Opinion ID: 164970
Heading Depth: 2
Heading Rank: 2

Heading: Preemption of Oklahoma's Bad Faith Claim

Text: 51 Ms. Allison next challenges the district court's conclusion that her bad faith claim is preempted by ERISA. First, we note that both parties have managed to flout this circuit's rules with their failure to attach the district court's December 4, 2002, order to the briefs submitted in this court. See 10TH CIR. R. 28.2(A) (requiring appellant's brief to include, among other things, copies of all pertinent written findings, conclusions, opinions, or orders of a district judge even though they are also included in the appendix); see also 10TH CIR. R. 28.2(B) (requiring appellee's brief to include all the rulings required by (A), in the event that appellant's brief fails to include them). In addition, Ms. Allison's counsel has apparently failed to include the court's order in the appendix, in violation of 10TH CIR. R. 10.3(C). We have obtained and reviewed the order: in a minute order, the district court granted UNUM's motion for partial summary judgment without further discussion. 52 The question is whether an Oklahoma state law bad faith claim against an employment disability insurance provider is preempted by ERISA. Because the scope of ERISA preemption is a question of law, the district court's decision is subject to de novo review. Kidneigh v. UNUM Life Ins. Co. of Am., 345 F.3d 1182, 1184 (10th Cir.2003). We hold that the district court correctly granted summary judgment to UNUM on this issue because Ms. Allison's bad faith claim (1) conflicts with ERISA's remedial scheme and, in the alternative, (2) is directly preempted under the test announced in Kentucky Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 123 S.Ct. 1471, 155 L.Ed.2d 468 (2003). See Kidneigh, 345 F.3d at 1186 (noting that a bad faith claim under Colorado law was preempted due to conflict with ERISA's remedial scheme and, in the alternative was expressly preempted). 2. Conflict with ERISA's Remedial Scheme 53 Perhaps because Ms. Allison did not have the benefit of our decision in Kidneigh at the time of briefing, she did not address whether her claims conflict with ERISA's remedial scheme. Such conflict is apparent however, from Supreme Court precedent. See Rush Prudential HMO v. Moran, 536 U.S. 355, 377, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002) (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.) (internal citations and quotation marks omitted); see id. at 373-87, 122 S.Ct. 2151 (applying ERISA conflict preemption after rejecting an ERISA direct preemption claim); Boggs v. Boggs, 520 U.S. 833, 841, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997) (We can begin, and in this case end, the analysis by simply asking if state law conflicts with the provisions of ERISA or operates to frustrate its objects.). 54 Ms. Allison's complaint seeks consequential and punitive damages. In Conover v. Aetna U.S. Health Care, Inc., 320 F.3d 1076 (10th Cir.2003), we addressed Oklahoma's approach to a breach of good faith claim: 55 Oklahoma's law allows plan participants to obtain consequential and, in a proper case, punitive, damages for breach of good faith and fair dealing by an insurer. Nowhere does the Employee Retirement Income Security Act allow consequential or punitive damages. Damages are limited to the recovery of benefits due ... under the terms of the plan. See 29 U.S.C. § 1132(a)(1)(B). Oklahoma's bad faith law therefore allows plan participants to obtain remedies ... that Congress rejected in the Act. 56 Id. at 1080 (emphasis supplied) (some internal citations and quotation marks omitted). In Kidneigh, 345 F.3d at 1185, we held that nearly identical bad faith claims in Colorado were preempted by ERISA because they conflict with ERISA's remedial scheme: 57 Where a state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress, then the state law is preempted. Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941). State law causes of action, then, are preempted under ERISA both when they are expressly preempted by the terms of the statute as well as when the state law provides remedies beyond those contained in ERISA itself. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 143-44, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990); Pilot Life, 481 U.S. at 54, 107 S.Ct. 1549 (The deliberate care with which ERISA's civil enforcement remedies were drafted and the balancing of policies embodied in its choice of remedies argue strongly for the conclusion that ERISA's civil enforcement remedies were intended to be exclusive.). 58 Id. (emphasis added). The same is true here: As in Conover, we hold that Ms. Allison's breach of contract claim, which seeks consequential and punitive damages, conflicts with ERISA's remedial scheme, and is thus preempted. 3. Direct Preemption 59 Although Ms. Allison's state law claim conflicts with ERISA's remedial scheme, the majority's holding in Kidneigh indicates that, in the alternative, we might also address the direct preemption analysis, one fraught with statutory complexity. Metro. Life Ins. Co. v. Mass., 471 U.S. 724, 740, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985). But see Kidneigh, 345 F.3d at 1191 (Henry, J., concurring in part and dissenting in part) (noting that where plaintiff's state law claims are barred by ERISA conflict preemption, it is wholly unnecessary for a court to engage in analysis of whether the other ERISA preemption doctrine applies). 60 ERISA's preemption clause broadly states that [e]xcept 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. 29 U.S.C. § 1144(a). What Congress took away with one hand, however, it gave back with the other as contained in ERISA's saving clause: 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. Id. § 1144(b)(2)(A). Subparagraph (B) (the deemer clause), in turn, provides: 61 Neither an employee benefit plan ... nor any trust established under such 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 investment companies. 62 Id. § 1144(b)(2)(B). 63 Kidneigh, 345 F.3d at 1184. 64 Ms. Allison contends that the savings clause of ERISA places her claim outside of ERISA's exclusive remedial scheme, and thus the claims are not preempted. In order to determine whether her claim is preempted by ERISA, we must examine whether the Oklahoma state law at issue satisfies two requirements: First the state law must be specifically directed toward entities engaged in insurance and [s]econd ... the state law must substantially affect the risk pooling arrangement between the insurer and the insured. Id. (quoting Miller, 123 S.Ct. at 1479). Ms. Allison maintains that the Oklahoma bad faith claim satisfies both prongs of Miller, and as such, falls within ERISA's savings clause and is not expressly preempted. 65 In Kidneigh, we applied the Miller test to determine whether Colorado's bad faith claim regulated insurance, and thus fell within ERISA's savings clause. See id.; 29 U.S.C. § 1144(b)(2)(A). We held that Colorado's bad faith claim (1) was targeted directly toward insurance, but (2) did not substantially affect the risk pooling arrangement. Id. at 1186-87. Thus, the Colorado bad faith claim did not fall within ERISA's savings clause and was directly preempted by ERISA. See id. In Conover, a case decided before the Supreme Court's decision in Miller, we determined that Oklahoma's bad faith law did not regulate insurance within the meaning of ERISA's savings clause preemption provision. Thus, we must now determine if the recent decision in Miller has somehow affected our analysis in Conover. 123 S.Ct. at 1479 (Today we make a clean break from the McCarran-Ferguson factors.). Thus we must determine whether the state law (1) is specifically directed toward entities engaged in insurance and (2) substantially affect[s] the risk pooling arrangement between the insurer and the insured. Id. 66
67 Here, as in Kidneigh, there is no dispute that the Oklahoma law is directed toward the insurance industry. See Kidneigh 345 F.3d at 1186; Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d 460, 466 (10th Cir.1997) ([A]lthough Oklahoma's bad faith law is specifically directed at the insurance industry, we note that, like the bad faith law in Pilot Life, its origins are from general principles of tort and contract law.). The first prong of Miller is thus satisfied. 68
69 In Gaylor, we stated that Oklahoma's bad faith law does not regulate the spreading of policyholder risk. 112 F.3d at 466. Our analysis continued: 70 A law which defines the manner in which insurance claims should be processed declares only that, whatever terms have been agreed upon in the insurance contract, a breach of that contract may in certain circumstances allow the policyholder to obtain [consequential and] punitive damages. Pilot Life, 481 U.S. at 51, 107 S.Ct. 1549. Such a law thus does not effect a change in the risk borne by insurers and the insured, because it does not affect the substantive terms of the insurance contract. On the other hand, a law mandating that a certain disease be covered under health insurance contracts would effect a spread of risk, both from insureds to insurers, and among the insureds themselves. 71 Id. (emphasis added). 1 We hold that the reasoning of Gaynor and Conover are still binding upon us and that Oklahoma's bad faith claims do not fall within ERISA's savings clause. But see Kidneigh, 345 F.3d at 1191 (Henry, J., concurring in part and dissenting in part). We affirm the district court's grant of summary judgment on this issue.