derived from a statute specific to the insurance industry." Id. at *3.
The third factor, according to the court, "[was] satisfied for many of
the same reasons that the statute satisfies the common-sense test." Id.
Finding that § 8371 satisfies the common-sense test and at least
two of the three McCarran-Ferguson factors, the Rosenbaum court
determined that the statute is saved from ERISA preemption. Notably,
though, Rosenbaum did not address the issue of the exclusivity of ERISA's
civil enforcement provision.
Three post-Rosenbaum cases from the Eastern District of Pennsylvania
disagreed with Rosenbaum's (and, for that matter, Hill's) conclusion.
Relying on Pilot Life, they based their decisions at least partly on the
theory that even if § 8371 satisfies both the common-sense test and
each of the McCarran-Ferguson factors, it is nevertheless preempted
because it interferes with ERISA's exclusive scheme of remedies. See
Sprecher v. Aetna U.S. Healthcare, Inc., No. CIV.A. 02-CV-00580, 2002 WL
1917711 (E.D.Pa. August 19, 2002); Bell v. UNUMProvident Corp.,
222 F. Supp.2d 692 (E.D.Pa. 2002); Kirkhuff v. Lincoln Technical
Institute, 221 F. Supp.2d 572 (E.D.Pa. 2002).
Sprecher began by finding that § 8371 satisfies the common-sense
test. It noted the following: "The plain language of Pennsylvania's bad
faith statute suggests that the state law `regulates insurance' because
§ 8371 is applicable only to insurers in actions arising under an
insurance policy. In addition, this statute is never applied outside the
insurance industry." Sprecher, 2002 WL 1917711 at *4.
Next, the court weighed the three McCarran-Ferguson factors. First, it
concluded that because § 8371 is limited to special damages, it has
nothing to do with risk-spreading. Id. Second, it stated that the statute
is not an integral part of the insurer-insured relationship. Its
rationale for this conclusion was that while the bad-faith statute offers
a remedy for a breach of the insurer's obligation to act in good faith,
it did not actually create a new, mandatory contract term. Id. at *5.
Third, it determined that the statute met the third McCarran-Ferguson
factor, citing the reasons stated under the common-sense test. Commenting
on the McCarran-Ferguson analysis, the court concluded that meeting only
one prong of the McCarran-Ferguson test did not save the statute from
preemption. Id. at *6.
The court next turned to an "alternative theory" that it believed led
to the conclusion that the statute is preempted. Id. at *7. Citing Pilot
Life, it stated that "it is evident that the state statute, and its
provision for interest penalties and punitive damages, is more akin to an
`alternative remedy,' which is categorically preempted by ERISA." Id. The
court pointed out that "Pilot Life established that it was Congress'
clearly expressed intent that the civil enforcement provisions of ERISA
§ 502(a), 29 U.S.C. § 1132(a), be the exclusive vehicle for
actions by ERISA-plan participants and beneficiaries." Id. (citing Pilot
Life, 481 U.S. at 52). It concluded that "even a state law `regulating
insurance' will be pre-empted if it provides a separate vehicle to assert
a claim for benefits outside of, or in addition to, ERISA's remedial
scheme or enlarges that claim beyond the benefits available in any action
brought under § 1132(a)." (citations omitted). It held that because
Pennsylvania's bad-faith statute provides benefits outside the scope of
ERISA, it was excepted from the saving clause:
ERISA's civil enforcement provision also authorizes
suits to seek removal of the fiduciary as well as
claims for attorney's fees. In contrast, punitive
damages and interest penalties are not provided for
under ERISA. Thus, Pennsylvania's bad faith statute,
authorizing punitive damages and interest penalties,
would significantly expand the potential scope of
ultimate liability imposed upon employers by the ERISA
scheme. In short, the relief ultimately available
would not be what ERISA authorizes in a suit for
benefits under § 1132(a). Therefore, because
Pennsylvania's bad faith statute provides a form of
ultimate relief in a judicial forum that adds to the
judicial remedies provided by ERISA, it is
incompatible with ERISA's exclusive enforcement scheme
and falls within Pilot Life's categorical preemption.
Id. (citation omitted). Sprecher, then, ruled that ERISA's "limited
exception to the saving clause" precluded the saving of § 8371 from
preemption. Id. at *7.