Rosenbaum v. Unum Life Insur.Co. Of America,

2003 U.S.Dist.LEXIS 15652 (E.D.Pa. 2003)

(Issue: Punitive Damages-ERISA). 

We first reported on this case (2002 U.S. Dist. LEXIS 14155) in August 2002. The issue presented involves the question of whether Pennsylvania’s bad faith law is preempted by ERISA. In his earlier opinion, Judge Clarence Newcomer held that Pennsylvania’s bad faith law was not preempted by ERISA since it was a state law regulating insurance that was “saved” from preemption. That ruling received substantial criticism from other judges within the Eastern District of Pennsylvania; and Judge Newcomer was asked by Unum to reconsideration his ruling.

In this decision, Judge Newcomer upheld his initial finding.  The court reiterated its initial ruling that the Pennsylvania law of bad faith is a law that regulates insurance under both prior authority interpreting the ERISA savings clause, as well as under the Supreme Court’s most recent ruling in Kentucky Association of Health Plans, Inc. v. Miller, 123 S. Ct. 1471 (2003), which held that “any willing provider” laws are saved from ERISA preemption.  Miller pronounced a new analysis requiring consideration of two factors: 1) does the law apply only to entities engaged in insurance; and 2) does the law substantially affect the risk pooling arrangement between the insurer and the insured.  Finding both tests met, Judge Newcomer determined that the Pennsylvania state law is saved from preemption.

Judge Newcomer then turned to the question of whether the Pennsylvania law would nonetheless be preempted by ERISA §502(a).  Finding that language in both Pilot Life Ins.Co. v. Dedeaux, 481 U.S. 41 (1987) and Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002) limiting remedies under ERISA was non-binding dictum, the court ruled that nothing in the ERISA statute prohibits “saved” state remedies from applying.  The court then ruled:

It is respectfully submitted that the Pilot Life and Rush Courts' determination of Congressional intent with regard to ERISA's stated remedies under §  502(a) is flawed in three important respects. First, as the Supreme Court itself has stated, "cannons of construction are no more than rules of thumb that help courts determine the meaning of legislation, and in interpreting a statute a court should always turn first to one, cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. . . . When the words of a statute are unambiguous, then this first cannon is also the last. . . ." Connecticut National Bank v. Germain, 503 U.S. 249, 117 L. Ed. 2d 391, 112 S. Ct. 1146 (1992).    Rather than simply accepting that Congress said what it meant in drafting ERISA, the Pilot Life and Rush Courts seem to have adopted and applied the cannon of construction known as expressio unius est exclusio alterius, or, the inclusion of one implies the exclusion of the other. Blacks Law Dictionary, Seventh Ed. In doing so, the Courts determined that because Congress did not expressly include punitive damages as a remedy under ERISA' remedial scheme (§  502(a)), Congress never meant for punitive damages to be allowed as a remedy under ERISA or under a state law which survived ERISA preemption. This leads us to our second point.

Application of Congress' implied intent, as elicited by using the expressio unius cannon in Pilot Life and Rush, directly contradicts Congress' express intent found in plain language of ERISA itself. In drafting ERISA, Congress created a saving clause which exempts "any law of any State which regulates insurance" from ERISA's preemptive effect. ERISA §  514(b)(2)(A), 29 U.S.C. §  1144(b)(2)(A). Other than the obvious requirement that the law must regulate insurance, Congress placed no other requisites or restrictions on the laws saved from preemption under ERISA's saving clause. In this regard, Congress' intent was clear, it wanted all state laws, which regulate insurance to be exempt from preemption under ERISA. The Pilot Life and Rush holdings present an implied Congressional intent, which flatly contradicts this express intent. Rather than allowing any state law which "regulates insurance" to survive ERISA preemption, this implied intent adds an additional requirement, that is, the law must not offer a remedy which is not listed under §  502(a). The problem with such a requirement is that the Courts have taken an implied intent, which was derived by questionable means, and have interpreted that implied intent to overrule Congress' express intent, as reflected in the saving clause. The problem is highlighted by applying the same form of interpretation used by the Pilot Life and Rush Courts (expressio unius) in deriving Congress' implied intent in §  502(a) to the saving clause itself. The saving clause exempts "any law or any State which regulates insurance" from preemption. ERISA §  514(b)(2)(A), 29 U.S.C. §  1144(b)(2)(A). It does not contain any other restrictions on which laws qualify for exemption. Therefore, under an expressio unius analysis, Congress impliedly meant to exclude from consideration any other requisites for state laws to qualify for the saving clause. The requirement that a state statute not add to those remedies provided by §  502(a) is another restriction on the application of the saving clause. As demonstrated above, adding such a requirement violates the express intent of Congress as well as the implied intent when using the form of interpretation used by the Pilot Life and Rush Courts.

Finally, the Pilot Life and Rush Opinions disregard the fundamental presumption against implied preemption. "The historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655, 131 L. Ed. 2d 695, 115 S. Ct. 1671 (1995). Here, the clear and manifest purpose of Congress was memorialized in the saving clause, which provides for state regulation to be excluded from preemption under   ERISA when it "regulates insurance." To find to the contrary would supplant Congress' express intent and, in the process, would violate the spirit of the Tenth Amendment, "the powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people." U.S.CONST. AMEND. X

Discussion:     Judge Newcomer’s most recent ruling is far better reasoned than his earlier decision.  He will no doubt be subject to further attacks from his colleagues; however, his reasoning is sensible.  The court is pointing out what it believes to be a historic error; and like much of what has developed in the nearly 30 years since the ERISA law was passed, the courts have assumed Congressional intent without any support.  Cases such as Pilot Life, Firestone v. Bruch, 489 U.S. 101 (1989) and most recently, Great-West v. Knudson, 122 S.Ct. 708 (2002), have all presumed Congressional intent to limit remedies even though both the statute and statutory history are silent on the issue.  Judge Newcomer, by recognizing that lifetime tenure gives him the right to be respectfully critical of precedent that he considers non-binding, has opened an important debate.  Academics such as Professors John Langbein, Donald Bogan, and Jay Conison have long written on these topics.  Perhaps Rosenbaum will give the Supreme Court an opportunity to start the debate anew.