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Group Life & Health Ins. Co. v. Royal Drug Co.

Supreme Court of United States
481 U.S. 41 (1987)
ELI5:

Rule of Law:

The Employee Retirement Income Security Act of 1974 (ERISA) comprehensively regulates employee benefit plans, and its civil enforcement scheme (§ 502(a)) provides the exclusive remedy for improper processing of benefit claims, thereby pre-empting state common law tort and contract claims seeking remedies not provided for by ERISA.


Facts:

  • In March 1975, Everate W. Dedeaux sustained a back injury related to his employment with Entex, Inc.
  • Entex provided its employees with a long-term disability benefit plan, which was established through a group insurance policy purchased from Pilot Life Insurance Co.
  • Under the plan, Entex collected and forwarded employee contributions to Pilot Life, while Pilot Life was solely responsible for determining eligibility and paying disability benefits.
  • Dedeaux sought permanent disability benefits following his accident.
  • After paying benefits for two years, Pilot Life terminated them.
  • Over the subsequent three years, Pilot Life reinstated and terminated Dedeaux's benefits several times.

Procedural Posture:

  • Everate W. Dedeaux filed a diversity action against Pilot Life Insurance Co. in the U.S. District Court for the Southern District of Mississippi, alleging state common law causes of action.
  • Pilot Life moved for summary judgment, arguing Dedeaux's claims were pre-empted by ERISA.
  • The District Court (trial court) granted summary judgment in favor of Pilot Life, finding the claims were pre-empted.
  • Dedeaux, as appellant, appealed the decision to the U.S. Court of Appeals for the Fifth Circuit.
  • The Court of Appeals (intermediate appellate court) reversed the trial court's judgment.
  • The U.S. Supreme Court granted certiorari to review the decision of the Court of Appeals.

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Issue:

Does the Employee Retirement Income Security Act of 1974 (ERISA) pre-empt state common law tort and contract actions asserting improper processing of a claim for benefits under an insured employee benefit plan?


Opinions:

Majority - Justice O’Connor

Yes, ERISA pre-empts state common law actions for improper processing of benefit claims. Dedeaux's state law claims "relate to" an employee benefit plan and are thus within the scope of ERISA's broad pre-emption clause (§ 514(a)). The claims are not saved from pre-emption by the saving clause (§ 514(b)(2)(A)), which exempts state laws that "regulate insurance." Applying a common-sense view and the McCarran-Ferguson Act factors, Mississippi's law of bad faith does not truly "regulate insurance" because its roots are in general principles of tort and contract law, it does not spread policyholder risk, and it is not limited to entities within the insurance industry. Most importantly, the structure and legislative history of ERISA's civil enforcement provisions (§ 502(a)) show clear congressional intent for these remedies to be exclusive. Congress modeled § 502(a) on § 301 of the Labor Management Relations Act, which has powerful pre-emptive force, indicating that the federal remedies were intended to displace any state law alternatives. Allowing state law claims for punitive and extracontractual damages would completely undermine the careful balance of remedies Congress deliberately crafted in ERISA.



Analysis:

This landmark decision significantly broadened the scope of ERISA pre-emption, establishing that its remedial scheme is not just a floor but also a ceiling. By holding that ERISA's civil enforcement provisions are the exclusive vehicle for benefit claim disputes, the Court effectively eliminated state-law bad faith claims and the availability of punitive or other extracontractual damages in such cases. This ruling created a uniform federal standard for handling benefit claims, which benefits employers and insurers by providing predictability and limiting liability, but it also substantially restricts the remedies available to employees whose benefits are wrongfully denied, as compared to traditional state tort law.

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