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State Law Claims of Breach of Contract and Fraud Dismissed Because Completely Preempted by ERISA

State Law Claims of Breach of Contract and Fraud Dismissed Because Completely Preempted by ERISA

Dye v. Hartford Life & Acc. Co., 2014 WL 1379246 (M.D. Ga. Apr. 8, 2014)

ERISA and Life Insurance News
(August 29, 2014)

Dye sued Hartford to recover benefits under a long-term disability insurance policy issued to her former employer, where she worked as a registered nurse. Hartford was the claims administrator of the policy.

Dye alleged breach of contract and fraud based on Hartford’s termination of her long-term disability benefits. She also alleged that Hartford acted in “bad faith,” which entitled her to additional damages. Hartford removed the case to federal court, and moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) on the ground that it alleged only state law claims that were completely preempted by ERISA.

The court first considered whether it had subject matter jurisdiction, since complete preemption would confer jurisdiction, in contrast to conflict or defensive preemption, which is an affirmative defense arising from ERISA’s express preemption provision, but which does not provide a basis for removal.

To determine whether complete preemption existed, the court considered (1) whether Dye could have brought her claim under § 502(a) of ERISA, and (2) whether no other legal duty supported the claim. For the first factor, a plaintiff’s claim must fall within the scope of ERISA, and the plaintiff must have standing to sue under ERISA.

The court concluded that Dye could have brought her claim under § 502(a), because the plan was an employee benefit plan established by her employer, which was an ERISA entity that “controls the payment of benefits and the determination of rights under an ERISA plan.” And, as an employee potentially eligible to receive benefits under the plan, plaintiff had standing to assert this claim.

Regarding the second factor, the court noted that Dye’s breach of contract claim, based on her contention that Hartford erroneously concluded she no longer was disabled, necessarily required inquiry into the content of the ERISA plan. Thus, it was not premised on legal duties independent of the plan. Accordingly, plaintiff’s breach of contract claim was completely preempted by ERISA, and because the state law fraud and bad faith claims were joined with the completely preempted claim, the court had jurisdiction.

With respect to Hartford’s motion to dismiss the state law claims, the court determined that the breach of contract claim necessarily “relate[d] to” an ERISA plan and thus was also defensively preempted. Because the fraud and bad faith claims were “intertwined with the Defendant’s denial of benefits under an ERISA plan,” they too were defensively preempted. Dye’s claims were dismissed.

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