ERISA preempts widow’s state law claims for supplemental life insurance benefits

ERISA preempts state-law claims in a suit contending that an Applebee’s franchise failed to procure life insurance coverage for an employee despite withholding premiums from his pay—only for his widow to be denied an additional $160,000 in supplemental benefits after his death. The Eighth Circuit held the court below properly found that ERISA preemption applied, affirming a district court’s dismissal of her state law claims in a suit removed to federal court. However, the widow could seek relief through ERISA, as the employer was acting as a plan administrator, and she had an ERISA complaint still pending in the court below.

State-law claims. After her husband died, the life insurance company paid the plaintiff $243,000 in life insurance benefits: $93,000 in basic benefits, pursuant to the employer-provided life insurance package, and $150,000 in voluntary term coverage. However, it denied her the additional $160,000 she would have been entitled to under the voluntary plan, for which her husband had premiums withheld from his pay. She sued the employer, asserting state law claims for breach of contract, negligence, breach of fiduciary duty, and promissory estoppel.

Dismissed as preempted. The employer removed the action to federal court, contending her claims were preempted by ERISA and that, as such, the district court has federal question jurisdiction (as well as diversity jurisdiction). Then the employer moved to dismiss all of her claims on preemption grounds, and the widow filed an amended complaint in federal court, asserting diversity jurisdiction over her state law claims. The district court found her claims were preempted—they were premised on the existence of an ERISA-covered plan, in which the employer had allegedly failed to enroll her husband—but it held the employer’s motion to dismiss in abeyance, giving the widow a chance to amend her complaint once again to add ERISA claims. That amended complaint is currently pending in the court below.

An ERISA plan. The widow filed this interlocutory appeal, seeking reversal of the lower court’s holding that the state law claims are preempted. She argued in her first amended complaint that there was never an employer sponsored (i.e., ERISA-covered) insurance policy in place from which to claim benefits. But “this is simply not true,” the Eighth Circuit held, reviewing the ERISA preemption question de novo. As confirmed by the benefits the insurance company did pay out, it was clear the employee was a “participant” in an ERISA-covered employee welfare benefit plan. Consequently, her claim for the additional $160,000 in plan benefits was governed by federal law.

ERISA affords a remedy against someone. Construing the facts asserted in her complaint, the appeals court reasoned there was a viable ERISA claim against either the insurance company or the employer. Perhaps the claims was that the insurance company misapplied the life insurance policy in declining to pay out the additional $160,000. That would afford her a claim for plan benefits against the insurer under ERISA Sec. 502(a)(1)(B). Alternatively, if the insurer properly denied the $160,000 claim because the employer, as plan administrator, failed to enroll its employee in the supplemental coverage (despite taking his premiums), then the widow could filed a claim against the employer under ERISA Sec. 502(a)(3), asserting that its breached its fiduciary duty as plan administrator.

No independent legal duty. Nonetheless, the employee wanted to proceed on her state law claims. And she continued to argue ERISA did not apply because her claims implicated legal duties on the employer’s part that were independent of any ERISA duties. But the appeals court found no independent legal duty beyond the company’s role as plan administrator. Any promise it might have made to procure the employee’s voluntary life insurance “derived from its role as ERISA plan administrator,” the appeals court said.

Therefore, it affirmed the lower court’s finding that ERISA precluded the state-law claims.

SOURCE: Moore v. Apple Central, LLC, (CA-8), No. 17-1815, June 25, 2018.
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