NOVEMBER 2006 BAD FAITH CASES BAD FAITH STATUTE SPECIFICALLY NOT SAVED FROM PREEMPTION UNDER ERISA’S SAVINGS CLAUSE (Western District)

In Knochel v. Healthassurance Pennsylvania, Inc., Plaintiffs brought suit alleging breach of contract and bad faith after Defendants denied them insurance coverage for medical treatment.  Defendants removed the case to the United States District Court for the Western District of Pennsylvania, based on federal question jurisdiction, asserting that Plaintiffs were seeking to recover benefits under an employee welfare plan that was controlled exclusively by ERISA.  Defendants then filed a motion to dismiss arguing that Plaintiffs’ claims were preempted by ERISA. The Magistrate Judge determined it was uncontested that the contract under which Plaintiffs were insured was an ERISA plan. 

The Court found the complaint appeared such that the basis of Plaintiffs’ claims for both breach of contract and bad faith were that Defendants improperly denied coverage of medical treatment under the plan by invoking the experimental treatment exclusion.  Accordingly, the Court held that Plaintiffs’ state law claims related to an ERISA plan and were entirely preempted.  However, Plaintiffs argued that their bad faith claim should not be preempted as a whole but only insofar as the punitive damages remedy provided supplants ERISA’s exclusive remedial scheme since a state law is only preempted to the extent that it actually conflicts with federal law.  Plaintiffs also argued that Pennsylvania’s bad faith statute was nevertheless saved from preemption under ERISA’s savings clause.  The Court rejected both arguments after looking to Pennsylvania’s case law, which has held that (1) all state law causes of action are preempted under ERISA when they provide remedies beyond those contained in ERISA itself; and (2) although ERISA contains a “savings clause” whereby a state law will be saved from preemption if it regulates insurance, banking or securities, Courts have specifically found that Pennsylvania’s bad faith statute does not fall within that category.

Date of Decision by Magistrate Judge:  September 25, 2006

Knochel v. Healthassurance Pennsylvania, Inc., United States District Court for the Western District of Pennsylvania, No. 06-426, 2006 U.S. LEXIS 81009 (W.D. Pa. September 25, 2006) (Hay, M. J.)