Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Like a phoenix rising from the ashes, a new case has suddenly emerged that will give the 3rd U.S. Circuit Court of Appeals an opportunity to address the bubbling question of whether plaintiffs in ERISA cases may also bring a claim under Pennsylvania’s bad-faith statute. The issue is critically important because ERISA’s remedies are strictly limited while a bad-faith claim allows for an award of punitive damages. For lawyers on both sides, a decision from the 3rd Circuit would end more than a year of uncertainty that began when Senior U.S. District Judge Clarence C. Newcomer handed down his decision in Rosenbaum v. UNUM Life Insurance Co., holding that ERISA does not pre-empt a claim under Section 8371, Pennsylvania’s bad-faith statute. The June 2002 decision spawned a flurry of litigation as plaintiffs lawyers across the state moved to add bad-faith claims to pending lawsuits. But in the weeks and months following the Rosenbaum decision, Newcomer’s colleagues on the Eastern District bench consistently rejected his view, holding instead that a bad-faith claim is pre-empted by ERISA because it conflicts with the federal law’s exclusive remedy scheme. Defense lawyers in the Rosenbaum case urged Newcomer to reconsider. But the issue got 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 that said 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 preemption under ERISA via ERISA’s saving clause.” Newcomer focused on ERISA’s “savings clause” and found that the intent of Congress was clear that a law such as Pennsylvania’s bad-faith statute should not be pre-empted. As a result, Newcomer concluded that his colleagues had erred by proceeding to a second step in their pre-emption analysis in which they considered the issue of conflict pre-emption. Those rulings, Newcomer found, effectively rendered the savings clause meaningless. At first, it appeared that the second Rosenbaum decision was headed straight to the 3rd Circuit because Newcomer certified the issue for an immediate appeal. But just one week later, the Rosenbaum case quietly settled. As a result, no appeal was filed and it seemed that the split of authority in the district court was not soon to be abated. But now a new case has emerged, also from Newcomer’s docket, to take up where Rosenbaum left off. Soon after the Rosenbaum settlement, Newcomer handed down an order in Barber v. UNUM Life Insurance Co. that denied a defense motion for summary judgment on the bad-faith claim. The order cited the Rosenbaum decision and granted the lawyers the right to pursue an immediate appeal. The initial briefs have now been filed in the Barber case, with lawyers on both sides urging the appellate court to take up the issue. Defense attorneys E. Thomas Henefer and Kirk L. Wolgemuth of Stevens & Lee argue in their petition that the case presents “an issue of critical importance” because Newcomer’s decision “has created a sharp split of authority among the district courts within the 3rd Circuit.” Urging the 3rd Circuit to grant permission for the appeal, the defense lawyers argue that the Barber case “offers the court the opportunity to resolve a split of authority among the district courts which, in its current state, threatens to cause widely divergent results in similar cases based not on factual distinctions but, instead, on nothing more than the random selection of the judge assigned to the particular case.” In their response, the plaintiff’s attorneys also urged the 3rd Circuit to take up the case “because the view of the majority of the district courts — that Section 8371 is not saved from pre-emption — is incorrect, and as a result, insurers are being allowed to handle claims in bad faith with impunity.” In the appeal, plaintiff James Barber is represented by attorneys Joseph Roda and Eric L. Keepers of Roda & Nast in Lancaster, along with attorney Gerald B. Baldino of Sacchetto & Baldino in Media. In the briefs, both sides offered a capsulized version of the arguments they hope to make in a full brief. Defense lawyers argue that Newcomer erred in two significant ways — first by finding that the Pennsylvania bad-faith statute qualifies for ERISA’s savings clause, and second by failing to conduct any analysis on the issue of conflict pre-emption. The conflict pre-emption analysis is essential, the defense team argued, because Congress clearly intended for ERISA’s civil enforcement scheme to be exclusive. “Allowing for the imposition of punitive damages in ERISA cases will only increase the cost of insurance, thereby creating a disincentive for the formation of [employee benefit] plans,” Henefer and Wolgemuth wrote. But Roda, Keepers and Baldino argue that Newcomer is the only judge who read the Miller decision correctly. In Miller, the plaintiff’s team argues, the Supreme Court announced a new two-part test for deciding whether a state law qualifies for ERISA’s savings clause. Under the old test, they argue, a state law directed at the insurance industry was nonetheless pre-empted unless it also “had the effect of transferring or spreading a policyholder’s risk.” But under the new Miller test, they argue, a state insurance law is saved from pre-emption if it merely “substantially affects” the risk-pooling arrangement between the insurer and the insured. Pennsylvania’s bad-faith statute qualifies for the savings clause, the plaintiff’s lawyers argue, because it alters the risk that an insurer will deny a claim in bad faith; and because it effectively creates new mandatory terms in insurance policies. The plaintiff’s team also argues that Newcomer was correct in rejecting the notion that a law covered by the savings clause is nonetheless subject to conflict pre-emption. “To conclude otherwise, one must assume that Congress intended an absurd result … that Congress intended to exempt state laws from pre-emption via the savings clause while simultaneously pre-empting such laws through ERISA’s remedial scheme,” they wrote. “One must assume that Congress intended, by its silence in one part of the statute, to nullify its express language in another part,” they wrote.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.