Court Opinion

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Date Created: 2015-10-13 21:58:59.913463+00
Date Added: 2024-06-11T11:46:48.999899
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Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

9-7-2004

Barber v. Unum Life Ins Co
Precedential or Non-Precedential: Precedential

Docket No. 03-4363

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Recommended Citation
"Barber v. Unum Life Ins Co" (2004). 2004 Decisions. Paper 286.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/286

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                         PRECEDENTIAL       E. Thomas Henefer, Esquire (Argued)
                                            Stevens & Lee
           UNITED STATES                    111 North Sixth Street
          COURT OF APPEALS                  P.O. Box 679
        FOR THE THIRD CIRCUIT               Reading, Pennsylvania 19603
                                                  Attorney for Appellant

               No. 03-4363                  Joseph F. Roda, Esquire (Argued)
                                            Roda & Nast
                                            801 Estelle Drive
            JAMES BARBER                    Lancaster, Pennsylvania 17601
                                                  Attorney for Appellee
                    v.
                                            Glen D. Nager, Esquire
        UNUM LIFE INSURANCE                 Jones Day
        COMPANY OF AMERICA,                 51 Louisiana Avenue, N.W.
                         Appellant          Washington, D.C. 20001
                                                  Attorney for Amicus Curiae-
                                                  Appellant, Chamber of
          On Appeal from the                      Commerce of the United States
   United States District Court for the
    Eastern District of Pennsylvania        Arnold R. Levinson, Esquire
  D.C. Civil Action No. 03-cv-03018         Pillsbury & Levinson
  (Honorable Clarence C. Newcomer)          One Embarcadero Center, Suite 3860
                                            San Francisco, California 94111
                                                   Attorney for Amicus Curiae-
           Argued May 25, 2004                     Appellee, United Policyholders

    Before: SCIRICA, Chief Judge,
     RENDELL and ALARCÓN * ,                      OPINION OF THE COURT
            Circuit Judges

         (Filed September 7, 2004)          SCIRICA, Chief Judge.
                                                   At issue is whether ERISA
                                            preempts Pennsylvania’s bad faith statute
                                            for insurance claims, 42 Pa. C.S. § 8371,
                                            through express or conflict preemption.
                                            The District Court denied defendant’s Fed.
    *
                                            R. Civ. P. 12(b)(6) motion moving for
      The Honorable Arthur L. Alarcón,
                                            dismissal of plaintiff’s bad faith claim
United States Circuit Judge for the Ninth
                                            based on ERISA preemption. Barber v.
Judicial Circuit, sitting by designation.
UNUM Life Ins. Co. of Am., No. 03-3018                    UNUM moved under Fed. R. Civ.
(E.D. Pa. filed Sept. 9, 2003). Because we        P. 12(b)(6) to dismiss the bad faith claim,
hold 42 Pa. C.S. § 8371 is conflict               citing ERISA preemption.              UNUM
preempted by ERISA, or alternatively              contends conflict preemption applies
expressly preempted under ERISA §                 because 42 Pa. C.S. § 8371's remedial
514(a), we will reverse the judgment of the       scheme conflicts with Congress’ intent in
District C ourt and rema nd w ith                 enac ting ERISA’s exclusive civil
instructions to dismiss Barber’s bad faith        enforcement provision in § 502(a), 29
claim.                                            U.S.C. § 1132(a). § 502(a) allows an
                                                  ERISA-plan participant to recover
                        I.
                                                  benefits, to obtain a declaratory judgment
Facts                                             that he is entitled to benefits, and to enjoin
                                                  an improper refusal to pay benefits. 29
       This matter involves a dispute over
                                                  U.S.C. § 1132(a). UNUM contends
disability benefits provided to plaintiff
                                                  ERISA preempts 42 Pa. C.S. § 8371
James Barber by his employer under an
                                                  because it is a separate enforcement
employee benefit plan governed by the
                                                  scheme with a punitive damages provision
Employee Retirement Income Security Act
                                                  that adds to the detailed provisions of
of 1974, as amended 29 U.S.C. §§ 1001-
                                                  ERISA’s remedial mechanism.
1461. Benefits under the plan were
insured under a group long-term disability               Citing express ERISA preemption,
policy Barber’s employer obtained from            UNUM also contends 42 Pa. C.S. § 8371
defendant UNU M Life Insura nce                   falls outside the protective ambit of
Company of America.                               ERISA’s saving clause. ERISA § 514(a),
        After Barber became disabled, he
applied for and received long-term
                                                         acted in bad faith toward the
disability benefits.        But U NUM
                                                         insured, the court may take
subsequently terminated the benefits after
                                                         all of the following actions:
determining Barber was no longer disabled
                                                         (1) Award interest on the
under the policy’s terms. Barber brought
                                                         amount of the claim from
suit for breach of contract and for bad
                                                         the date the claim was made
faith, requesting punitive damages under
                                                         by the insured in an amount
42 Pa. C.S. § 8371 for UNUM’s alleged
                                                         equal to the prime rate of
bad faith in denying benefits.1
                                                         interest plus 3%.
                                                         (2) Award punitive damages
                                                         against the insurer.
   1
       42 Pa. C.S. § 8371 provides:                      (3) Assess court costs and
          In an action arising under an                  attorney fees against the
          insurance policy, if the court                 insurer.
          finds that the insurer has              Id.

                                              2
the express preemption clause, broadly               Barber responds that 42 Pa. C.S. § 8371,
provides that “[e]xcept as provided in               the bad faith statute, “regulates insurance”
subsection (b) of this section, the                  and accordingly falls within the saving
provisions of this title . . . shall supersede       clause’s parameters.
any and all State laws insofar as they may
                                                     Procedural Background
now or hereafter relate to any employee
benefit plan.” 29 U.S.C. § 1144(a). In                     In Rosenbaum v. UNUM Life
apparent tension, however, and reflecting            Insurance Co. of America, No. 01-6758,
its concern with limiting states’ rights to          2003 U.S. Dist. LEXIS 15652 (E.D. Pa.
regulate insurance, banking, or securities,          Sept. 8, 2003) (“Rosenbaum II”),3 the
Congress drafted a saving clause, ERISA
§ 514(b)(2)(A), that provides: “Except as
provided in subparagraph (B), nothing in                    . employee benefit plan[s],”
this title shall be construed to exempt or                  it is pre-empted. § 514(a).
relieve any person from any law of any                      The saving clause excepts
State which regulates insurance, banking,                   from the pre-emption clause
or securities.” 29 U.S.C. § 1144(b)(2)(A).2                 l aw s t hat “ r e g u l a t[ e ]
                                                            insurance.” § 514(b)(2)(A).
                                                            The deemer clause makes
                                                            clear that a state law that
       2
         Subparagraph (B) (“the deemer                      “purport[ s] to regulate
clause”) provides:                                          insurance” cannot deem an
       Neither an employee benefit                          employee benefit plan to be
       plan . . . nor any trust                             an insurance company.
       established under such a                             § 514(b)(2)(B).
       plan, shall be deemed to be                   Pilot Life Ins. Co. v. Dedeaux, 481 U.S.
       an insurance company or                       41, 45 (1987).
       other insurer, bank, trust
                                                             3
       company, or investment                                 In Rosenbaum v. UNUM Life
       company or to be engaged                      Insurance Co. of America, No. 01-6758,
       in the business of insurance                  2002 U.S. Dist. LEXIS 14155 (E.D. Pa.
       or banking for purposes of                    July 29, 2002) (“Rosenbaum I”), the
       any law of any State                          District Court held 42 Pa. C.S. § 8371 is
       purp orting to regu late                      not expressly preempted because it
       i n s u r an c e c o m p a n i e s ,          “regulates insurance” under ERISA’s
       insurance contracts, banks,                   saving clause. Id. at *1-9. UNUM filed a
       trust com panie s, or                         motion for reconsideration. While that
       investment companies.                         motion was pending, the Supreme Court
Id. § 1144(b)(2)(B). As summarized by                decided Kentucky Association of Health
the Supreme Court:                                   Plans, Inc. v. Miller, 538 U.S. 329 (2003),
       If a state law “relate[s] to . .              which clarified a statute “regulates

                                                 3
District Court held 42 Pa. C.S. § 8371              certified for interlocutory appeal, but the
satisfied the saving clause and found               ruling came after parties had advised the
conflict preemption did not apply. Id. at           District Court they had settled the matter,
*10-25.4 The order in Rosenbaum II was              eliminating a case or controversy. But the
                                                    district judge in Rosenbaum II was also
                                                    assigned to this lawsuit. On September 9,
insurance” and satisfies the saving clause          2003, the District Court denied UNUM’s
only if it (1) is “specifically directed            motion to dismiss for the reasons provided
toward entities engaged in insurance” and           in Rosenbaum II. Barber v. UNUM Life
(2) “substantially affect[s] the risk pooling       Ins. Co., No. 03-3018 (E.D. Pa. filed Sept.
arrangement between the insurer and the             9, 2003). The District Court certified the
insured.” Id. at 341-42.                            issue for interlocutory review. Id. We
   4                                                granted the petition for allowance of
    Several other federal district courts in
                                                    appeal.5
Pennsylvania held ERISA preempts 42 Pa.
C.S. § 8371. See Hunter v. Fed. Express
Corp., No. 03-6711, 2004 U.S. Dist.                 UNUM Life Ins. Co. of Am., No. 02-2019,
LEXIS 13271 (E.D. Pa. July 15, 2004);               2003 U.S. Dist. LEXIS 1540 (M.D. Pa.
Rieser v. Standard Life Ins. Co., No. 03-           Feb. 4, 2003); Snook v. Penn State
5040, 2004 U.S. Dist. LEXIS 9378 (E.D.              Geisinger Health Plan, 241 F. Supp. 2d
Pa. May 25, 2004); Waters v. Kemper Ins.            485 (M.D. Pa. 2003); Bell v. UNUM
Cos., No. 03-1803, 2004 U.S. Dist. LEXIS            Provident Corp., 222 F. Supp. 2d 692
7379 (W.D. Pa. April 19, 2004);                     (E.D. Pa. 2002); Kirkhuff v. Lincoln Tech.
Tannenbaum v. UNUM Life Ins. Co. of                 Inst., Inc., 221 F. Supp. 2d 572 (E.D. Pa.
Am., No. 03-CV-1410, 2004 U.S. Dist.                2002); Sprecher v. Aetna U.S. Healthcare,
LEXIS 5664 (E.D. Pa. Feb. 27, 2004);                Inc., No. 02-CV-00580, 2002 U.S. Dist.
Dolce v. Hercules Inc. Ins. Plan, No. 03-           LEXIS 15571 (E.D. Pa. Aug. 19, 2002).
CV-1747, 2003 U.S. Dist. LEXIS 23890                        One district court agreed with
(E.D. Pa. Dec. 15, 2003); Nguyen v.                 Rosenbaum II, 2003 U.S. Dist. LEXIS
Healthguard of Lancaster, Inc., 282 F.              15652, and held ERISA does not preempt
Supp. 2d 296 (E.D. Pa. 2003)                        42 Pa. C.S. § 8371. Stone v. Disability
reconsideration denied 03-3106, 2003                Mgmt. Servs., 288 F. Supp. 2d 684 (M.D.
U.S. Dist. LEXIS 22043 (E.D. Pa. Oct. 7,            Pa. 2003).
2003); Leuthner v. Blue Cross & Blue
                                                        5
Shield of Northeastern Penn., 270 F. Supp.               We have subject matter jurisdiction
2d 584 (M.D. Pa. 2003); Morales-Ceballos            under 28 U.S.C. § 1331. We have
v. First UNUM Life Ins. Co. of Am., No.             jurisdiction to hear an interlocutory appeal
03-CV-925, 2003 U.S. Dist. LEXIS 9801               under 28 U.S.C. § 1292(b).
(E.D. Pa. May 27, 2003); McGuigan v.                       The issues presented are legal
Reliance Standard Life Ins. Co., 256 F.             issues over which we exercise plenary
Supp. 2d 345 (E.D. Pa. 2003); Emil v.               review. Concepcion v. Morton, 306 F.3d

                                                4
                     II.                             brought a common law tort and contract
                                                     action asserting improper processing of a
A. Conflict Preemption
                                                     benefits claim. Id. The Court found the
        Under the doctrine of conflict               saving clause did not save the bad faith
preemption, a state law may be preempted             claim because it did not “regulate
“to the extent that it actually conflicts with       insurance.” Id. at 50. But stating it was
federal law,” English v. Gen. Elec. Co.,             obliged to consider “the role of the saving
496 U.S. 72, 79 (1990), that is, where it            clause in ERISA as a whole,” the Court
“sta n d s a s a n obstacle to th e                  noted an “understanding of the saving
accomplishment and execution of the full             clause must be informed by the legislative
purposes and objectives of Congress.”                intent concern ing [ER ISA’s] civil
Hines v. Davidowitz, 312 U.S. 52, 67                 enforcement provisions,” which, the Court
(1941).      UNUM contends conflict                  said, were “intended to be exclusive.” Id.
preemption applies because 42 Pa. C.S. §             at 51-52. In ruling that punitive damages
8371 is a separate enforcement scheme                in a bad faith cause of action constituted
that enlarges the remedies otherwise                 an additional remedy, the Court explained:
available under the detailed civil
                                                            [The provisions of ERISA]
enforcement provision of ERISA § 502(a).
                                                            set forth a comprehensive
       Until the Supreme Court’s recent                     civil enforcement scheme
decision in Aetna Health Inc. v. Davila,                    that represents a careful
124 S. Ct. 2488 (2004), the debate over                     balancing of the need for
ERISA conflict preemption centered on                       prompt and fair claims
two Supreme Court cases—Pilot Life, 481                     settlement procedu res
U.S. 41, and Rush Prudential, 536 U.S.                      against the public interest in
355. In Pilot Life, an insurance company                    encouraging the formation
terminated an injured employee’s disability                 of employee benefit plans.
plan. 481 U.S. at 43-44. The employee                       The policy choices reflected
                                                            in the inclusion of certain
                                                            remedies and the exclusion
1347, 1352 (3d Cir. 2002). Because this is                  of others under the federal
an appeal of a Fed. R. Civ. P. 12(b)(6)                     scheme        would        be
motion, we accept all factual allegations in                completely undermined if
the complaint and all reasonable inferences                 ER ISA-p lan participants
to be drawn therefrom in the light most                     and beneficiaries were free
favorable to the plaintiffs. Rossman v.                     to obtain remedies under
Fleet Bank Nat’l Ass’n, 280 F.3d 384, 387
n.1 (3d Cir. 2002). We may dismiss a
claim only if it is certain that no relief
could be granted under any set of facts
which could be proven. Id.

                                                 5
       state law that Congress                               remedies . . . that Congress
       rejected in ERISA.                                    rejected in ERISA.”
Id. at 54. The Court stated the “‘six              Id. at 378 (quoting Pilot Life, 481 U.S. at
carefully integrated civil enforcement             54) (citation and internal quotations
provisions found in § 502(a) of the                omitted). The Court explained the civil
[ERISA] statute as finally enacted . . .           remedies provided in ERISA § 502(a) are
provide strong evidence that Congress did          an “‘interlocking, interrelated, and
not intend to authorize other remedies that        interdependent remedial scheme,’” id. at
it simply forgot to incorporate expressly.’”       376 (quoting Mass. Mutual, 473 U.S. at
Id. (quoting Mass. Mutual Life Ins. Co. v.         146), that “‘represent[s] a careful
Russell, 473 U.S. 134, 146 (1985))                 balancing of the need for prompt and fair
(emphasis in original). Accordingly, the           claims settlement procedures against the
Court found the state claims permitting            public interest in encouraging the
punitive damages were preempted by                 formation of employee benefit plans.’” Id.
ERISA. Id. at 57.                                  at 376 (quoting Pilot Life, 481 U.S. at 54).
                                                   ERISA § 502(a)’s civil enforcement
       The Supreme Court revisited
                                                   provisions are the “sort of overpowering
conflict preemption in Rush Prudential,
                                                   federal policy” that is so strong it even
536 U.S. 355, narrowly reaffirming the
                                                   “overrides a statutory provision designed
applicability of conflict preemption in the
                                                   to save state law from being preempted.”
ERISA context. The Court “recognized a
                                                   Id. at 375.6
limited exception from the savings clause
for alternative causes of action and
alternative remedies,” describing this                   6
                                                          In addition to Pilot Life and Rush
exception as “Pilot Life’s categorical
                                                   Prudential, the Supreme Court has
preemption.” Id. at 380-81. The Court
                                                   asserted on other occasions Congress did
noted:
                                                   not intend to authorize remedies other than
       Although we have yet to                     those provided under ERISA § 502(a),
       encounter a forced choice                   emphasizing the “overpowering” federal
       between the congressional                   policy in ERISA’s exclusive civil
       policies of exclusively                     enforcement provisions. See Metropolitan
       federal remedies and the                    Life Ins. Co. v. Taylor, 481 U.S. 58, 64-65
       reservation of the business                 (1987) (“As we have made clear today in
       of insurance to the States,                 Pilot Life . . . the policy choices reflected
       we have anticipated such a                  in the inclusion of certain remedies and the
       conflict, with the state                    exclusion of others under the federal
       insurance regulation losing                 scheme would be completely undermined
       out if it allows plan                       i f E R I S A - p l a n p a r t ic i p a n ts a nd
       participants “to ob tain                    beneficiaries were free to obtain remedies
                                                   under state law that Congress rejected in

                                               6
       The parties here have focused on          Dist. LEXIS 15652, at *20-21.7 Whatever
whether the Supreme Court treatment of           the outcome of that debate, it is no longer
conflict preemption in Pilot Life and Rush       material because in Aetna Health, 124 S.
Prudential is dicta, noting Rosenbaum II         Ct. 2488,8 the Court confirmed that state
found it to be “dicta” that was
“unpersuasive.” Rosenbaum II, 2003 U.S.                  7
                                                            Even if the Supreme Court’s
                                                 discussion of conflict preemption were
                                                 dicta, we do not view their dicta lightly:
                                                         [W]e should not idly ignore
                                                         considered statements the
                                                         Supreme Court makes in
                                                         dicta. The Supreme Court
                                                         uses dicta to help control
                                                         and influence the many
                                                         issues it cannot decide
                                                         because of its limited
                                                         docket. “Appellate courts
                                                         t h a t dismiss these
                                                         expressions [in dicta] and
                                                         strike off on their own
                                                         increase the disparity among
                                                         tribunals (for other judges
                                                         are likely to follow the
                                                         Supreme Court’s marching
                                                         orders) and frustrate the
                                                         evenhanded administration
                                                         of justice by giving litigants
                                                         an outcome other than the
                                                         one the Supreme Court
                                                         would be likely to reach
                                                         were the case heard there.”
                                                 Official Comm. of Unsecured Creditors of
                                                 Cybergenics Corp. ex rel. Cybergenics
                                                 Corp. v. Chinery, 330 F.3d 548, 561 (3d
ERISA.”); Mass. Mutual, 473 U.S. at 146          Cir. 2003) (quoting McDonald v. Master
(ERISA § 502(a)’s “carefully integrated          Fin., Inc. (In re McDonald), 205 F.3d 606,
civil enforcement provisions . . . provide       612-13 (3d Cir. 2000)).
strong evidence that Congress did not
                                                     8
intend to authorize other remedies that it            The District Court decided this case
simply forgot to incorporate expressly.”).       before the decision in Aetna Health, 124 S.

                                             7
laws that supplement ERISA’s civil                 remedy to those provided by the ERISA
enforcement scheme conflict w ith                  civil enforcement mechanism” because
Congress’ intent to make the ERISA                 such a cause of action “conflicts with
remedy exclusive. Id. at 2495.                     Congress’ clear intent to make the ERISA
                                                   mechanism exclusive.” Id. at 2498 n.4.
       In Aetna Health, the Court held the
plaintiffs’ claims under the Texas                         R eading Pilot L ife, Rush
Healthcare Liability Act, which imposed a          Prudential, and Aetna Health together, a
duty of ordinary care in the handling of           state statute is preempted by ERISA if it
coverage decisions, were completely                provides “a form of ultimate relief in a
preempted by ERISA and therefore                   judicial forum that added to the judicial
removable to federal court. Id. at 2492-93,        remedies provided by ERISA,” Rush
2498. Noting that ERISA’s “integrated              Prudential, 536 U.S. at 379, or stated
enforcement mechanism, ERISA §                     another way, if it “duplicates, supplements,
502(a),” is “essential to accomplish               or supplants the ERISA civil enforcement
Congress’ purp ose o f crea ting a                 remedy.” Aetna Health, 124 S. Ct. at 2495
comprehensive statute for the regulation of        (citing Pilot Life, 481 U.S. at 54-56). 42
employee benefit plans,” the Court held            Pa. C.S. § 8371 is such a statute because it
“any state-law cause of action that                is a state remedy that allows an ERISA-
duplicates, supplements, or supplants the          plan participant to recover punitive
ERISA civil enforcement remedy conflicts           damages for bad faith conduct by insurers,
with the clear congressional intent to make        supplementing the scope of relief granted
the ERISA remedy exclusive and is                  by ERISA. Accordingly, 42 Pa. C.S. §
therefore pre-empted.” Id. at 2495 (citing         8371 is subject to conflict preemption.
Pilot Life, 481 U.S. at 54-56). The Court
explained “Congress’ intent to make the
ERISA civil enforcement mechanism
exclusive would be undermined if state
causes of action that supplement the
ERISA § 502(a) remedies were permitted,
even if the elements of the state cause of
action did not precisely duplicate the
elements of an ERISA claim.” Id. at 2499-
2500. In short, Aetna Health confirms that
conflict preemption applies to any “state
cause of action that provides an alternative

Ct. 2488. Because Aetna Health was
issued after oral argument, we requested
briefing from the parties.

                                               8
B. Express Preemption and the Saving                    claim for benefits outside
   Clause                                               of, or in addition to,
                                                        ERISA’s remedial scheme.
   1. The Saving Clause’s Effect on
      Conflict Preemption                        Id. at 2500.9 Citing Pilot Life, 481 U.S.
                                                 41, the Court noted Congress’ policy
        Barber contends 42 Pa. C.S. § 8371
                                                 choices reflected in ERISA’s exclusive
is a law that “regulates insurance,” and
                                                 remedial provision would be undermined
therefore, under ERISA § 514(b)(2)(A),
                                                 by state laws allowing alternate remedies,
his bad faith claim is saved from
                                                 and concluded that “Pilot Life’s reasoning
preemption, including conflict preemption.
                                                 applies here with full force.” Aetna
He notes Congress could have qualified §
                                                 Health, 124 S. Ct. at 2500. For those
514(b)(2)(A)’s saving clause by limiting
                                                 reasons, even if 42 Pa. C.S. § 8371 were
its applicability if state law remedies
                                                 found to “regulate insurance” under the
conflict with or add to ERISA’s remedies,
                                                 saving clause, it would still be preempted
but it did not do so.
                                                 because the punitive damages remedy
       In Aetna Health, 124 S. Ct. 2488,         supplements ERISA’s exclusive remedial
the Supreme Court found a similar                scheme.
argument “unavailing,” holding that the
                                                    2. Express Preemption
presence of ERISA’s saving clause does
not disrupt the normal conflict preemption              In the alternative, we believe the
analysis:                                        District Court erred in finding 42 Pa. C.S.
                                                 § 8371 “regulates insurance” under the
      ERISA § 514(b)(2)(A) must
                                                 saving clause.      Accordingly, express
      be interpreted in light of the
                                                 preemption under ERISA § 514(a) would
      congressional intent to
                                                 apply. As stated, in Miller, 538 U.S. 329,
      create an exclusive federal
                                                 the Supreme Court set forth a two-part test
      remedy in ERISA § 502(a).
      Under ordinary principles of
      conflict pre-emption, then,                   9
                                                     Amicus supporting Barber’s position
      even a state law that can
                                                 contend that because 42 Pa. C.S. § 8371
      arguably be characterized as
                                                 does not “provide[] a separate vehicle to
      ‘regulating insurance’ will
                                                 assert a claim for benefits,” Aetna Health,
      be pre-empted if it provides
                                                 124 S. Ct. at 2500 (emphasis added),
      a separate vehicle to assert a
                                                 Barber’s claim for punitive damages, as
                                                 opposed to additional benefits, is not
                                                 preempted. But this is too narrow a
                                                 reading given the Supreme Court’s
                                                 emphasis on the “congressional intent to
                                                 create an exclusive federal remedy in
                                                 ERISA § 502(a).” Id. (emphasis added).

                                             9
which clarified that a statute “regulates                    For the first prong of the
insurance” and satisfies the saving clause           test—whether 42 Pa. C.S. § 8371 is
only if it (1) is “specifically directed             “specifically directed towards entities
toward entities engaged in insurance” and            engaged in insurance,” 538 U.S. at
(2) “substantially affect[s] the risk pooling        342—the inquiry must be answered in the
arrangement between the insurer and the              affirmative. 42 Pa. C.S. § 8371 is entitled
insured.” Id. at 341-42.10                           “actions on insurance policies,” and its
                                                     first sentence limits the provision’s scope
                                                     to insurers: “In an action arising under an
      10                                             insurance policy, if the court finds that the
        Prior to Miller, the seminal case
                                                     insurer has acted in bad faith toward the
interpreting ERISA’s insurance regulation
                                                     insured . . . .” Id. (emphasis added).
preemption exception was Metropolitan
                                                     Moreover, the remedies offered under 42
Life Insurance Co. v. Massachusetts, 471
                                                     Pa. C.S. § 8371 are awarded or assessed
U.S. 724 (1985). In Metropolitan Life, the
                                                     “against the insurer.” Id.
Supreme Court applied the McCarran-
Ferguson test to determine whether a law                    UNUM responds that 42 Pa. C.S. §
regulates insurance for purposes of the              8371 fails this prong because it regulates
ERISA saving clause. First, the law must             the insurer’s conduct rather than the
have regulated insurance from a “common              underlying insurance by creating extra-
sense” view. Id. at 740. Second, the Court           contractual remedies for certain types of
adopted the three factors used in the                insurer conduct.      We believe Miller
McCarran-Ferguson Act to determine                   forecloses this argument. In Miller, the
whether a regulation falls within the                Supreme Court considered Kentucky’s
business of insurance, that is, whether the          Any Willing Provider Law which
regulation (1) transferred or spread policy          regulated insurers’ conduct with regard to
risk; (2) was an integral part of the policy         third-party providers. 538 U.S. at 337-38.
relationship between the insurer and the             The Court explained ERISA’s savings
insured; and (3) applied only to entities            clause “is not concerned . . . with how to
within the insurance industry. Id. at 743.           characterize conduct undertaken by private
        Applying the McCarran-Ferguson               actors, but with how to characterize state
factors, the Supreme Court has saved from
preemption: an Illinois law requiring
HMOs to provide independent review of                requiring coverage of certain minimum
whether services are medically necessary,            mental health services under any health
Rush Prudential, 536 U.S. at 374-75; a               insurance policy issued in that state,
California law requiring an insurer to               Metropolitan Life, 471 U.S. at 742-47. In
demonstrate prejudice in order to deny an            Miller, 538 U.S. 329, the Supreme Court
untimely claim for benefits, UNUM Life               jettisoned Metropolitan Life’s test, stating
Ins. Co. of Am. v. Ward, 526 U.S. 358,               it was making “a clean break from the
367-79 (1999); and a Massachusetts law               McCarran-Ferguson factors.” Id. at 341.

                                                10
laws in regard to what they ‘regulate.’” Id.        explained the “any willing provider”
The Court provided the following analogy:           statute under review, the “mandated-
                                                    benefit” law in Metropolitan Life, 471 U.S.
         Suppose a state law required
                                                    724, the “notice-prejudice” rule in UNUM
         all licensed attorneys to
                                                    Life, 526 U.S. 358, and the “independent
         participate in 10 hours of
                                                    review” provision in Rush Prudential, 536
         continuing legal education
                                                    U.S. 355, “alter the scope of permissible
         (CLE) each year.              This
                                                    bargains between insurers and insureds”
         statute “regu lates” th e
                                                    and therefore “substantially affect[] the
         practice of law — even
                                                    type of risk pooling arrangements that
         though sitting through 10
                                                    insurers may offer.” 538 U.S. at 338-39.
         hours of CLE classes does
                                                    In comparison, the bad faith statute here is
         not constitute the practice of
                                                    remedial in nature—it is a remedy to
         law—because the state has
                                                    which the insured may turn when injured
         conditioned the right to
                                                    by the bad faith of an insurer. See
         practice law on certain
                                                    Kidneigh v. UNUM Life Ins. Co. of Am.,
         requirements, which
                                                    345 F.3d 1182, 1187 (10th Cir. 2003)
         substantially affect the
                                                    (“[B]ad faith claims, whether common law
         p ro d u c t d e l i v e r e d b y
                                                    or statutory, merely provide an additional
         lawyers to their clients.
                                                    remedy for policyholders.”). 42 Pa. C.S. §
Id. at 337-38. The Court concluded the              8371 does not affect the kinds of bargains
Any Willing Provider Law similarly
“‘regulates’ insurance by imposing
conditions on the right to engage in the
                                                    reference to “ the r isk pooling”
business of insurance.” Id. at 338. This
                                                    arrangement between insurer and insured
case presents a similar situation in which
                                                    refers simply to the “insurance”
Pennsylvania’s bad faith statute regulates
                                                    arrangement between them. But the Miller
insurers’ conduct by imposing industry-
                                                    test is intended to clarify ERISA’s opaque
wide conditions on the insurance business.
                                                    statutory language which saves statutes
Accordingly, the first prong of the Miller
                                                    that “regulate insurance.” 29 U.S.C. §
test is satisfied.
                                                    144(b)(2)(A). The Miller test, we believe,
       Under the second prong, however,             demands more than
42 Pa. C.S. § 8371 does not “substantially          whether a law substantially affects the
affect[] the risk pooling arrangement               insurance arrangement between the insurer
between the insurer and insured.” Miller,           and insured. The Supreme Court’s precise
538 U.S. at 342.11 In Miller, the Court             formulation is wh ether a statute
                                                    “substantially affects the risk pooling
                                                    arrangement between the insurer and
    11
      Barber attempts to cast the saving            insured.”      Miller, 538 U.S. at 342
clause in a broad light by claiming Miller’s        (emphasis added).

                                               11
insurers and insureds may make. It                   Co. v. Pireno, 458 U.S. 119, 128 n.7
provides that whatever the bargain struck,           (1982) (internal quotations omitted);
if the insurer acts in bad faith, the insured        Hollaway v. UNUM Life Ins. Co. of Am.,
may recover punitive damages. Pilot Life,            89 P.3d 1022, 1029 (Okla. 2003)
481 U.S. at 49-51 (holding “the common               (explaining that risk pooling groups “those
law of bad faith does not define the terms           with greater and lesser risks together to
of the relationship between the insurer and          better acco unt and minim ize the
the insured; it declares only that, whatever         unpredictable risk for everyone” and
terms have been agreed upon in the                   “results in spreading the costs of risk of
insurance contract, a breach of that                 loss for which an insurer must pay across
contract may in certain circumstances                the span of insureds”). Here, the risk
allow the policyholder to obtain punitive            pooled, in this case the risk of disability, is
damages.”). 12                                       reflected in the policy itself. The tort of
                                                     bad faith breach of an insurance contract is
        Moreover, claims for bad faith
                                                     not ordinarily a risk identified in the
insurance breaches bear no relation to the
                                                     insurance policy as a risk of loss the
risk pooled—the risk of loss the insurer
                                                     insurer agrees to bear for its insured.
agrees to bear on behalf of the insured.
Within the insurance industry, “risk”                        Our conclusion is buttressed by
means the risk of occurrence of injury or            Pireno, 458 U.S. 119.13 In Pireno, a
loss for which the insurer contractually             plaintiff brought suit, alleging antitrust
agrees to compensate the insured. With               violations by a peer review committee
risk pooling, “a number of risks are                 used to assess whether chiropractors’ fees
accepted, some of which involve losses,”             were reasonable. Id. at 122-24. The Court
and the “losses are spread over all the risks        found the use of the peer review played no
so as to enable the insurer to accept each           part in the spreading and underwriting of
risk at a slight fraction of the possible            insurance risk:
liability upon it.” Union Labor Life Ins.
                                                            [ P l a i n t i f f ’ s] a rg u m en t
                                                            contains the unspoken
   12                                                       premise that the transfer of
     We recognize Pilot Life was decided
                                                            risk from an insured to his
under the pre-Miller McCarran-Ferguson
                                                            insurer actually takes place
standard which asked whether the law at
                                                            not when the contract
issue “has the effect of transferring or
                                                            between those parties is
spreading a policy holder’s risk.” 481 U.S.
                                                            completed, but rather only
at 48 (internal quotations omitted).
Though the Miller Court made a “clean
break” from the McCarran-Ferguson
                                                       13
factors, 538 U.S. at 341, we believe the                 As with Pilot Life, we find the Court’s
Court’s analysis in Pilot Life is nonetheless        analysis of insurance risk in the pre-Miller
instructive and still valid on this point.           Pireno to still offer guidance.

                                                12
       when the insured’s claim is
       settled. This premise is
       contrary to the fundamental
       principle of insurance that
       the insurance policy defines
       the scope of risk assumed by
       the insurer from the insured.
Id. at 131 (emphasis added). Here, the
transfer of risk occurred when Barber
entered into the insurance contract, not
when his claim was settled. The scope of
the risk pooled is defined by the policy, not
by a claims settlement statute allowing for
bad faith remedies.
       Moreover, the threat that punitive
awards may result in increased costs that
could be passed on to the insured is too
attenuated to be deemed to “substantially
affect” the risk pooling arrangement.
Accordingly, under the Miller test,
Pennsylvania’s bad faith statute does not
“regulate insurance” within the meaning of
ERISA’s saving clause and is expressly
preempted by ERISA.
                    III.
       For the foregoing reasons, we will
reverse the judgment of the District Court
and remand with instructions to dismiss
Barber’s bad faith claim.

                                                13