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The hottest issue in ERISA law appeared to be headed straight to the 3rd U.S. Circuit Court of Appeals — until Monday, that is. Opting not to pursue a certified appeal, the lawyers on both sides in Rosenbaum v. UNUM Life Insurance Co. informed the court Monday that they had settled the case. The Rosenbaum settlement means that the 3rd Circuit will not get a chance to review the decision handed down last week by Senior U.S. District Judge Clarence C. Newcomer that rejected the view of eight of his Eastern District colleagues and — for the second time — held that Pennsylvania’s bad-faith statute falls within the federal Employee Retirement Income Security Act’s so-called savings clause and, therefore, is not pre-empted. In the Sept. 8 decision, Newcomer refused to reconsider his July 2002 ruling that cleared the way for an ERISA plaintiff to pursue a bad-faith claim. The original ruling was a huge victory for plaintiffs because it opened the door to the possibility of both a jury trial and punitive damages. By contrast, an ERISA claim, standing alone, must be tried non-jury, and the remedies available to the plaintiff are strictly limited to equitable remedies designed to make the plaintiff “whole.” (Although Pennsylvania courts have held that plaintiffs are not entitled to a jury trial under the Pennsylvania bad-faith statute, the federal courts have consistently held that the same plaintiff would be entitled to a jury in federal court because the right to a jury trial is governed by federal law.) Newcomer’s original Rosenbaum decision prompted plaintiffs’ lawyers across the state to amend their ERISA suits to add bad-faith claims. But over the next few months, Newcomer’s colleagues one by one rejected his view, handing down a string of decisions that said bad-faith claims were still pre-empted by ERISA because Congress intended that ERISA’s remedies be “exclusive.” Defense lawyers in the Rosenbaum case urged Newcomer to reconsider. But the issue became complicated when the U.S. Supreme Court handed down its decision last term in Kentucky Association of Health Plans Inc. v. Miller. Newcomer asked for new briefs to address whether Miller had announced a new test for deciding when ERISA pre-empts a state law claim and, if so, whether the Pennsylvania bad-faith statute survives the new test. On Sept. 8, Newcomer handed down a decision saying that he had been right all along and that the Miller decision proved it. Miller, Newcomer said, “dramatically changed the analysis for determining whether state legislation qualifies for exemption from express pre-emption under ERISA via ERISA’s saving clause.” As a result, Newcomer concluded that the rationale of all his colleagues’ decisions was flawed because they were relying on faulty dicta from a pair of earlier U.S. Supreme Court decisions. If a state law qualifies under ERISA’s savings clause, Newcomer found, the intent of Congress was clear that such a law should not be pre-empted. Finding that the same law is nonetheless subject to conflict pre-emption is wrong, Newcomer concluded, since such a holding effectively renders the savings clause meaningless. “Other than the obvious requirement that the law must regulate insurance, Congress placed no other requisites or restrictions on the laws saved from pre-emption under ERISA’s saving clause. In this regard, Congress’ intent was clear it wanted all state laws which regulate insurance to be exempt from pre-emption under ERISA,” Newcomer wrote. Applying the new Miller test, Newcomer concluded that Pennsylvania’s bad-faith statute, � 8371, qualifies for ERISA’s savings clause. And that, Newcomer decided, was the end of the story. Unlike his colleagues, Newcomer found it was wrong to take the analysis to a second step and ask whether � 8371 was nonetheless subject to conflict pre-emption. Newcomer found that his colleagues relied on flawed dicta in two U.S. Supreme Court decisions — Pilot Life Insurance Co. v. Dedeaux, handed down in 1987, and Rush Prudential HMO Inc. v. Moran, handed down in 2002 — in which the justices suggested that because Congress failed to include certain remedies in ERISA’s remedial scheme, such remedies were specifically excluded. “Rather than simply accepting that Congress said what it meant in drafting ERISA, the Pilot Life and Rush courts seem to have adopted and applied the canon of construction known as ‘expressio unius est exclusio alterius,’ or, the inclusion of one implies the exclusion of the other,” Newcomer wrote. By including a savings clause, Newcomer said, Congress clearly intended that all state laws which “regulate insurance” would be exempt from pre-emption under ERISA. “The Pilot Life and Rush holdings present an implied congressional intent which flatly contradicts this express intent,” Newcomer wrote. “Rather than allowing any state law which ‘regulates insurance’ to survive ERISA pre-emption, this implied intent adds an additional requirement, that is, the law must not offer a remedy which is not listed under Section 502(a),” Newcomer wrote. “The problem with such a requirement is that the courts have taken an implied intent, which was derived by questionable means, and have interpreted that implied intent to overrule Congress’ express intent, as reflected in the saving clause,” Newcomer wrote. Instead, Newcomer said, courts should apply the same “expressio unius” analysis to the savings clause itself. “Under an expressio unius analysis, Congress impliedly meant to exclude from consideration any other requisites for state laws to qualify for the saving clause,” Newcomer wrote. Holding that a state statute cannot add to ERISA’s remedies, Newcomer found, “is another restriction on the application of the saving clause. … Adding such a requirement violates the express intent of Congress as well as the implied intent when using the form of interpretation used by the Pilot Life and Rush courts.” In his order, Newcomer granted UNUM the right to take the issue up to the 3rd Circuit in an interlocutory appeal. But now that the case has settled, no appeal will be taken. Neither plaintiffs’ nor defense lawyers in the Rosenbaum case could be reached for comment Monday on why the case settled. But plaintiffs’ attorney David S. Senoff of Billet & Connor said he believes the defense lawyer didn’t want to risk the possibility that Newcomer’s decision would be upheld. “If this decision were upheld, it would be a complete sea change in how these cases are prosecuted,” Senoff said. With the prospect of punitive damages in many ERISA cases, Senoff said, the value of settlements also would rise. “I think they [UNUM's defense lawyers] decided that they just wanted to leave it [the Rosenbaum decision] out there as a ‘rogue’ opinion. This way, they can still say that there’s only one judge who has ruled this way and that all of the others have gone the other way.” But Senoff predicted that plaintiffs’ lawyers would once again try to make the most of Newcomer’s decision and that it would again lead to a flurry of litigation. “This is a very persuasive opinion,” Senoff said. “Judge Newcomer has very effectively answered the questions that judges always ask at oral argument about how to apply Rush and Pilot Life.”

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