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A third Eastern District of Pennsylvania judge has now weighed in on the hottest issue going in ERISA law with a decision that says a claim under Pennsylvania’s bad-faith statute is pre-empted because it would add to ERISA’s carefully limited remedies. In his 10-page decision in Kirkhuff v. Lincoln Technical Institute, U.S. District Judge Harvey Bartle III found that since Pennsylvania’s bad-faith law allows plaintiffs to pursue punitive damages, it “conflicts with the carefully crafted and exclusive remedial scheme of ERISA and is pre-empted.” Bartle’s decision comes on the heels of two recent decisions by his Eastern District colleagues who reached conflicting results. In Rosenbaum v. UNUM Life Insurance Co., Senior U.S. District Judge Clarence C. Newcomer found that two recent decisions from the U.S. Supreme Court made it easier for a state law to qualify for ERISA’s “savings clause,” which exempts a law from pre-emption if it “regulates insurance.” Specifically, Newcomer found that the justices said the savings clause may apply even if the law does not meet all three factors of the McCarron-Ferguson test. Applying the newly relaxed test, Newcomer found that Pennsylvania’s bad-faith statute satisfies two of the three factors and therefore is not pre-empted. But U.S. District Judge Ronald L. Buckwalter disagreed. In Sprecher v. Aetna U.S. Healthcare, Buckwalter found that a bad-faith claim is pre-empted in two ways. Buckwalter not only found that the bad-faith statute doesn’t qualify for ERISA’s savings clause, but said that even if it did, it would be barred by “categorical pre-emption” because it adds to ERISA’s limited remedy scheme. “Pennsylvania’s bad faith statute, authorizing punitive damages and interest penalties, would significantly expand the potential scope of ultimate liability imposed upon employers by the ERISA scheme,” Buckwalter wrote. But in the wake of Newcomer’s decision, plaintiffs’ lawyers began moving to amend their ERISA lawsuits to add bad-faith claims. In Kirkhuff, Bartle rejected the plaintiff’s motion to amend, saying it would be “futile” to allow it since the claim is pre-empted and therefore wouldn’t survive a motion to dismiss. Bartle sided with Newcomer on the first issue and found that the bad-faith statute qualifies for ERISA’s savings clause. But on the ultimate issue, Bartle sided with Buckwalter and found that a bad-faith claim is subject to complete pre-emption. Bartle found that before its recent decisions on the savings clause, the U.S. Supreme Court decided in Pilot Life Insurance Company v. Dedeaux that a bad-faith claim under Mississippi common law is pre-empted. The fact that Pennsylvania’s bad-faith claim is statutory and not based on common law made no difference, Bartle said. “The Pennsylvania bad faith statute creates a separate form of relief not only beyond what had heretofore been available in the Commonwealth [under common law] but with its allowance of punitive damages supplies a remedy not authorized by Congress under ERISA,” Bartle wrote. Plaintiff’s attorney Jane Roach (who is the sister of reporter Shannon P. Duffy) argued that Pilot Life was not fatal to her claim since the focus of her client’s complaint was that the insurer had breached its duties of disclosure under ERISA. “Where an insurance company, who is not a plan administrator, breaches its disclosure obligations, the imposition of bad faith liability on the insurance company does not conflict with ERISA’s remedial scheme since ERISA’s remedial scheme does not include any sanctions for a non-administrator’s non-disclosure. The imposition of bad faith liability in this case does not offend the remedial goals of the statute,” Roach wrote in her brief. The plaintiff, Dianne Kirkhuff, is the widow of Miles Kirkhuff, an employee of Lincoln Technical Institute who died in a January 2001 accident when the car he was driving was rear-ended by a truck on the Pennsylvania Turnpike. After her husband’s death, Dianne Kirkhuff submitted a claim for life insurance to the United States Life Insurance Co. The suit alleges that despite repeated written requests, USLI never produced the insurance policy and other documents required by Pennsylvania law. Roach argued that by urging the court to hold that the bad-faith claim was pre-empted, USLI was seeking to avoid any liability. “USLI maintains that it is not the plan administrator and thus is not subject to any ERISA remedies for non-disclosure, all of which are explicitly drafted to apply to administrators. Yet it now seeks refuge from bad faith liability in ERISA preemption, apparently expecting to avoid non-ERISA remedies as well,” Roach wrote. But USLI’s lawyers, Stephen C. Baker and Kristofor T. Henning of Drinker Biddle & Reath, argued that the Supreme Court had squarely addressed the issue in Pilot Life and that all bad-faith claims — whether statutory or common law — are therefore pre-empted where the plaintiff brings an ERISA claim. Bartle agreed with Henning, saying the differences between Mississippi’s and Pennsylvania’s bad-faith claims were legally insignificant when it came to the issue of complete pre-emption. “We recognize that in Pilot Life the Mississippi common law of bad faith, unlike its Pennsylvania statutory counterpart, affected entities beyond the insurance industry,” Bartle wrote. “For this reason, the Mississippi law clearly did not survive under ERISA’s saving clause for laws merely regulating insurance. However, we do not think this distinction between the laws of these two states is significant in light of the Supreme Court pronouncements in that and later cases that the preemptive effect of ERISA is broad with respect to remedies,” Bartle wrote. Bartle found that the Supreme Court’s decision in Pilot Life would have been the same even if Mississippi had had a narrower law. “Otherwise a state could easily circumvent Pilot Life and ERISA by passing a specific statute like the one before us or even by enacting two separate bad faith statutes, one to deal with recalcitrant insurers and a similar one to deal with all other malefactors. Such a result would effectively upset, if not nullify, the nationally uniform remedies of ERISA,” Bartle wrote. Even in its most recent decision, Bartle said, the Supreme Court emphasized that “the civil enforcement provisions [of ERISA] are of such extraordinarily preemptive power that they override even the ‘well-pleaded complaint’ rule for establishing the conditions under which a cause of action may be removed to a federal forum.” As a result, Bartle said, “even though the Pennsylvania law in issue allowing the award of punitive damages is directed solely toward the insurance industry [and therefore meets the savings clause test], we agree with [Judge Buckwalter's decision in] Sprecher that it conflicts with the carefully crafted and exclusive remedial scheme of ERISA and is pre-empted.”

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