Synopsis: Two Courts of Appeal reach opposite results on ERISA preemption, thus continuing the judicial quest for a definitive meaning of ERISA preemption. Stay tuned for more such decisions, and yet more Supreme Court preemption decisions.
The federal Employee Retirement Income Security Act (ERISA) has been effective, as a general matter, since 1974. Its section 514 preempts state laws that "relate to" ERISA plans. The United States Supreme Court has wrestled, in 18 cases, with how to define, and thus limit, "relate to," as everything can be said to be related to everything else. Compounding matters is that section 514 lists specific exceptions to "relate to" preemption. It is our expectation that the Supreme Court will agree to hear more ERISA preemption cases in the future. See generally — here.
In the meantime, the Courts of Appeal continue to rule on the limits to ERISA preemption, often with opposite results.
In Rudel v. Hawai'i Management Alliance Ass'n, 2019 U.S. App. LEXIS 27371 (9th Cir. Sept. 11, 2019), an ERISA plan participant received ERISA medical plan benefits after a motorcycle accident. Plan terms allowed it to seek reimbursement from a third party tortfeasor, to the extent the tortfeasor paid general damages, up to the amount of the plan payout. The participant sued to clarify the plan's reimbursement right, or lack thereof to be more precise, relying on a Hawai'i statute that invalidated general damage insurance reimbursement rights. The Ninth Circuit said that the state law "related to" an ERISA plan, but found no preemption, relying on the statutory exemption to ERISA preemption in favor of state laws that regulate insurance.
The Ninth Circuit found that the Hawai'i statute regulated insurance because it was directed at insurance reimbursement rights. The Court added that the state statute affected the risk pooling arrangement between the insurer and the insured by impacting the terms by which insurance providers must pay plan members.
In Dialysis Newco, Inc. v. Cmty. Health Sys. Grp. Health Plan, 2019 U.S. App. LEXIS 27418 (5th Cir. Sept. 11, 2019), however, the Court of Appeals for the Fifth Circuit found ERISA preemption. The ERISA medical plan at issue contained a valid anti-claim assignment provision. A third party health care provider sued to recover on what it claimed was a valid assignment of plan benefits, by relying on a state statute requiring plan administrators to honor assignments made to healthcare providers.
The Fifth Circuit found that the state statute "related to" the ERISA plan because it impacted a “central matter of plan administration” and interfered with "nationally uniform plan administration.” The Court said, because states could—and seemingly already do—impose different requirements on when such assignments would be honored, permitting one state law to govern the plan would interfere with nationally uniform plan administration.
These two cases show how the courts continue to grapple with the nearly infinite nuances of ERISA's remarkably broad preemption provision. Given the historic interest of the Supreme Court on ERISA preemption, it is likely only a matter of time until this or a related ERISA preemption question is again before that Court. ERISA preemption is bound to get more interesting before it gets boring.
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