that any ambiguities in insurance contracts be construed against the insurer was

preempted by ERISA. The Court relied on McMahan, and stated that this law did not act its approach. In C ramer v. Association Life Ins. Co., 23 the Court applied the M etropolitan Life

factors and concluded that a different provision of the Louisiana Insurance Code failed to satisfy the

test and was therefore preempted by ERISA.

Tingle urges us to apply the faulty reasoning relied upon in Soniat to find that ERISA does

not preempt the statute before us in the instant case. In the light of the overwhelming precedent to

the contrary, we decline to do so.

The rule in this circuit and the trend in other courts of appeals requires the satisfaction of the

Metropolitan Life test to avoid preemption. 24 The Eleventh, Sixth, Tenth, and Eighth Circuits have

all held that a statute's failure to satisfy one or more of the Metropolitan Life factors excludes it from

the ERISA savings insur ance clause. 25 Thus, all three factors must be met to avoid ERISAto spread policyholders' risk but rather put the entire risk onto the insurers. Further it held

that although the rule had evolved into a specific insurance industry rule, it had been

derived from general state contract principles and was therefore not directed at the

insurance industry alone.).

26 But see United States ex rel. Canion v. Randall & Blake, 817 F.2d 1188, 1193 (5th

Cir.1987) (Where this Court stated that where federal law is applicable, yet, is silent, the court

may refer to state law as an appropriate source of guidance. The court is not, however, bound to

apply state law.).

27 The appellants filed a motion to certify a question of state law to the Louisiana Supreme

Court. This motion was carried with the case. Because we hold that ERISA preempts the

relevant state law in this case, we deny the appellants' motion. preemption.

Reso lut io n o f this issue requires us to determine if each of the factors has been satisfied.

Because we hold that the statute does not spread the risk, we reverse the district court's decision and

remand for the court to decide the case using federal law. Having decided t he case based on this

factor, we need not address Pacific arguments pertaining to the other two Metropolitan Life factors.

We are aware of the dearth of federal law addre ssing t his issue. However, this is not a legitimate

reason for applying state law where ERISA would otherwise act to preempt it. 26

Because we reverse the district court's award, we do not address the appellee's request for

attorneys fees.

III.

For the foregoing reasons, we REVERSE and REMAND with instructions to the district

court to apply federal law in resolving this case. 27