Barbara Waks obtained insurance coverage through her husband's employer from Empire Blue Cross/Blue Shield under a group insurance plan regulated by the Employee Retirement Income Security Act of 1974 (ERISA). When the employer went out of business, Mrs. Waks converted to an individual policy issued by Empire, effective February 2, 1993. Three years later, Waks was admitted to a hospital for what her doctor viewed as a life-threatening condition. Empire subsequently denied Mrs. Waks' insurance claim for the hospital costs. Mrs. Waks filed a complaint in federal district court alleging state law claims and seeking damages. Empire countered that Mrs. Waks' converted policy was subject to ERISA and that her state law claims were therefore preempted. The district court agreed and Mrs. Waks appealed.
The U.S. Court of Appeals for the Ninth Circuit reverses. The court first determines that because an employee benefit plan must cover at least one employee to constitute an ERISA benefit plan, Mrs. Waks' plan is not an ERISA plan because it covers only her as an individual. Second, the court concludes that claims arising under a converted individual policy are not "related to" an ERISA plan for purposes of preemption. The court observes that the purpose of ERISA preemption is to avoid conflicting standards applicable to the same employer conduct. Since the contract under a converted policy like Mrs. Waks' is directly between the insurer and the insured, it does not place any burdens on the plan administrator or the plan and therefore there is no chance that an employer''s administrative scheme will be subjected to conflicting requirements. The court writes that in Mrs. Waks' case, ERISA preemption would be 'an absurd result' because there is no longer an ERISA plan or administrator, but, but the court states that its conclusion wold have been the same had the employer continued in business and maintained its group policy.
The court concedes that its decision is at odds with Painter v. Golden Rule Ins. Co., 121 F.3d 436, 440-41 (8th Cir. 1997), which held that state-law claims are preempted because the conversion policy at issue "came into being as a result of [the plaintiff] exercising her right under the group policy to obtain [the conversion policy]".
Subscribe to the Knowledge Bank.
