United States District Court, Eastern District of Pennsylvania
September 19, 2002
UNUMPROVIDENT CORPORATION AND PROVIDENT LIFE AND INSURANCE COMPANY.
The opinion of the court was delivered by: Baylson, District Judge.
The issues presented by this case are the timeliness of
removal, relating to the contents of the initial pleadings filed
in state court; and whether Plaintiffs claims, principally under
the Pennsylvania Insurance Bad Faith Statute, are subject to
preemption. Before this Court is the Motion to Dismiss by the
defendants UNUM-Provident Corporation and Provident Life and
Insurance Company ("Defendants") and the Motion to Remand by the
plaintiff Linda Bell ("Plaintiff"). Oral argument was held on
August 21, 2002. For the reasons set forth below, Defendants'
Motion to Dismiss will be granted in part, and Plaintiffs Motion
to Remand will be denied.
This case was started by Writ of Summons in the Court of
Common Pleas of Philadelphia County, February Term, 2002, No.
1639, which was filed on February 11, 2002. The Civil Cover
Sheet to the Writ of Summons indicated that the claim
was for breach of contract and that the amount in controversy
was more than $50,000. No further details were provided from the
Defendants were served with the Writ of Summons on February
17, 2002, and filed a Praecipe demanding that Plaintiff file a
Complaint. The Complaint was filed in the Court of Common Pleas
of Philadelphia County on April 9, 2002, following which
Defendants filed a Notice of Removal in this Court on April 25,
2002. As is obvious from the above chronology, the Notice of
Removal was more than thirty days from service of the Writ of
Summons, but less than thirty days from the service of the
Plaintiff has filed a Motion to Remand the case to the Court
of Common Pleas on the grounds that the removal was not within
thirty days as required by 28 U.S.C. § 1446(b). Plaintiff argues
that the Writ of Summons itself made clear that there was
diversity of citizenship, and that Defendants knew from
negotiations that had taken place between the parties, or should
have known from doing their own investigation of the matter,
that the "amount in controversy" was more than the federal
jurisdictional requisite of $75,000.
Defendants oppose the Petition to Remand on the grounds that
the "four corners" of the pleadings do not disclose that the
amount in controversy is more than $75,000 and that Defendants'
subjective knowledge, whether secured from negotiations with
Plaintiffs counsel or its own investigation of the file, is
Defendants' Notice of Removal also relied on the complete
preemption provided by the Employee Retirement Income Security
Act ("ERISA"), 29 U.S.C. § 1001 et seq. under the doctrine of
Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 107
S.Ct. 1542, 95 L.Ed.2d 55 (1987). Defendants assert that they
were not apprised of the appropriate allegations allowing
removal until the actual Complaint was served on April 9, 2002,
and that their Notice of Removal was timely because it was filed
within thirty days after service of the Complaint.
A. Defendants' Removal
The leading case in this Circuit on the issue of what
constitutes notice starting the thirty-day removal period is
Foster v. Mutual Fire Marine & Inland Insurance Co.,
986 F.2d 48 (3d Cir. 1993). In this case, Judge Higginbotham reviewed
contradictory district court opinions within the Circuit and
rejected any concept that the knowledge of the defendants,
outside the contents of the pleadings, would warrant the running
of the thirty-day period. As Judge Higginbotham concluded, "the
relevant test is not what the defendants purportedly knew, but
what these documents said." Foster, 986 F.2d at 54. He also
held that for something to be considered a "pleading", "it must
be something of the type filed with a court." Id. Judge
Higginbotham concluded: "We hold that § 1446(b) requires
defendants to file their Notices of Removal within thirty days
after receiving a writ of summons, praecipe, or complaint which
in themselves provide adequate notice of federal jurisdiction as
noted above." Id.*fn2
Based on the above facts, this Court holds that the Notice of
Removal was timely because it was not until April 9, 2002, when
Plaintiff served her Complaint on Defendants, that Defendants
had notice, from the pleadings themselves, that there was
diversity of citizenship and the amount in controversy was in
excess of $75,000, thus establishing the requisites for federal
diversity of citizenship jurisdiction, 28 U.S.C. § 1332(a)(1),
but also that the nature of Plaintiffs claim was under a benefit
program, thus was, at least arguably, subject to ERISA
preemption. See Robinson v. Nutter, No. C.A. 94-5578, 1995 WL
61158, at *2 (E.D.Pa. Feb. 14, 1995).
B. Defendants' Motion to Dismiss
Having found that Defendants timely filed their Notice of
Removal, this Court must now consider Defendants' Motion to
Dismiss Counts II — IV of the Complaint.
Count I charges breach of contract, and alleges that
Defendants have failed to provide to Plaintiff the benefits to
which Plaintiff is entitled. Defendant does not move to dismiss
this Count, but to re-characterize it as a claim for denial of
benefits under ERISA.*fn3
Count II charges bad faith under the Pennsylvania bad faith
statute, 42 Pa. Cons.Stat. Ann. § 8371 ("Section 8371"), which
"In an action arising under an insurance policy, if
the court finds that the insurer has acted in bad
faith toward the insured, the court may take all of
the following actions:
(1) Award interest on the amount of the claim from
the date the claim was made by the insured in an
amount equal to the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the
Count III charges that Defendants have violated the
Pennsylvania Unfair Trade Practices and Consumer Protection Law,
78 Pa. Cons.Stat. Ann. § 201-1, and also contains a cross
reference to Defendants' alleged bad faith, specifically citing
Section 8371. Count III seeks monetary damages including
compensatory damages, interest, attorneys fees, and costs.
Count IV charges misrepresentation, fraud and deceit,
including another cross reference to the bad faith statute,
Section 8371, and seeks compensatory damages, attorneys fees,
interest, costs, treble damages, damages for delay, and punitive
Count V charges breach of duty of good faith and fair dealing,
and although it incorporates all of the prior paragraphs, there
is no specific reference to the bad faith statute.
1. Supreme Court Preemption Cases
The question presented is whether Counts II — V are preempted
by ERISA. In Pilot Life Ins. Co. v. Dedeaux,
481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987), decided the
same day as Metropolitan Life, the Court held that state law
suits concerning either improper processing of claims for
benefits, or common-law contract and tort claims, seeking
damages under a benefit plan, were preempted by ERISA:
"The 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."
Pilot Life, 481 U.S. at 54, 107 S.Ct. 1549.
Metropolitan Life also holds that claims arising out of
employee benefit plans are subject to complete federal
preemption under § 514(a), 29 U.S.C. § 1144(a), which provides
that the rights, regulations, and remedies afforded under the
statute "supersede any and all State laws insofar as they may
now or hereafter relate to any employee benefit plan. . . ." §
514(a), 29 U.S.C. § 1144(a); Metropolitan Life, 481 U.S. at
62, 107 S.Ct. 1542. ERISA's broad definition of "state law"
includes "all laws, decisions, rules, regulations, or other
State action having the effect of law, of any State."
29 U.S.C. § 1144(c)(1). A state law claim is completely preempted when the
claim falls within the scope of ERISA's civil enforcement
provision, § 502(a), § 29 U.S.C. § 1132(a); Metropolitan Life,
481 U.S. at 62-63, 107 S.Ct. 1542.
In Pilot Life, an injured employee brought a common-law bad
faith claim against the insurance company that issued the ERISA
disability benefit plan to the plaintiff's employer. Pilot
Life, 481 U.S. at 43, 107 S.Ct. 1549. The Supreme Court held
that the Mississippi common law of bad faith, which was
applicable in both the insurance and non-insurance contexts and
allowed punitive damages, was preempted by ERISA because the
remedies set forth in ERISA were intended to be exclusive. Id.
at 57, 107 S.Ct. 1549.
Based on Pilot Life and other similar decisions, the
opinions of this Court were fairly unanimous in holding that
claims brought under Pennsylvania's bad faith statute are
preempted by ERISA.
Plaintiff asserts, in opposing Defendants' Motion, that two
recent decisions by the Supreme Court, in UNUM Life Insurance
Co. of America v. Ward, 526 U.S. 358, 119 S.Ct. 1380, 143
L.Ed.2d 462 (1999), and Rush Prudential HMO, Inc. v. Moran,
___ U.S. ___, 122 S.Ct. 2151, 153 L.Ed.2d 375 (2002), require a
change in the preemption analysis.
There is no dispute that Plaintiffs subject disability
insurance policy is an employee welfare benefit plan governed by
ERISA. See 29 U.S.C. § 1002(1). Plaintiffs claims are claims
to recover benefits due under an ERISA plan. See Compl. ¶¶ 13,
Plaintiff asserts that the claim under the Pennsylvania bad
faith statute is not subject to preemption, but is exempted
under the so-called ERISA savings clause, which exempts from
preemption "any law of any state which regulates insurance". §
514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A). In order to determine
whether a state law "regulates insurance" within the meaning of
the savings clause, a court must first determine whether, from a
"common sense view of the matter", the state statute in question
regulates insurance and secondly, must then consider the three
traditional factors under the McCarran-Ferguson Act,
15 U.S.C. § 1011 et seq. to determine whether the regulation fits within
the "business of insurance":
1. Whether the practice has the effect of
transferring or spreading a policyholder's risk;
2. Whether the practice is an integral part of the
policy relationship between the insurer and the
3. Whether the practice is limited to entities
within the insurance industry.
Ward, 526 U.S. at 367, 119 S.Ct. 1380.
In the Ward case, and according to some commentators for the
first time, the Supreme Court held that a state regulation need
not satisfy all three McCarran-Ferguson factors in order to
"regulate insurance" under ERISA's savings clause. Id. at 373,
119 S.Ct. 1380. Citing Pilot Life, the Supreme Court indicated
that the McCarran-Ferguson factors are "considerations [to be]
weighed in determining whether a state law regulates insurance,"
id. (citing Pilot Life, 481 U.S. at 49, 107 S.Ct. 1549), and
that "[n]one of these criteria is necessarily determinative in
2. Cases in this District
Three judges in this district have recently issued opinions
which differ on the impact of Ward and Rush on the
preemption issue. In Rosenbaum v. UNUM Life Insurance Co.,
C.A. No. 01-6758, 2002 WL 1769899, at *1-3 (E.D.Pa. July 29,
2002), Judge Newcomer wrote that Ward and Rush had
significantly changed the landscape, and a claim under
Pennsylvania's bad faith statute was not preempted by ERISA
because the bad faith statute was a form of insurance
regulation. Citing a decision of the Pennsylvania Supreme Court
in The Birth Center, St. Paul Companies, Inc., 567 Pa. 386,
787 A.2d 376 (2001), Judge Newcomer held that the legislative
intent behind the Pennsylvania bad faith statute was to regulate
insurance. Id at *2.
However, Judge Buckwalter, in Sprecher v. Aetna U.S.
Healthcare, Inc., C.A. No. 02-00580, 2002 WL 1917711, at *7
(E.D.Pa. Aug. 19, 2002), reached an opposite conclusion and held
that because the Pennsylvania bad faith statute primarily
allowed tort claims for relief not provided by ERISA, such as
interest and punitive damages, that it was inconsistent with
ERISA and therefore preempted.
In Kirkhuff v. Lincoln Technical Institute, Inc.,
221 F. Supp.2d 572, 575-76 (E.D.Pa. 2002), Judge Bartle arrived at
the same conclusion as Judge Buckwalter, that Section 8371 did
not regulate insurance within the meaning of ERISA's savings
clause and that a Section 8371 claim was thus preempted. Judge
Bartle noted that "even though the Pennsylvania law in issue
allowing the award of punitive damages is directed solely toward
the insurance industry, we agree with Sprecher that it
conflicts with the carefully crafted and exclusive remedial
scheme of ERISA and is preempted." Id.
In approaching this issue, which may remain a matter of
difference among the judges of this Court until the Third
Circuit or the United States Supreme Court rules, we must first
consider, as instructed in Ward, the common sense view, and
then the McCarran-Ferguson test. There is no dispute among Judge
Newcomer, Judge Buckwalter, and Judge Bartle, that under the
common sense test, Pennsylvania's bad faith statute "regulates"
insurance, if only because it is applicable only to insurers in
actions arising under an insurance policy and is never applied
outside the insurance industry.*fn4
Turning to the McCarran-Ferguson test, and as the Supreme
Court said in Ward, a statute need not meet each of the test's
factors in order to "regulate insurance" within the meaning of
ERISA's savings clause. Ward, 526 U.S. at 373, 119 S.Ct. 1380.
Rather, the McCarran-Ferguson prongs are relevant factors to be
used as "guideposts" to analyze whether the state rule regulates
insurance. Id. at 374, 119 S.Ct. 1380.
Essentially for the reasons adopted by Judge Buckwalter in
Sprecher, Pennsylvania's bad faith statute does not serve to
spread the policyholder's risk. Rather, it provides a tort
remedy for bad faith, including types of damages that are not
allowed under ERISA. It is true that if an insurer is held
liable, then premiums may rise, but this does not directly
relate to the spreading of risk.
As to the second requirement concerning the policy
relationship, Section 8371 does not alter the terms of the
contract between the insurer and the insured, but only provides
for a damage remedy for bad faith. The availability of punitive
damages provides some incentive for insurance companies to
handle insurance claims with good faith, but this does not
change the policy relationship itself.
Turning to the final McCarran-Ferguson factor, the
Pennsylvania bad faith statute is clearly limited to entities
within the insurance industry because it is only available for
claims by a policyholder against the insurance company. However,
meeting only this one of the three McCarran-Ferguson prongs does
not save the Pennsylvania bad faith statute from preemption.
3. Ward and Rush Do Not Change the Rule in Pilot Life
It is important to examine Ward and Rush to see how those
opinions turned on the nature of the state regulations at issue
in each case, which can be distinguished from the Pennsylvania
bad faith statute in the instant case.
In Ward, the defendant insurer issued a long-term group
disability policy to the plaintiffs California employer with all
premiums deducted from the plaintiffs pay. Ward, 526 U.S. at
364-65, 119 S.Ct. 1380. The ERISA policy provided that proofs of
claim be furnished to the defendant within a certain time from
the onset of disability. Id. at 364, 119 S.Ct. 1380. The
plaintiff became permanently disabled but submitted his proof of
claim too late under the policy terms, and his claim was denied
as untimely. Id. at 365, 119 S.Ct. 1380. The plaintiff brought
an ERISA action to recover the disability benefits under the
The district court granted the defendant's motion for summary
judgment, and the plaintiff appealed to the United States Court
of Appeals for the Ninth Circuit, which held that California's
notice-prejudice rule, requiring the insurer to prove that it
suffered substantial prejudice from the insured's failure to
give timely notice of a claim, was saved from preemption as a
law that "regulates insurance." Id. at 366, 119 S.Ct. 1380.
After finding that the California notice-prejudice rule
satisfied the common sense view and the second and third prongs
of the McCarran-Ferguson test, the Supreme Court affirmed the
Ninth Circuit's holding that the notice-prejudice rule regulates
insurance within the meaning of ERISA's savings clause. Id. at
374-76, 119 S.Ct. 1380.
In Rush, the plaintiff employee received medical coverage
from her employer's ERISA welfare benefit plan issued by the
defendant health maintenance organization ("HMO"). Rush, 122
S.Ct. at 2156. The terms of the policy dictated that the
defendant would provide insureds only with services it deemed
through its exercise of the "broadest possible discretion."
Id. After the plaintiff developed chronic shoulder pain, the
defendant repeatedly denied the plaintiff's requests for
surgery. Id. The plaintiff then made a written demand for an
independent medical review of her claim as provided by the
Illinois HMO Act, which requires HMOs to provide a second
opinion from a physician unaffiliated with the HMO on the
medical necessity of a covered service proposed by the primary
care physician in the event of a dispute between the primary
care physician and the HMO. Id. at 2156-57. The defendant HMO
did not provide the independent review, and the plaintiff had
the surgery and submitted a reimbursement claim to the
defendant. Id. at 2157. The plaintiff sued in state court for
reimbursement, and the defendant removed to federal court
arguing that the plaintiff stated a claim for ERISA benefits
that was completely preempted. Id. at 2157-58. The district
court agreed with the defendant and dismissed the plaintiffs
claims. Id. at 2158.
On appeal, the United States Court of Appeals for the Seventh
Circuit reversed the district court, holding that the Illinois
HMO Act regulated insurance and was thus saved from preemption.
Id. The Supreme Court affirmed, finding that the law satisfied
the common sense test and the second and third prongs of the
McCarran-Ferguson test and thus regulated insurance within the
meaning of ERISA's savings clause. Id. at 2159-64.
Additionally, the law was not preempted because it "provides no
new cause of action under state law and authorizes no new form
of ultimate relief." Id. at 2167.
The instant case may be distinguished from Ward and Rush
because in each of those cases, the state regulations at issue,
the California notice-prejudice rule and the Illinois HMO Act
respectively, were strictly concerned with the processing of
insurance claims and did not provide alternative or additional
remedies unauthorized by ERISA. In this case, the Pennsylvania
bad faith statute specifically authorizes punitive damages and
interest at three percent above the prime rate, separate
remedies not authorized by Congress under ERISA. See
42 Pa. Cons.Stat. Ann. § 8371; § 502, 29 U.S.C. § 1132.
In Pilot Life, as the Supreme Court noted, the:
"complaint contained three counts: `Tortious Breach
of Contract'; `Breach of Fiduciary Duties'; and
`Fraud in the Inducement.' . . . Dedeaux [the
plaintiff] sought `[d]amages for failure to provide
benefits under the insurance policy in a sum to be
determined at the time of trial,' `[g]eneral damages
for mental and emotional distress and other
incidental damages in the sum of $250,000.00,' and
`[p]unitive and exemplary damages in the sum of
Pilot Life, 481 U.S. at 43-44, 107 S.Ct. 1549.
The Court summarized the parties' contentions as follows:
"Although Dedeaux's complaint pleaded several state
common law causes of action, before this Court
Dedeaux has described only one of the three counts —
called `tortious breach of contract' in the
complaint, and `the Mississippi law of bad faith' in
respondent's brief — as protected from the
pre-emptive effect of § 514(a). The Mississippi law
of bad faith, Dedeaux argues, is a law `which
regulates insurance,' and thus is saved from
pre-emption by § 514(b)(2)(A)."
Id. at 48, 107 S.Ct. 1549.
After reviewing Mississippi law, the Court unanimously
concluded that the state's laws, under which plaintiff was
suing, did not fall within ERISA's saving clause. Pilot Life
specifically concerned bad faith claims, but Ward and Rush
not. Also, there is not a whisper in either Ward or Rush
which purports to overrule Pilot Life, and which must still be
considered as controlling the present dispute and requiring
dismissal of Plaintiffs Counts II — IV.
Therefore, this Court's finding that Section 8371 does not
regulate insurance within the meaning of ERISA's savings clause
follows Pilot Life and does not contradict Ward and Rush.
Having found that Section 8371 does not "regulate insurance"
within the meaning of ERISA's savings clause, Counts II, III,
and IV of Plaintiffs Complaint are preempted and will be
dismissed. Although Count V alleges a breach of the duty to act
in good faith and does not specifically refer to Section 8371,
it states a claim for ERISA benefits, and is thus preempted and
dismissed. Count I will be restyled as an ERISA complaint.
An appropriate Order follows.
AND NOW, this 19th day of September, 2002, after considering
Defendants' Motion to Dismiss, Plaintiffs Motion to Remand,
Defendants' Response to Plaintiffs Motion to Remand, and the
oral arguments of counsel, it is hereby
ORDERED that Defendants' Motion to Dismiss is GRANTED with
prejudice as to Counts II, III, IV, and V of Plaintiff's
Count I of Plaintiffs Complaint is restyled as an ERISA claim,
and shall be answered by Defendants within ten days.
Plaintiffs Motion to Remand is DENIED.