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State Law Claims Against Benefit Plans May Be Preempted by ERISA

State Law Claims Against Benefit Plans  May Be Preempted by ERISA

When an employee is wronged by their employee benefit plan, such as a health care plan or life insurance plan, the employee may want to file a lawsuit in state court -- because state laws generally allow for more diverse remedies and greater damages than those allowed for under the federal Employee Retirement Income Security Act of 1974 (“ERISA”). However, employees may not be able to file a lawsuit in state court because ERISA controls, or “preempts,” all state laws to the extent that they relate to employer-sponsored plans.

Simply put, you may not be able to sue in state court if ERISA is or could be involved.

The federal Fourth Circuit court of appeals, of which Maryland is a part, recently addressed the test for ERISA “preemption” in Prince v. Sears Holding Corp. There, the employee, Mr. Prince, applied to enroll his wife in the life insurance program sponsored by Sears, his employer. Sears acknowledged the application and began withholding premiums from Mr. Prince’s pay. A year later, Sears notified Mr. Prince that his wife’s coverage was never effective because a mandatory eligibility questionnaire was never submitted. Mr. Prince filed a lawsuit in state court alleging misrepresentation, constructive fraud, and infliction of emotional distress. Sears had the case moved from state to federal court, where it was dismissed because the state law claims were preempted by ERISA.

The Fourth Circuit Court of Appeals upheld the dismissal by the lower court because Mr. Prince could sue for relief under ERISA, so his claims fell within the scope of a section of ERISA that he could file a lawsuit to enforce. Therefore, the claim could not be resolved without interpreting a contract governed by federal law, i.e., the life insurance plan covered by ERISA. Accordingly, Mr. Prince’s state law claims were completely barred by ERISA. Although Mr. Prince could not pursue his claims in state court, he could file a lawsuit in federal court; however, he was limited to the relief allowed by ERISA.

This case is important because even though the remedies and damages available under state law are often greater than those available under ERISA, employees may be completely barred from seeking such relief.

The question of whether an employee benefit plan, such as a health care plan or a life insurance plan, is covered by ERISA can be complicated. If you think you have a claim against such a plan, the attorneys at Lebau & Neuworth may be able to help, as we are experienced in dealing with lawsuits against employee benefit plans, including those covered by ERISA. For more information, contact us at 888-456-2529 or lebauneuworth.com/contact-us.

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