SEPTEMBER 2006 BAD FAITH CASES BAD FAITH CLAIMS PREEMPTED BY ERISA (Philadelphia Federal)

In Tannenbaum v. Unum Life Insurance Company of America, Plaintiff alleged, among other things, that Defendant acted in bad faith in failing to pay disability benefits due him under designated insurance plans (the “Plans”), with premiums that had been reduced, through Plaintiff’s employer, as a part of a agreement with the insurer.  Plaintiff sought relief pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”) and under state law.  Defendant insurer sought dismissal of the state law claims on the basis that they were preempted by ERISA.  The United States District Court for the Eastern District of Pennsylvania granted Defendant’s request for dismissal of the state law claims. The Court determined that because the Plans were employee benefit programs that were established and/or maintained by an employer engaged in commerce, they qualified as ERISA plans.  Then, the Court examined the record further, to ascertain whether the Plans satisfied the four prongs of the “safe harbor” provisions of ERISA, and therefore fell outside of ERISA’s governance.  Based on decisions rendered by Courts in the Third Circuit which have concluded that a discount on an insurance policy premium through an employer constitutes an employer contribution,  the Court held that the Plans did not meet the first prong of the “safe harbor” provisions of ERISA. Therefore, ERISA applied and Plaintiff’s state claims, including those asserting bad faith, were preempted. 

Date of Decision:  September 15, 2006

Tannenbaum v. Unum Life Ins. Co. of Am., United States District Court for the Eastern District of Pennsylvania, No. 03-CV-1410, 2006 U.S. Dist. LEXIS 66623 (E.D. Pa. Sept. 15, 2006) (Surrick, J.)