Barber v. Unum Life Ins Co

• Court: Court of Appeals for the Third Circuit
• Decided: September 7, 2004
• Docket: 03-4363
• Status: Published

Opinion

Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit

9-7-2004

Barber v. Unum Life Ins Co Precedential or Non-Precedential: Precedential

Docket No. 03-4363

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Recommended Citation "Barber v. Unum Life Ins Co" (2004). 2004 Decisions. Paper 286. http://digitalcommons.law.villanova.edu/thirdcircuit_2004/286

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova University School of Law Digital Repository. It has been accepted for inclusion in 2004 Decisions by an authorized administrator of Villanova University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu. PRECEDENTIAL E. Thomas Henefer, Esquire (Argued) Stevens & Lee UNITED STATES 111 North Sixth Street COURT OF APPEALS P.O. Box 679 FOR THE THIRD CIRCUIT Reading, Pennsylvania 19603 Attorney for Appellant

No. 03-4363 Joseph F. Roda, Esquire (Argued) Roda & Nast 801 Estelle Drive JAMES BARBER Lancaster, Pennsylvania 17601 Attorney for Appellee v. Glen D. Nager, Esquire UNUM LIFE INSURANCE Jones Day COMPANY OF AMERICA, 51 Louisiana Avenue, N.W. Appellant Washington, D.C. 20001 Attorney for Amicus Curiae- Appellant, Chamber of On Appeal from the Commerce of the United States United States District Court for the Eastern District of Pennsylvania Arnold R. Levinson, Esquire D.C. Civil Action No. 03-cv-03018 Pillsbury & Levinson (Honorable Clarence C. Newcomer) One Embarcadero Center, Suite 3860 San Francisco, California 94111 Attorney for Amicus Curiae- Argued May 25, 2004 Appellee, United Policyholders

Before: SCIRICA, Chief Judge, RENDELL and ALARCÓN * , OPINION OF THE COURT Circuit Judges

(Filed September 7, 2004) SCIRICA, Chief Judge. At issue is whether ERISA preempts Pennsylvania’s bad faith statute for insurance claims, 42 Pa. C.S. § 8371, through express or conflict preemption. The District Court denied defendant’s Fed. * R. Civ. P. 12(b)(6) motion moving for The Honorable Arthur L. Alarcón, dismissal of plaintiff’s bad faith claim United States Circuit Judge for the Ninth based on ERISA preemption. Barber v. Judicial Circuit, sitting by designation. UNUM Life Ins. Co. of Am., No. 03-3018 UNUM moved under Fed. R. Civ. (E.D. Pa. filed Sept. 9, 2003). Because we P. 12(b)(6) to dismiss the bad faith claim, hold 42 Pa. C.S. § 8371 is conflict citing ERISA preemption. UNUM preempted by ERISA, or alternatively contends conflict preemption applies expressly preempted under ERISA § because 42 Pa. C.S. § 8371's remedial 514(a), we will reverse the judgment of the scheme conflicts with Congress’ intent in District C ourt and rema nd w ith enac ting ERISA’s exclusive civil instructions to dismiss Barber’s bad faith enforcement provision in § 502(a), 29 claim. U.S.C. § 1132(a). § 502(a) allows an ERISA-plan participant to recover I. benefits, to obtain a declaratory judgment Facts that he is entitled to benefits, and to enjoin an improper refusal to pay benefits. 29 This matter involves a dispute over U.S.C. § 1132(a). UNUM contends disability benefits provided to plaintiff ERISA preempts 42 Pa. C.S. § 8371 James Barber by his employer under an because it is a separate enforcement employee benefit plan governed by the scheme with a punitive damages provision Employee Retirement Income Security Act that adds to the detailed provisions of of 1974, as amended 29 U.S.C. §§ 1001- ERISA’s remedial mechanism. 1461. Benefits under the plan were insured under a group long-term disability Citing express ERISA preemption, policy Barber’s employer obtained from UNUM also contends 42 Pa. C.S. § 8371 defendant UNU M Life Insura nce falls outside the protective ambit of Company of America. ERISA’s saving clause. ERISA § 514(a), After Barber became disabled, he applied for and received long-term acted in bad faith toward the disability benefits. But U NUM insured, the court may take subsequently terminated the benefits after all of the following actions: determining Barber was no longer disabled (1) Award interest on the under the policy’s terms. Barber brought amount of the claim from suit for breach of contract and for bad the date the claim was made faith, requesting punitive damages under by the insured in an amount 42 Pa. C.S. § 8371 for UNUM’s alleged equal to the prime rate of bad faith in denying benefits.1 interest plus 3%. (2) Award punitive damages against the insurer. 1 42 Pa. C.S. § 8371 provides: (3) Assess court costs and In an action arising under an attorney fees against the insurance policy, if the court insurer. finds that the insurer has Id.

2 the express preemption clause, broadly Barber responds that 42 Pa. C.S. § 8371, provides that “[e]xcept as provided in the bad faith statute, “regulates insurance” subsection (b) of this section, the and accordingly falls within the saving provisions of this title . . . shall supersede clause’s parameters. any and all State laws insofar as they may Procedural Background now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). In In Rosenbaum v. UNUM Life apparent tension, however, and reflecting Insurance Co. of America, No. 01-6758, its concern with limiting states’ rights to 2003 U.S. Dist. LEXIS 15652 (E.D. Pa. regulate insurance, banking, or securities, Sept. 8, 2003) (“Rosenbaum II”),3 the Congress drafted a saving clause, ERISA § 514(b)(2)(A), that provides: “Except as provided in subparagraph (B), nothing in . employee benefit plan[s],” this title shall be construed to exempt or it is pre-empted. § 514(a). relieve any person from any law of any The saving clause excepts State which regulates insurance, banking, from the pre-emption clause or securities.” 29 U.S.C. § 1144(b)(2)(A).2 l aw s t hat “ r e g u l a t[ e ] insurance.” § 514(b)(2)(A). The deemer clause makes clear that a state law that 2 Subparagraph (B) (“the deemer “purport[ s] to regulate clause”) provides: insurance” cannot deem an Neither an employee benefit employee benefit plan to be plan . . . nor any trust an insurance company. established under such a § 514(b)(2)(B). plan, shall be deemed to be Pilot Life Ins. Co. v. Dedeaux, 481 U.S. an insurance company or 41, 45 (1987). other insurer, bank, trust 3 company, or investment In Rosenbaum v. UNUM Life company or to be engaged Insurance Co. of America, No. 01-6758, in the business of insurance 2002 U.S. Dist. LEXIS 14155 (E.D. Pa. or banking for purposes of July 29, 2002) (“Rosenbaum I”), the any law of any State District Court held 42 Pa. C.S. § 8371 is purp orting to regu late not expressly preempted because it i n s u r an c e c o m p a n i e s , “regulates insurance” under ERISA’s insurance contracts, banks, saving clause. Id. at *1-9. UNUM filed a trust com panie s, or motion for reconsideration. While that investment companies. motion was pending, the Supreme Court Id. § 1144(b)(2)(B). As summarized by decided Kentucky Association of Health the Supreme Court: Plans, Inc. v. Miller, 538 U.S. 329 (2003), If a state law “relate[s] to . . which clarified a statute “regulates

3 District Court held 42 Pa. C.S. § 8371 certified for interlocutory appeal, but the satisfied the saving clause and found ruling came after parties had advised the conflict preemption did not apply. Id. at District Court they had settled the matter, *10-25.4 The order in Rosenbaum II was eliminating a case or controversy. But the district judge in Rosenbaum II was also assigned to this lawsuit. On September 9, insurance” and satisfies the saving clause 2003, the District Court denied UNUM’s only if it (1) is “specifically directed motion to dismiss for the reasons provided toward entities engaged in insurance” and in Rosenbaum II. Barber v. UNUM Life (2) “substantially affect[s] the risk pooling Ins. Co., No. 03-3018 (E.D. Pa. filed Sept. arrangement between the insurer and the 9, 2003). The District Court certified the insured.” Id. at 341-42. issue for interlocutory review. Id. We 4 granted the petition for allowance of Several other federal district courts in appeal.5 Pennsylvania held ERISA preempts 42 Pa. C.S. § 8371. See Hunter v. Fed. Express Corp., No. 03-6711, 2004 U.S. Dist. UNUM Life Ins. Co. of Am., No. 02-2019, LEXIS 13271 (E.D. Pa. July 15, 2004); 2003 U.S. Dist. LEXIS 1540 (M.D. Pa. Rieser v. Standard Life Ins. Co., No. 03- Feb. 4, 2003); Snook v. Penn State 5040, 2004 U.S. Dist. LEXIS 9378 (E.D. Geisinger Health Plan, 241 F. Supp. 2d Pa. May 25, 2004); Waters v. Kemper Ins. 485 (M.D. Pa. 2003); Bell v. UNUM Cos., No. 03-1803, 2004 U.S. Dist. LEXIS Provident Corp., 222 F. Supp. 2d 692 7379 (W.D. Pa. April 19, 2004); (E.D. Pa. 2002); Kirkhuff v. Lincoln Tech. Tannenbaum v. UNUM Life Ins. Co. of Inst., Inc., 221 F. Supp. 2d 572 (E.D. Pa. Am., No. 03-CV-1410, 2004 U.S. Dist. 2002); Sprecher v. Aetna U.S. Healthcare, LEXIS 5664 (E.D. Pa. Feb. 27, 2004); Inc., No. 02-CV-00580, 2002 U.S. Dist. Dolce v. Hercules Inc. Ins. Plan, No. 03- LEXIS 15571 (E.D. Pa. Aug. 19, 2002). CV-1747, 2003 U.S. Dist. LEXIS 23890 One district court agreed with (E.D. Pa. Dec. 15, 2003); Nguyen v. Rosenbaum II, 2003 U.S. Dist. LEXIS Healthguard of Lancaster, Inc., 282 F. 15652, and held ERISA does not preempt Supp. 2d 296 (E.D. Pa. 2003) 42 Pa. C.S. § 8371. Stone v. Disability reconsideration denied 03-3106, 2003 Mgmt. Servs., 288 F. Supp. 2d 684 (M.D. U.S. Dist. LEXIS 22043 (E.D. Pa. Oct. 7, Pa. 2003). 2003); Leuthner v. Blue Cross & Blue 5 Shield of Northeastern Penn., 270 F. Supp. We have subject matter jurisdiction 2d 584 (M.D. Pa. 2003); Morales-Ceballos under 28 U.S.C. § 1331. We have v. First UNUM Life Ins. Co. of Am., No. jurisdiction to hear an interlocutory appeal 03-CV-925, 2003 U.S. Dist. LEXIS 9801 under 28 U.S.C. § 1292(b). (E.D. Pa. May 27, 2003); McGuigan v. The issues presented are legal Reliance Standard Life Ins. Co., 256 F. issues over which we exercise plenary Supp. 2d 345 (E.D. Pa. 2003); Emil v. review. Concepcion v. Morton, 306 F.3d

4 II. brought a common law tort and contract action asserting improper processing of a A. Conflict Preemption benefits claim. Id. The Court found the Under the doctrine of conflict saving clause did not save the bad faith preemption, a state law may be preempted claim because it did not “regulate “to the extent that it actually conflicts with insurance.” Id. at 50. But stating it was federal law,” English v. Gen. Elec. Co., obliged to consider “the role of the saving 496 U.S. 72, 79 (1990), that is, where it clause in ERISA as a whole,” the Court “sta n d s a s a n obstacle to th e noted an “understanding of the saving accomplishment and execution of the full clause must be informed by the legislative purposes and objectives of Congress.” intent concern ing [ER ISA’s] civil Hines v. Davidowitz, 312 U.S. 52, 67 enforcement provisions,” which, the Court (1941). UNUM contends conflict said, were “intended to be exclusive.” Id. preemption applies because 42 Pa. C.S. § at 51-52. In ruling that punitive damages 8371 is a separate enforcement scheme in a bad faith cause of action constituted that enlarges the remedies otherwise an additional remedy, the Court explained: available under the detailed civil [The provisions of ERISA] enforcement provision of ERISA § 502(a). set forth a comprehensive Until the Supreme Court’s recent civil enforcement scheme decision in Aetna Health Inc. v. Davila, that represents a careful 124 S. Ct. 2488 (2004), the debate over balancing of the need for ERISA conflict preemption centered on prompt and fair claims two Supreme Court cases—Pilot Life, 481 settlement procedu res U.S. 41, and Rush Prudential, 536 U.S. against the public interest in 355. In Pilot Life, an insurance company encouraging the formation terminated an injured employee’s disability of employee benefit plans. plan. 481 U.S. at 43-44. The employee The policy choices reflected in the inclusion of certain remedies and the exclusion 1347, 1352 (3d Cir. 2002). Because this is of others under the federal an appeal of a Fed. R. Civ. P. 12(b)(6) scheme would be motion, we accept all factual allegations in completely undermined if the complaint and all reasonable inferences ER ISA-p lan participants to be drawn therefrom in the light most and beneficiaries were free favorable to the plaintiffs. Rossman v. to obtain remedies under Fleet Bank Nat’l Ass’n, 280 F.3d 384, 387 n.1 (3d Cir. 2002). We may dismiss a claim only if it is certain that no relief could be granted under any set of facts which could be proven. Id.

5 state law that Congress remedies . . . that Congress rejected in ERISA. rejected in ERISA.” Id. at 54. The Court stated the “‘six Id. at 378 (quoting Pilot Life, 481 U.S. at carefully integrated civil enforcement 54) (citation and internal quotations provisions found in § 502(a) of the omitted). The Court explained the civil [ERISA] statute as finally enacted . . . remedies provided in ERISA § 502(a) are provide strong evidence that Congress did an “‘interlocking, interrelated, and not intend to authorize other remedies that interdependent remedial scheme,’” id. at it simply forgot to incorporate expressly.’” 376 (quoting Mass. Mutual, 473 U.S. at Id. (quoting Mass. Mutual Life Ins. Co. v. 146), that “‘represent[s] a careful Russell, 473 U.S. 134, 146 (1985)) balancing of the need for prompt and fair (emphasis in original). Accordingly, the claims settlement procedures against the Court found the state claims permitting public interest in encouraging the punitive damages were preempted by formation of employee benefit plans.’” Id. ERISA. Id. at 57. at 376 (quoting Pilot Life, 481 U.S. at 54). ERISA § 502(a)’s civil enforcement The Supreme Court revisited provisions are the “sort of overpowering conflict preemption in Rush Prudential, federal policy” that is so strong it even 536 U.S. 355, narrowly reaffirming the “overrides a statutory provision designed applicability of conflict preemption in the to save state law from being preempted.” ERISA context. The Court “recognized a Id. at 375.6 limited exception from the savings clause for alternative causes of action and alternative remedies,” describing this 6 In addition to Pilot Life and Rush exception as “Pilot Life’s categorical Prudential, the Supreme Court has preemption.” Id. at 380-81. The Court asserted on other occasions Congress did noted: not intend to authorize remedies other than Although we have yet to those provided under ERISA § 502(a), encounter a forced choice emphasizing the “overpowering” federal between the congressional policy in ERISA’s exclusive civil policies of exclusively enforcement provisions. See Metropolitan federal remedies and the Life Ins. Co. v. Taylor, 481 U.S. 58, 64-65 reservation of the business (1987) (“As we have made clear today in of insurance to the States, Pilot Life . . . the policy choices reflected we have anticipated such a in the inclusion of certain remedies and the conflict, with the state exclusion of others under the federal insurance regulation losing scheme would be completely undermined out if it allows plan i f E R I S A - p l a n p a r t ic i p a n ts a nd participants “to ob tain beneficiaries were free to obtain remedies under state law that Congress rejected in

6 The parties here have focused on Dist. LEXIS 15652, at *20-21.7 Whatever whether the Supreme Court treatment of the outcome of that debate, it is no longer conflict preemption in Pilot Life and Rush material because in Aetna Health, 124 S. Prudential is dicta, noting Rosenbaum II Ct. 2488,8 the Court confirmed that state found it to be “dicta” that was “unpersuasive.” Rosenbaum II, 2003 U.S. 7 Even if the Supreme Court’s discussion of conflict preemption were dicta, we do not view their dicta lightly: [W]e should not idly ignore considered statements the Supreme Court makes in dicta. The Supreme Court uses dicta to help control and influence the many issues it cannot decide because of its limited docket. “Appellate courts t h a t dismiss these expressions [in dicta] and strike off on their own increase the disparity among tribunals (for other judges are likely to follow the Supreme Court’s marching orders) and frustrate the evenhanded administration of justice by giving litigants an outcome other than the one the Supreme Court would be likely to reach were the case heard there.” Official Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery, 330 F.3d 548, 561 (3d ERISA.”); Mass. Mutual, 473 U.S. at 146 Cir. 2003) (quoting McDonald v. Master (ERISA § 502(a)’s “carefully integrated Fin., Inc. (In re McDonald), 205 F.3d 606, civil enforcement provisions . . . provide 612-13 (3d Cir. 2000)). strong evidence that Congress did not 8 intend to authorize other remedies that it The District Court decided this case simply forgot to incorporate expressly.”). before the decision in Aetna Health, 124 S.

7 laws that supplement ERISA’s civil remedy to those provided by the ERISA enforcement scheme conflict w ith civil enforcement mechanism” because Congress’ intent to make the ERISA such a cause of action “conflicts with remedy exclusive. Id. at 2495. Congress’ clear intent to make the ERISA mechanism exclusive.” Id. at 2498 n.4. In Aetna Health, the Court held the plaintiffs’ claims under the Texas R eading Pilot L ife, Rush Healthcare Liability Act, which imposed a Prudential, and Aetna Health together, a duty of ordinary care in the handling of state statute is preempted by ERISA if it coverage decisions, were completely provides “a form of ultimate relief in a preempted by ERISA and therefore judicial forum that added to the judicial removable to federal court. Id. at 2492-93, remedies provided by ERISA,” Rush 2498. Noting that ERISA’s “integrated Prudential, 536 U.S. at 379, or stated enforcement mechanism, ERISA § another way, if it “duplicates, supplements, 502(a),” is “essential to accomplish or supplants the ERISA civil enforcement Congress’ purp ose o f crea ting a remedy.” Aetna Health, 124 S. Ct. at 2495 comprehensive statute for the regulation of (citing Pilot Life, 481 U.S. at 54-56). 42 employee benefit plans,” the Court held Pa. C.S. § 8371 is such a statute because it “any state-law cause of action that is a state remedy that allows an ERISA- duplicates, supplements, or supplants the plan participant to recover punitive ERISA civil enforcement remedy conflicts damages for bad faith conduct by insurers, with the clear congressional intent to make supplementing the scope of relief granted the ERISA remedy exclusive and is by ERISA. Accordingly, 42 Pa. C.S. § therefore pre-empted.” Id. at 2495 (citing 8371 is subject to conflict preemption. Pilot Life, 481 U.S. at 54-56). The Court explained “Congress’ intent to make the ERISA civil enforcement mechanism exclusive would be undermined if state causes of action that supplement the ERISA § 502(a) remedies were permitted, even if the elements of the state cause of action did not precisely duplicate the elements of an ERISA claim.” Id. at 2499- 2500. In short, Aetna Health confirms that conflict preemption applies to any “state cause of action that provides an alternative

Ct. 2488. Because Aetna Health was issued after oral argument, we requested briefing from the parties.

8 B. Express Preemption and the Saving claim for benefits outside Clause of, or in addition to, ERISA’s remedial scheme. 1. The Saving Clause’s Effect on Conflict Preemption Id. at 2500.9 Citing Pilot Life, 481 U.S. 41, the Court noted Congress’ policy Barber contends 42 Pa. C.S. § 8371 choices reflected in ERISA’s exclusive is a law that “regulates insurance,” and remedial provision would be undermined therefore, under ERISA § 514(b)(2)(A), by state laws allowing alternate remedies, his bad faith claim is saved from and concluded that “Pilot Life’s reasoning preemption, including conflict preemption. applies here with full force.” Aetna He notes Congress could have qualified § Health, 124 S. Ct. at 2500. For those 514(b)(2)(A)’s saving clause by limiting reasons, even if 42 Pa. C.S. § 8371 were its applicability if state law remedies found to “regulate insurance” under the conflict with or add to ERISA’s remedies, saving clause, it would still be preempted but it did not do so. because the punitive damages remedy In Aetna Health, 124 S. Ct. 2488, supplements ERISA’s exclusive remedial the Supreme Court found a similar scheme. argument “unavailing,” holding that the 2. Express Preemption presence of ERISA’s saving clause does not disrupt the normal conflict preemption In the alternative, we believe the analysis: District Court erred in finding 42 Pa. C.S. § 8371 “regulates insurance” under the ERISA § 514(b)(2)(A) must saving clause. Accordingly, express be interpreted in light of the preemption under ERISA § 514(a) would congressional intent to apply. As stated, in Miller, 538 U.S. 329, create an exclusive federal the Supreme Court set forth a two-part test remedy in ERISA § 502(a). Under ordinary principles of conflict pre-emption, then, 9 Amicus supporting Barber’s position even a state law that can contend that because 42 Pa. C.S. § 8371 arguably be characterized as does not “provide[] a separate vehicle to ‘regulating insurance’ will assert a claim for benefits,” Aetna Health, be pre-empted if it provides 124 S. Ct. at 2500 (emphasis added), a separate vehicle to assert a Barber’s claim for punitive damages, as opposed to additional benefits, is not preempted. But this is too narrow a reading given the Supreme Court’s emphasis on the “congressional intent to create an exclusive federal remedy in ERISA § 502(a).” Id. (emphasis added).

9 which clarified that a statute “regulates For the first prong of the insurance” and satisfies the saving clause test—whether 42 Pa. C.S. § 8371 is only if it (1) is “specifically directed “specifically directed towards entities toward entities engaged in insurance” and engaged in insurance,” 538 U.S. at (2) “substantially affect[s] the risk pooling 342—the inquiry must be answered in the arrangement between the insurer and the affirmative. 42 Pa. C.S. § 8371 is entitled insured.” Id. at 341-42.10 “actions on insurance policies,” and its first sentence limits the provision’s scope to insurers: “In an action arising under an 10 insurance policy, if the court finds that the Prior to Miller, the seminal case insurer has acted in bad faith toward the interpreting ERISA’s insurance regulation insured . . . .” Id. (emphasis added). preemption exception was Metropolitan Moreover, the remedies offered under 42 Life Insurance Co. v. Massachusetts, 471 Pa. C.S. § 8371 are awarded or assessed U.S. 724 (1985). In Metropolitan Life, the “against the insurer.” Id. Supreme Court applied the McCarran- Ferguson test to determine whether a law UNUM responds that 42 Pa. C.S. § regulates insurance for purposes of the 8371 fails this prong because it regulates ERISA saving clause. First, the law must the insurer’s conduct rather than the have regulated insurance from a “common underlying insurance by creating extra- sense” view. Id. at 740. Second, the Court contractual remedies for certain types of adopted the three factors used in the insurer conduct. We believe Miller McCarran-Ferguson Act to determine forecloses this argument. In Miller, the whether a regulation falls within the Supreme Court considered Kentucky’s business of insurance, that is, whether the Any Willing Provider Law which regulation (1) transferred or spread policy regulated insurers’ conduct with regard to risk; (2) was an integral part of the policy third-party providers. 538 U.S. at 337-38. relationship between the insurer and the The Court explained ERISA’s savings insured; and (3) applied only to entities clause “is not concerned . . . with how to within the insurance industry. Id. at 743. characterize conduct undertaken by private Applying the McCarran-Ferguson actors, but with how to characterize state factors, the Supreme Court has saved from preemption: an Illinois law requiring HMOs to provide independent review of requiring coverage of certain minimum whether services are medically necessary, mental health services under any health Rush Prudential, 536 U.S. at 374-75; a insurance policy issued in that state, California law requiring an insurer to Metropolitan Life, 471 U.S. at 742-47. In demonstrate prejudice in order to deny an Miller, 538 U.S. 329, the Supreme Court untimely claim for benefits, UNUM Life jettisoned Metropolitan Life’s test, stating Ins. Co. of Am. v. Ward, 526 U.S. 358, it was making “a clean break from the 367-79 (1999); and a Massachusetts law McCarran-Ferguson factors.” Id. at 341.

10 laws in regard to what they ‘regulate.’” Id. explained the “any willing provider” The Court provided the following analogy: statute under review, the “mandated- benefit” law in Metropolitan Life, 471 U.S. Suppose a state law required 724, the “notice-prejudice” rule in UNUM all licensed attorneys to Life, 526 U.S. 358, and the “independent participate in 10 hours of review” provision in Rush Prudential, 536 continuing legal education U.S. 355, “alter the scope of permissible (CLE) each year. This bargains between insurers and insureds” statute “regu lates” th e and therefore “substantially affect[] the practice of law — even type of risk pooling arrangements that though sitting through 10 insurers may offer.” 538 U.S. at 338-39. hours of CLE classes does In comparison, the bad faith statute here is not constitute the practice of remedial in nature—it is a remedy to law—because the state has which the insured may turn when injured conditioned the right to by the bad faith of an insurer. See practice law on certain Kidneigh v. UNUM Life Ins. Co. of Am., requirements, which 345 F.3d 1182, 1187 (10th Cir. 2003) substantially affect the (“[B]ad faith claims, whether common law p ro d u c t d e l i v e r e d b y or statutory, merely provide an additional lawyers to their clients. remedy for policyholders.”). 42 Pa. C.S. § Id. at 337-38. The Court concluded the 8371 does not affect the kinds of bargains Any Willing Provider Law similarly “‘regulates’ insurance by imposing conditions on the right to engage in the reference to “ the r isk pooling” business of insurance.” Id. at 338. This arrangement between insurer and insured case presents a similar situation in which refers simply to the “insurance” Pennsylvania’s bad faith statute regulates arrangement between them. But the Miller insurers’ conduct by imposing industry- test is intended to clarify ERISA’s opaque wide conditions on the insurance business. statutory language which saves statutes Accordingly, the first prong of the Miller that “regulate insurance.” 29 U.S.C. § test is satisfied. 144(b)(2)(A). The Miller test, we believe, Under the second prong, however, demands more than 42 Pa. C.S. § 8371 does not “substantially whether a law substantially affects the affect[] the risk pooling arrangement insurance arrangement between the insurer between the insurer and insured.” Miller, and insured. The Supreme Court’s precise 538 U.S. at 342.11 In Miller, the Court formulation is wh ether a statute “substantially affects the risk pooling arrangement between the insurer and 11 Barber attempts to cast the saving insured.” Miller, 538 U.S. at 342 clause in a broad light by claiming Miller’s (emphasis added).

11 insurers and insureds may make. It Co. v. Pireno, 458 U.S. 119, 128 n.7 provides that whatever the bargain struck, (1982) (internal quotations omitted); if the insurer acts in bad faith, the insured Hollaway v. UNUM Life Ins. Co. of Am., may recover punitive damages. Pilot Life, 89 P.3d 1022, 1029 (Okla. 2003) 481 U.S. at 49-51 (holding “the common (explaining that risk pooling groups “those law of bad faith does not define the terms with greater and lesser risks together to of the relationship between the insurer and better acco unt and minim ize the the insured; it declares only that, whatever unpredictable risk for everyone” and terms have been agreed upon in the “results in spreading the costs of risk of insurance contract, a breach of that loss for which an insurer must pay across contract may in certain circumstances the span of insureds”). Here, the risk allow the policyholder to obtain punitive pooled, in this case the risk of disability, is damages.”). 12 reflected in the policy itself. The tort of bad faith breach of an insurance contract is Moreover, claims for bad faith not ordinarily a risk identified in the insurance breaches bear no relation to the insurance policy as a risk of loss the risk pooled—the risk of loss the insurer insurer agrees to bear for its insured. agrees to bear on behalf of the insured. Within the insurance industry, “risk” Our conclusion is buttressed by means the risk of occurrence of injury or Pireno, 458 U.S. 119.13 In Pireno, a loss for which the insurer contractually plaintiff brought suit, alleging antitrust agrees to compensate the insured. With violations by a peer review committee risk pooling, “a number of risks are used to assess whether chiropractors’ fees accepted, some of which involve losses,” were reasonable. Id. at 122-24. The Court and the “losses are spread over all the risks found the use of the peer review played no so as to enable the insurer to accept each part in the spreading and underwriting of risk at a slight fraction of the possible insurance risk: liability upon it.” Union Labor Life Ins. [ P l a i n t i f f ’ s] a rg u m en t contains the unspoken 12 premise that the transfer of We recognize Pilot Life was decided risk from an insured to his under the pre-Miller McCarran-Ferguson insurer actually takes place standard which asked whether the law at not when the contract issue “has the effect of transferring or between those parties is spreading a policy holder’s risk.” 481 U.S. completed, but rather only at 48 (internal quotations omitted). Though the Miller Court made a “clean break” from the McCarran-Ferguson 13 factors, 538 U.S. at 341, we believe the As with Pilot Life, we find the Court’s Court’s analysis in Pilot Life is nonetheless analysis of insurance risk in the pre-Miller instructive and still valid on this point. Pireno to still offer guidance.

12 when the insured’s claim is settled. This premise is contrary to the fundamental principle of insurance that the insurance policy defines the scope of risk assumed by the insurer from the insured. Id. at 131 (emphasis added). Here, the transfer of risk occurred when Barber entered into the insurance contract, not when his claim was settled. The scope of the risk pooled is defined by the policy, not by a claims settlement statute allowing for bad faith remedies. Moreover, the threat that punitive awards may result in increased costs that could be passed on to the insured is too attenuated to be deemed to “substantially affect” the risk pooling arrangement. Accordingly, under the Miller test, Pennsylvania’s bad faith statute does not “regulate insurance” within the meaning of ERISA’s saving clause and is expressly preempted by ERISA. III. For the foregoing reasons, we will reverse the judgment of the District Court and remand with instructions to dismiss Barber’s bad faith claim.