Opinion ID: 2977724
Heading Depth: 3
Heading Rank: 1

Heading: Specifically Directed

Text: The first requirement under Miller is that the state law be “specifically directed toward entities engaged in insurance.” 538 U.S. at 342. In Davies, this court applied the previously articulated test that asked, first, whether the state law was “‘ specifically directed’ toward the insurance industry.” Davies, 128 F.3d at 941 (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 50 (1987)). This court noted that although § 3923.14 appeared, at first glance, to be specifically directed at the insurance industry, that was not necessarily the case since the statute had “its roots firmly planted in the general principles of Ohio contract law.” Id. Having said that, however, the court in Davies concluded only that this was a “close question.” As the district court recognized, this reasoning is undermined by the Supreme Court’s subsequent decision in Ward. Specifically, the Court in Ward concluded that California’s notice-prejudice rule—which prevents an insurer from denying a claim as untimely unless it was prejudiced by the delay—was saved from preemption by § 514(b)(2)(A). Applying the first prong of the pre-Miller test, the Court distinguished the Mississippi law that was found not to be specifically directed toward the insurance industry in Pilot Life and held that California’s notice-prejudice rule was specifically directed toward the insurance industry. “It is no doubt true that diverse California decisions bear out the maxim that ‘law abhors a forfeiture’ and that the notice-prejudice rule is an application of that maxim. But it is an application of a special order, a rule mandatory for insurance contracts, not a principle a court may pliably employ when the circumstances so warrant.” Ward, 526 U.S. at 370-71. No. 08-3347 8 Here, § 3911.06 is firmly applied to insurance contracts and prevents an insurer from denying coverage for an insured’s innocent misrepresentation. Plaintiff emphasizes that § 3911.06, previously designated Ohio Rev. St. § 3635, was enacted for the purpose of abrogating the general principle that an innocent misrepresentation would render an insurance policy void. See John Hancock Life Ins. Co. v. Warren, 51 N.E. 546, 547 (Ohio 1898). We find that, like the notice-prejudice rule in Ward, § 3911.06 is an application of a special order, a rule mandatory for life insurance contracts, and not a principle that may be broadly applied. The district court did not err in finding, notwithstanding Davies, that § 3911.06 is a state law “specifically directed toward entities engaged in insurance.” Miller, 538 U.S. at 342. 2. Substantially Affect Risk Pooling Arrangement The second part of the pre-Miller test asked whether the state law regulated the “business of insurance” as that term is defined for purposes of the McCarran-Ferguson Act. Davies, 128 F.3d at 940-41. The three McCarran-Ferguson criteria, in turn, ask whether the state law has the effect of transferring or spreading policyholder risk; whether the state law regulates an integral part of the policy relationship; and whether the state law is limited to entities within the insurance industry. Id. at 940. Finding that none of these factors were present, the court in Davies concluded in part that the statute did not “spread” policyholder risk because “[a]lthough it forces the insurer to bear the legal risks associated with innocent misrepresentations in an insurance application, § 3923.14 does not alter the risks for which the insurer and insured originally contracted—specific accident and medical costs.” Id. at No. 08-3347 9 942. Miller, however, made a “clean break” from the McCarran-Ferguson factors and requires only that “the state law must substantially affect the risk pooling arrangement between the insurer and the insured.” Miller, 538 U.S. at 342 (emphasis added). The Court in Miller held that, by expanding the number of providers from whom an insured may receive health services, Kentucky’s “any willing provider” statute “alter[s] the scope of permissible bargains between insurers and insureds in a manner similar to the mandated-benefit laws we upheld in Metropolitan Life, the notice-prejudice rule we sustained in [Ward], and the independent-review provisions we approved in Rush Prudential.” 538 U.S. at 338-39. Particularly pertinent to this case is the Court’s clarification that this requirement “does not require that the state law actually spread risk.” Id. at 339 n.3 (emphasis added). Specifically, the Court added that “[t]he notice-prejudice rule governs whether or not an insurance company must cover claims submitted late, which dictates to the insurance company the conditions under which it must pay for the risk that it has assumed. This certainly qualifies as a substantial effect on the risk pooling arrangement between the insurer and insured.” Id. Similarly, § 3911.06 alters the scope of permissible bargains by dictating the conditions under which the insurer may deny recovery for misrepresentations in the application for life insurance. The district court did not err in finding that the second Miller requirement was met in this case.5 5 We recognize that, even after Miller, the Fifth Circuit adhered to its pre-Miller view with respect to the spreading of risk requirement in Provident Life & Accident Insurance Co. v. Sharpless, 364 F.3d 634, 640-41 (5th Cir. 2004). Our reading of Miller, however, cannot be reconciled with the conclusions in Davies or Sharpless. No. 08-3347 10 3. Conflict Preemption Finally, Connecticut General correctly argues that the saving clause must be interpreted in light of the preemptive force of the comprehensive enforcement scheme in § 502(a) of ERISA. 29 U.S.C. § 1132(a). As recognized in Pilot Life and Rush Prudential, “[u]nder ordinary principles of conflict pre-emption, . . . even a state law that can arguably be characterized as ‘regulating insurance’ will be pre-empted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA’s remedial scheme.” Aetna Health, Inc. v. Davila, 542 U.S. 200, 217-18 (2004). There is no suggestion, however, that application of § 3911.06 as a rule of decision in any way duplicates, supplements, or supplants ERISA’s civil enforcement remedies. Conflict preemption under § 502(a) is not implicated when the state law simply supplies the relevant rule of decision in an ERISA claim for benefits under § 502(a)(1)(B). Ward, 526 U.S. at 376-77.