Dye brought suit after her claim for disability benefits under an employee welfare benefit plan was denied. Her complaint alleged only state law theories of breach of contract, fraud, and bad faith. The bad faith claim was premised on Georgia’s insurance bad faith statute, O.C.G.A. § 33-4-6.
Hartford moved to dismiss the complaint based on preemption by ERISA. The district court granted the company’s motion, concluding that all of the claims were subject to ERISA’s express preemption provision.
First, although the breach of contract claim was “completely preempted” and re-characterized as a federal claim for purposes of determining the court’s subject matter jurisdiction, the court nonetheless noted that Dye had not amended her complaint to assert ERISA claims. The breach of contract claim, the court held, was also defensively preempted and thus subject to dismissal.
Similarly, the alleged conduct upon which the fraud claim and the bad faith claim were based – an alleged attempt “to alter the terms of the insurance policy and use[ ] said alteration as a basis to terminate her long term disability benefits” – was “intertwined” with the company’s denial of benefits. Under Eleventh Circuit case law, those claims thus “related to” the plan for purposes of ERISA’s express preemption provision.
Addressing the saving clause issue, the court next noted that the breach of contract and fraud claims were “plainly ... not based on state laws specifically directed toward the insurance industry.” The bad faith statute, however, was “unquestionably directed toward the insurance industry,” according to the court. As a result, the court was required to reach the second prong of the saving clause test, namely, to determine whether the bad faith statute affected the risk pooling arrangement between the insurer and the insured.
Here, that question was answered in the negative because the statute “imposes liability for bad faith refusal to pay claims that are covered by an already existing insurance policy.” As a result, the bad faith claim was not “saved” from preemption. The court noted that its decision was also consistent with determinations made by other district courts in the Eleventh Circuit.
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