The U.S. Court of Appeals for the Ninth Circuit, in Dedicato Treatment v. Aetna Life Insurance, has reaffirmed its criteria for ERISA preemption.
Law. ERISA generally preempts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.” A state law relates to an ERISA plan if it has: (1) a “connection with” or (2) a “reference to” an ERISA plan. However, ERISA’s “savings clause” provides that ERISA does not preempt “any law of any State which regulates insurance, banking, or securities.” The Supreme Court has noted that “not every state law that affects an ERISA plan or causes some disuniformity in plan administration has an impermissible connection with an ERISA plan.”
With regards to insurance laws, a law is not preempted if it satisfies the following two elements: (i) it must be “specifically directed toward entities engaged in insurance”; and (ii) it “must substantially affect the risk pooling arrangement between the insurer and the insured.” Consequently, a state may enforce most of its insurance laws, including “mandated benefit laws,” against an insurer.
Facts. A drug and alcohol treatment provider treated three patients after confirming coverage by their insurer. However, after treatment, the provider claimed it did not receive the “reasonable value” of its services. It then sued the insurer, asserting six state law claims, including breach of contract, unfair competition, and expressly denying reliance on plan provisions.
The insurer moved to dismiss the complaint, arguing that the provider’s state law claims are preempted by ERISA. In reviewing the matter, the district court agreed with the insurer and dismissed the provider’s state law claims.
Appeals Court. Citing its earlier decisions, the Ninth Circuit noted, “A claim has an impermissible connection with an ERISA plan if it governs a central matter of plan administration or interferes with nationally uniform plan administration, or if it bears on an ERISA-regulated relationship.” State law claims also have an “impermissible connection” with an ERISA plan if, as in this case, the claims subject insurers to liabilities that depend on “innumerable phone calls and their variable treatment under state law.”
The Ninth Circuit then ruled that because the provider’s claims refer to an ERISA plan and have an impermissible connection with an ERISA plan, the claims relate to an employee benefit plan and are therefore preempted by ERISA. Therefore, the Ninth Circuit upheld the district court’s decision to dismiss the provider’s lawsuit.