Title: HOLLAWAY v. UNUM LIFE INSURANCE CO. OF AMERICA
Citation: 2003 OK 90, 89 P.3d 1022
Docket Number: 
State: Oklahoma
Issuer: Oklahoma Supreme Court
Date: October 28, 2003

HOLLAWAY v. UNUM LIFE INSURANCE CO. OF AMERICA Annotate this Case HOLLAWAY v. UNUM LIFE INSURANCE CO. OF AMERICA 2003 OK 90 89 P.3d 1022 Case Number: 98120 Decided: 10/28/2003 THE SUPREME COURT OF THE STATE OF OKLAHOMA ROD HOLLAWAY, M.D., an individual, Plaintiff, v. UNUM LIFE INSURANCE COMPANY OF AMERICA, Defendant. CERTIFIED QUESTION OF LAW FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA Honorable Sven Erik Holms, Judge ¶0 Over the objection of the defendant, UNUM Life Insurance Company of America (UNUM), the United States District Court for the Northern District of Oklahoma certified a single question of law pursuant to the Uniform Certification of Questions of Law Act, 20 O.S. 2001 §1601 et seq.: Does Oklahoma's cause of action for breach of the implied covenant of good faith and fair dealing allowing for recovery of consequential and (when appropriate) punitive damages, as adopted in Christian v. American Home Assurance Co., With the Supreme Court's establishment of a new and different test for ERISA preemption in Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003), the question is reformulated under Is Oklahoma's cause of action for breach of the implied covenant of good faith and fair dealing a "law which regulates insurance" within the meaning of 29 U.S.C. §1144(b)(2)(A) and as that term is defined by Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003)? QUESTION ANSWERED. The test for pre-emption has altered with the Supreme Court's recent decision in Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003) making any previously promulgated Tenth Circuit decisions of little assistance. In the exercise of our authority to answer any question which may be determinative of an issue in a cause pursuant to In Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003), the United States Supreme Court held that a law regulates insurance under 29 U.S. C. §1144(b)(2) if it: 1) substantially affects the risk pooling arrangement between the insurer and the insured; and 2) is specifically directed toward the insurance industry. Oklahoma's cause of action for breach of the implied covenant of good faith and fair dealing does not affect the risk pooling arrangement between insurers and insureds. Therefore, it does not meet the Miller-test as a law which regulates insurance under 29 U.S.C. §1144(b)(2). Joseph F. Clark, Jr., Joseph F. Bufogle, Tulsa, Oklahoma, for Plaintiff. Patrick M. Ryan, Phillip G. Whaley, Joe M. Hampton, Amy J. Pierce, Oklahoma City, Oklahoma, for Defendant. KAUGER, J.: ¶1 As originally certified, the question certified provides: Does Oklahoma's cause of action for breach of the implied covenant of good faith and fair dealing allowing for recovery of consequential and (when appropriate) punitive damages, as adopted in Christian v. American Home Assurance Co., 1977 OK 141, 577 P.2d 899 , apply only to contracts of insurance such that it can be said to "regulate insurance" as that term is used in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987) and Unum Life Ins. Co. of America v. Ward, 527 U.S. 358 (1999) (requiring that to "regulate insurance" a regulation must, as a matter of common sense, "home [] in on the insurance industry and [] not just have an impact on that industry"). If Oklahoma's cause of action for the breach of the implied obligation of good faith and fair dealing "regulates insurance," it avoids preemption pursuant to ERISA's saving clause under Unum and Lewis v. Aetna U.S. Healthcare, Inc., 78 F. Supp. 2d 1202 (N.D. Okla. 1999). If it does not "regulate insurance," the cause of action is no longer available in the ERISA context and Lewis is no longer good law. ¶2 In Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003), the United States Supreme Court set forth a new and different test for determining when a law regulates insurance under 29 U.S. C. §1144(b)(2)1 to avoid federal preemption. Because the Miller opinion alters the test in causes previously considered by the Tenth Circuit and because pursuant to 20 O.S. 2001 §1602,2 this Court has authority to answer any question which may be determinative of an issue in the cause, we answer a single question, as reformulated:3 whether Oklahoma's cause of action for breach of the implied covenant of good faith and fair dealing is a "law which regulates insurance" within the mean of 29 U.S.C. §1144(b)(2)(A) and as that term is defined by Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003)? ¶3 Pursuant to Miller, a law which substantially affects the risk pooling arrangement between the insurer and the insured and which is specifically directed toward the insurance industry avoids the general rule of preemption under the Employee Retirement Income Security Act of 1974 (ERISA).4 Because Oklahoma's cause of action for bad faith breach of an insurance contract does not substantially affect the risk-pooling arrangement between insurers and insureds,5 it does not meet the test established in Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003) as a law which regulates insurance under 29 U.S.C. §1144(b)(2).6 FACTS ¶4 The plaintiff, Rod Holloway, M.D. (Holloway/insured), filed suit in the District Court of Tulsa to recover benefits funded through a group long term disability insurance policy issued by the defendant, UNUM Life Insurance Company of America (UNUM/insurer), to Holloway's former employer. Holloway also asserted a claim for bad faith breach of the implied covenant of good faith and fair dealing seeking consequential and punitive damages. Subsequently, the cause was removed to federal court. ¶5 It is undisputed that the insurance benefits arise out of and are related to an employee welfare benefit plan governed exclusively by ERISA. It is also agreed that any claim for benefits is preempted by ERISA and is governed by federal law. Nevertheless, Holloway claims that Oklahoma's common law cause of action for bad faith breach of an insurance contract is exempted from ERISA preemption as a state law which "regulates insurance" under 29 U.S.C. §1144(b)(2).7 ¶6 Recognizing that state law is determinative of the preemption issue on the bad faith cause of action and that this Court has not addressed the precise issue presented, the federal court certified the question to this Court pursuant to the Uniform Certification of Questions of Law Act, 20 O.S. 2001 §1601 et seq. on August 9, 2002. We set a briefing cycle which was completed on October 21, 2002. ¶7 On February 25th and 28th, 2003, respectively, Holloway and UNUM filed a notice and response to recent authority following the Tenth Circuit's decision in Conover v. Aetna U.S. Health Care, Inc., 320 F.3d 1076, 1080 (10th Cir. 2003). In Conover, the federal court held that Oklahoma's bad faith law did not "regulate insurance" within the meaning of ERISA's savings clause and was thus preempted both because it related to an ERISA employment benefit plan and because it conflicted with the federal statute's civil enforcement scheme. On April 2, 2003, the United States Supreme Court decided Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003), in which it established a new test for determining whether a state law "regulates insurance" and whether it is removed from the general rule of ERISA preemption under the savings clause, 29 U.S.C. §1144(b)(2).8 Holloway and UNUM addressed the Miller opinion in filings on April 10th and April 14th, 2003, respectively. I. ¶8 THE TEST FOR ERISA PREEMPTION ALTERED WITH THE SUPREME COURT'S DECISION IN Kentucky Ass'n of Health Plans, Inc. v. Miller, MAKING ANY PREVIOUSLY PROMULGATED TENTH CIRCUIT DECISIONS OF LITTLE ASSISTANCE. UNDER THE AUTHORITY OF ¶9 The federal court recognized that Oklahoma law would govern the preemption issue. It certified the preemption question over the objections of the insurer. UNUM urges us to refrain from answering the certified question. The insurer opposed certification in the federal court on grounds that federal case law was determinative of the preemption issue and that any resolution we might provide to the dispute would not be determinative of a material issue in the cause. Although the answer to the question certified may not resolve the cause, we answer because no Oklahoma law exists on a determinative issue and because tests applied by the Tenth Circuit have been altered by a recent Supreme Court decision. ¶10 Pursuant to 20 O.S. 2001 §1602,9 this Court has the power to answer certified questions from federal courts, appellate courts of other states, federally recognized Indian tribes, and governmental entities of Canada and Mexico. Questions may be answered if our response may be determinative of an issue in the pending litigation and there is no controlling precedent established through judicial opinion, constitutional provision or legislative enactment. ¶11 UNUM objected to certification on grounds that under the Supreme Court's decision in Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 , 122 S. Ct. 2151, 2165, 153 L.E.2d. 375 (2002), a decision by this Court on the issue of preemption would not be determinative of a material issue in the cause. In Rush, the Supreme Court determined that state-law based pleas for damages not provided for under the ERISA scheme were preempted. UNUM argued that, even if we were to hold that Oklahoma's cause of action for bad faith breach of the covenant of good faith and fair dealing regulated insurance within the meaning of 29 U.S.C. §1144(b)(2)(A),10 ultimately ERISA would foreclose the possibility of an award of consequential or punitive damages as remedies foreclosed by the federal statute's remedy provision.11 ¶12 The federal court was unconvinced that Rush was dispositive of the issue certified -- whether Oklahoma's law of bad faith breach of the covenant of good faith and fair dealing "regulates insurance" within the mean of ERISA. In dismissing UNUM's argument on this point, it cited to specific language from Unum providing: "Although we have yet to encounter a forced choice between the congressional policies of exclusively federal remedies and the 'reservation of the business of insurance to the States,' . . . we have anticipated such a conflict, with the state insurance regulation losing out if it allows plan participants 'to obtain remedies . . . that Congress rejected in ERISA. . .'" [Citations to authority omitted.] ¶13 Apparently, the federal court was convinced that although the insured might not ultimately prevail, it remained in need of direction on state law relating to a material issue -- whether Oklahoma's law of bad faith regulates insurance within the meaning of 29 U.S.C. §1144(b)(2)(A).12 Title 20 O.S. 2001 §1602,13 does not foreclose an answer to a question simply because this Court's response may not be dispositive of the cause. All the statute requires for us to proffer an answer to a certified question is that the response be determinative of a single issue in the cause and that no controlling state law exist. ¶14 The Tenth Circuit has on three occasions addressed the issue of whether state-law bad faith claims were laws regulating insurance and thus avoiding preemption under 29 U.S.C. §1144(b)(2)(A). In a case decided before certification, Moffett v. Halliburton Energy Serv., Inc., 291 F.3d 1227, 1232 (10th Cir. 2002), the federal court determined that Wyoming's tort of insurance bad faith did not "regulate insurance" within the meaning of ERISA's savings clause preemption provision. The decision in Conover v. Aetna US Health Care, Inc., 320 F.3d 1076, 1078 (10th Cir. 2003) was promulgated after certification and reaffirmed the appellate court's earlier holding in Gaylor v. John Hancock Mutual Life Ins. Co., 112 F.3d 460, 465-66 (10th Cir. 1997) that Oklahoma's bad faith law did not regulate insurance within the meaning of ERISA's savings clause preemption provision.14 ¶17 The United States Supreme Court decided Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003) specifically rejecting the test applied by the Tenth Circuit in Conover. The Supreme Court stated in Miller: ". . . We believe that our use of the McCarran-Ferguson case law in the ERISA context has misdirected attention, failed to provide clear guidance to lower federal courts, and, as this case demonstrates, added little to the relevant analysis. . . . . . . Today, we make a clean break from the McCarran-Ferguson factors and hold that for a state law to be deemed a 'law . . . which regulates insurance' under §1144(b)(2)(A), it must satisfy two requirements. First, the state law must be specifically directed toward entities engaged in insurance. . . . Second, as explained above, the state law must substantially affect the risk pooling arrangement between the insurer and the insured. . . ." [Citations omitted.] It is with the Supreme Court's pronouncement in mind that we have reformulated the certified question. In answering the question, we will apply the test mandated by the high court in Miller. II. ¶18 OKLAHOMA'S CAUSE OF ACTION FOR THE BAD FAITH BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING DOES NOT AFFECT THE RISK POOLING ARRANGEMENT BETWEEN INSURERS AND INSUREDS SO AS TO AVOID ERISA PREEMPTION PURSUANT TO 29 U.S.C. §1144(b)(2) AND THE SUPREME COURT'S PRONOUNCEMENT IN Kentucky Ass'n of Health Plans, Inc. v. Miller. ¶19 Hollaway argues that Oklahoma's cause of action for bad faith breach of the covenant of good faith and fair dealing meets the two-part Miller test and is exempted from ERISA preemption. He asserts that actions based on a breach of the covenant of good faith and fair dealing affect the risk pooling arrangement between insurers and their insureds and that they are specifically directed towards the insurance industry. UNUM disagrees with both these contentions. ¶20 Under Kentucky Ass'n of Health Plans, Inc. v. Miller, ___ U.S. ___, 123 S. Ct. 1471, 155 L. Ed. 2d 468 (2003), a state law must meet both prongs ¶21 "Risk" within the meaning of the insurance industry and as it relates to the insurer-insured relationship involves the event or happening for which the insurance company has specifically contracted to reimburse its insured -- the actual risk transferred from the insured to the insurer. ¶22 Risk pooling is an essential characteristic of the insurance industry. ¶23 The Supreme Court has previously determined that although bad faith actions may concern the policy relationship between the insurer and insured, they do not effect a spreading of policyholder risk. ¶25 We align ourselves with the jurisdictions which have applied the Miller test determining that state-law based bad faith claims are preempted under ERISA. Further, we note that the overwhelming majority of pre-Miller decisions considering the bad faith issue also determine the claims are subject to ERISA preemption. CONCLUSION ¶26 Although this Court will not answer a certified question in the guise of appellate review, OPALA, V.C.J., HODGES, J., WINCHESTER, J.J., dissent. FOOT