Cathey v. Metropolitan Life Insurance Co.

805 S.W.2d 387, 34 Tex. Sup. Ct. J. 309, 1991 Tex. LEXIS 10, 1991 WL 7965

• Court: Texas Supreme Court
• Decided: January 30, 1991
• Docket: C-8323
• Status: Published

Opinions

OPINION

GONZALEZ, Justice.

This is an appeal in a case involving “ERISA,” the Employee Retirement Income Security Act of 1974. 29 U.S.C. §§ 1001-1461 (1988). An employee and his wife brought state law claims against his employer and its insured for alleged wrongful denial of a claim for in-home nursing care. The trial court granted a summary judgment to the defendants. The court of appeals affirmed the judgment of the trial court. 764 S.W.2d 286. We are called upon to decide whether causes of action stated under: 1) article 21.21, section 16 of the Texas Insurance Code; 2) section 17.50(a)(4) of the Texas Deceptive Trade Practices Act; and 3) article 3.62 of the Texas Insurance Code are superseded by the provisions of ERISA. We hold that ERISA preempts these causes of action in this case. We therefore affirm the judgment of the court of appeals.

FACTS

Because this is a summary judgment case, the facts shown by the Catheys are taken as true. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985). James Cathey was employed as a purchasing agent for Dow Chemical Company (“Dow”) from 1973 to 1983. During his tenure at Dow, Cathey was told by Dow representatives that he and his wife, Bette Cathey, were covered by a group insurance plan (the Dow plan). In the mid-1970’s Bette Cathey was diagnosed with multiple sclerosis, and her condition worsened so that eventually she could no longer walk without assistance. In 1982, Bette Cathey’s physicians ordered home nursing care for her. These expenses were paid for under the group insurance plan covering Dow employees. In 1985, Metropolitan Life Insurance Company (“Met”), acting as the claims administrator for the Dow plan, refused to continue paying for the nursing care. Cathey contacted Michael Maddolin, group claim consultant with Met, who told him that there was no medical necessity for nursing care for Bette Cathey.

The Catheys filed suit against Dow, Met, and Michael Maddolin alleging common law and statutory causes of action; no ERISA causes of action were stated. The trial court found each cause of action to be preempted by ERISA and, following the Catheys’ refusal to amend their petition to state an ERISA cause of action,¹ rendered summary judgment in favor of Dow, Met, and Maddolin. The court of appeals affirmed that judgment.

ERISA

The Employee Retirement Income Security Act of 1974 subjects employee benefit plans to federal regulation. The act regulates both pension plans and welfare plans that provide benefits for contingencies such as illness, accident, disability, death, or unemployment. While it provides standards and rules governing reporting, disclosure, and fiduciary responsibility for pension and welfare plans, ERISA does not mandate any particular benefits. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90-91, 103 S.Ct. 2890, 2896-97, 77 L.Ed.2d 490 (1983).

Section 514(a) of ERISA provides:

Except as provided in subsection (b) of this section, the provisions of this sub-chapter and subchapter III of this chapter shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title.

This section is informally known as the “preemption” provision of ERISA. It is narrowed in scope by subsection 514(b)(2)(A), commonly known as the “saving” clause:

Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any state which regulates insurance, banking, or securities.

Subparagraph 514(b)(2)(B), the “deemer” clause, modifies the saving clause by providing that no employee benefit plan:

shall be deemed to be an insurance company or other insurer ... for purposes of any law of any state purporting to regulate insurance companies.

The operation of these provisions has been succinctly explained by the United States Supreme Court:

To summarize the pure mechanics of the provisions quoted above: If a state law “relate[s] to ... employee benefit plan[s],” it is preempted. The saving clause excepts from the pre-emption clause laws that “regulat[e] insurance.” The deemer clause makes clear that a state law that “purport[s] to regulate insurance” cannot deem an employee benefit plan to be an insurance company, (citations omitted).

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987).

Section 1001(b) of Title 29 declares that it is the policy of ERISA to protect:

the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

29 U.S.C. § 1001(b) (1988). In Pilot Life, the Supreme Court explained that the preemption provision of ERISA was intended to have the effect of “reserving] to Federal authority the sole power to regulate the field of employee benefit plans.” 481 U.S. at 46, 107 S.Ct. at 1552 (quoting Representative Dent, 120 Cong.Rec. 29197 (1974)).

THE DISPUTE

The Catheys contend that misrepresentations made by representatives of both Dow and Met are actionable under the Texas Insurance Code and Deceptive Trade Practices Act (“DTPA”). They argue that their claims do not “relate to” an employee benefit plan and thus are not preempted. In the alternative, the Catheys assert that even if their claims do relate to an employee benefit plan within the meaning of the preemption provision, they are preserved by the saving clause as laws regulating insurance.

Dow, Met, and Maddolin assert that section 16 of article 21.21 and article 3.62 of the Texas Insurance Code, and section 17.-50(a)(4) of the DTPA are state laws that “relate to” an ERISA plan and are therefore preempted. They further contend that the causes of action alleged by the Catheys are not saved from preemption by the saving clause because they conflict with the civil enforcement scheme provided in ERISA and are therefore displaced. Both Dow and Met pleaded ERISA preemption in their answers; Maddolin did not.

“RELATE TO”

A state law, defined in section 1144(c)(1) to include all laws, decisions, rules, regulations, or other action having the effect of law, is preempted by ERISA only if it “relates to” a plan. 29 U.S.C. § 1144(a) (1988). We must therefore begin with the fundamental inquiry: When does a state law relate to an employee benefit plan?

The United States Supreme Court has loosely defined the parameters of the “relate to” requirement. “A law ‘relates to’ an employee benefit plan, in the normal sense of the phrase, if it has a connection or reference to such a plan.” Shaw, 463 U.S. at 96-97, 103 S.Ct. at 2899-2900. Also the Court declared that “[t]he phrase ‘relate to’ was given its broad common-sense meaning.” Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985). The Court has repeatedly stated that the words “relate to” should be construed expansively. See Shaw, 463 U.S. at 96-97, 103 S.Ct. at 2899-2900; Pilot Life, 481 U.S. at 46-48, 107 S.Ct. at 1552-53; Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 8, 107 S.Ct. 2211, 2215-16, 96 L.Ed.2d 1 (1987). ERISA preemption applies not only to state laws but to all forms of state action dealing with the subject matters covered by this federal statute. 29 U.S.C. § 1144(c)(1) (1988); see also Shaw, 463 U.S. at 98, 103 S.Ct. at 2900. In keeping with this broad interpretation, the Court held that a cause of action for wrongful termination related to an ERISA plan where it was based on the allegation that the employer fired the employee to avoid paying benefits under a pension plan. Ingersoll-Rand Co. v. McClendon, — U.S. -, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990).²

Given these declarations by the Supreme Court, courts have not hesitated to find that state laws having an effect on employee benefit plans relate to such plans and are therefore preempted by ERISA. See, e.g., Ramirez v. Inter-Continental Hotels, 890 F.2d 760 (5th Cir.1989); Boren v. N.L. Indus., 889 F.2d 1463 (5th Cir.1989), cert. denied, — U.S. -, 110 S.Ct. 3283, 111 L.Ed.2d 792 (1990); Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enters., 793 F.2d 1456 (5th Cir. 1986), cert. denied, 479 U.S. 1034, 107 S.Ct. 884, 93 L.Ed.2d 837 (1987); Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, cert. denied 492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989); Misic v. Building Serv. Employees Health & Welfare Trust, 789 F.2d 1374 (9th Cir.1986); Juckett v. Beecham Home Improvement Prods., Inc., 684 F.Supp. 448 (N.D.Tex.1988); E-Systems, Inc. v. Taylor, 744 S.W.2d 956 (Tex.App.—Dallas 1988, writ denied); Giles v. Texas Instruments Employees Pension Plan, 715 S.W.2d 58 (Tex.App.-Dallas 1986, writ ref’d n.r.e.); Felts v. Graphic Arts Employee Benefits Trust, 680 S.W.2d 891 (Tex.App.—Houston [1st Dist.] 1984, no writ). “Because of the breadth of the preemption clause and the broad remedial purpose of ERISA, ‘state laws found to be beyond the scope of [the preemption provision] are few.’ ” Cefalu v. B.F. Goodrich Co., 871 F.2d 1290, 1294 (5th Cir.1989).

The common law claim in Pilot Life was not alleged against the employee benefit plan, but against the insurance company that administered the plan. Nevertheless, the Court noted that the cause of action clearly related to a plan and was thus preempted. 481 U.S. at 47-48, 107 S.Ct. at 1553; see also Ramirez, 890 F.2d at 760, 762-63 (suit brought against former employer and its insurance carrier held to be preempted); Cefalu, 871 F.2d at 1292-93 (suit related to an ERISA plan even though it was alleged against the former employer and not the plan). The Catheys’ claim for nursing care was made and denied pursuant to the Dow plan’s terms, and they appealed this denial under the internal review provisions of the plan. We hold that the Catheys’ claims against Dow and Met relate to an employee benefit plan; the claims are thus preempted unless a contrary result is mandated by the saving clause.

ERISA’S EXCLUSIVE REMEDY SCHEME v. THE SAVING CLAUSE

The Catheys assert that even if their claims relate to an employee benefit plan, they are saved from preemption by section 1144(b)(2)(A), the saving clause. The saving clause saves from preemption state laws which regulate insurance. Metropolitan Life, 471 U.S. at 737,105 S.Ct. at 2388; Pilot Life, 481 U.S. at 47, 107 S.Ct. at 1553. However, even the saving clause cannot save from preemption a state law that provides remedies not provided by ERISA. In Pilot Life, the Supreme Court announced that ERISA’s civil enforcement remedies were intended to be exclusive. 481 U.S. at 54, 107 S.Ct. at 1556. Pilot Life involved allegations of improper processing of a claim for benefits. In holding that the plaintiffs claim for breach of the Mississippi common-law duty of good faith and fair dealing was preempted by ERISA, the Court stated, “[t]he policy choices reflected in the inclusion of certain remedies and the exclusion of others under the federal scheme would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA.” Id.; see also McClendon, 111 S.Ct. at 484-85; Mutual Life Ins. Co. v. Yampol, 840 F.2d 421, 425 (7th Cir.1988).

Even if these insurance code provisions and the DTPA provisions were subject to the saving clause, the Court’s opinions in Pilot Life and McClendon held that Congress intended all suits alleging improper claims processing be governed only by ERISA. McClendon, 111 S.Ct. at 485; Pilot Life, 481 U.S. at 52-54, 107 S.Ct. at 1555-56. Section 16 of article 21.21 and article 3.62 of the Insurance Code and section 17.50(a)(4) of the DTPA provide recovery that was not included under ERISA. The Court has decided that ERISA’s civil enforcement scheme could not be supplemented by state law remedies. Therefore, a statutory remedy for improper claims processing is not available against an ERISA plan or its administrator.

CONCLUSION

The Catheys seek to recover remedies not available under ERISA’s civil enforcement provisions. Therefore, even if the provisions in question could be said to regulate the business of insurance for purposes of ERISA preemption analysis, they would still be preempted as laws that provide remedies that are inconsistent with the civil enforcement provisions provided in ERISA. See Pilot Life, 481 U.S. at 51-57, 107 S.Ct. at 1555-58; Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 146, 105 S.Ct. 3085, 3092, 87 L.Ed.2d 96 (1985); Ramirez, 890 F.2d at 764; Kelley v. Sears, Roebuck & Co., 882 F.2d 453, 456 n. 2 (10th Cir.1989); Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 493-94 (9th Cir.1988), cert, denied, 492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989); In re Life Ins. Co. of N. Am., 857 F.2d 1190, 1194 (8th Cir.1988); Anschultz v. Connecticut Gen. Life Ins. Co., 850 F.2d 1467,1469 (11th Cir.1988); Juckett v. Beecham Home Improvement Prods., 684 F.Supp. 448 (N.D.Tex.1988); McManus v. Travelers Health Network, 742 F.Supp. 377 (W.D.Tex.1990); Commercial Life Ins. Co. v. Superior Court, 47 Cal.3d 473, 253 Cal. Rptr. 682, 764 P.2d 1059 (1988), cert, denied sub nom. Juliano v. Commercial Life Ins. Co., 490 U.S. 1075, 109 S.Ct. 2087, 104 L.Ed.2d 651 (1989). Accordingly, we hold that Texas Insurance Code section 16 of article 21.21 and article 3.62 as well as DTPA section 17.50(a)(4) are preempted by the provisions of ERISA in the context of the facts of this case. Dow and Met properly pleaded ERISA preemption in their answers; Maddolin did not. We agree with the court of appeals, however, that the preemption of the Catheys’ claims against Dow and Met extends to Maddolin because he acted as Met’s employee in the course of its business. We therefore affirm the judgment of the court of appeals.

Concurring opinion by DOGGETT, J., joined by MAUZY and GAMMAGE, JJ.

1 . The Catheys filed a separate ERISA suit against the Dow Chemical Company Medical Care Program during the pendency of this action. We note that the Fifth Circuit handed down its decision in that case on August 3, 1990, holding that the Catheys were entitled to partial recovery on their ERISA claim. Cathey v. Dow Chemical Co. Medical Care Program, 907 F.2d 554 (5th Cir.1990).

2 . Also, we note that the Supreme Court handed down FMC Corporation v. Holliday contemporaneously with McClendon. - U.S. -, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990). However, that opinion does not impact our decision in this case. In Holliday, the Court considered whether a state law prohibiting subrogation claims fell within ERISA’s insurance saving clause. The state law did not conflict with ERISA’s exclusive remedy scheme.