Court Rules that ERISA Preempts State Law Claims

In an Opinion and Order issued by the United States District Court for the Eastern District of Michigan in Kasle v. BCBSM Foundation, d/b/a Blue Cross Blue Shield of Michigan, a/k/a Blue Cross Blue Shield of Michigan (“Blue Cross Blue Shield of MI”), the court dismissed plaintiffs Lisa Kasle and Jake Slavik’s state law claims against Blue Cross Blue Shield of MI as being preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”).

Plaintiffs sued Blue Cross Blue Shield of MI alleging that Blue Cross Blue Shield of MI had improperly denied Mr. Slavik payments for his inpatient mental health and substance abuse treatment under the terms of a medical insurance plan that BCBS had issued to Ms. Kasle through her employer. Ms. Kasle was Mr. Slavik’s legal guardian. Plaintiffs’ complaint alleged that the benefit denial was improper under ERISA (Count I) and also alleged “federal common law equitable estoppel, (Count II)” and two state law claims of breach of contract, (Count III); and a request for penalty interest under a Michigan state statute (Count IV).

Blue Cross Blue Shield of MI filed a motion to dismiss Counts III and IV, arguing that they were preempted by ERISA. Plaintiffs did not defend against Blue Cross Blue Shield of MI’s arguments or offer any contrary legal authority and the court reasoned that this was probably because they did not exist. The court granted the motion.

The court noted that ERISA provides a uniform Federal regulatory regime for employee benefit plans. ERISA preempts state law causes of action that supplant, supplement, or duplicate civil enforcement remedies that are available under ERISA because those state law actions conflict with Congress’s intent that ERISA be the exclusive remedy. But when the state law claim does not arise from a duty that is dependent on the ERISA plan’s terms, it is not completely preempted.

A claim is completely preempted when both of the following prongs of the test are satisfied:

The plaintiff is complaining about a benefit denial that she or he is only entitled to because of the ERISA-regulated employee benefit plan’s terms; and
The plaintiff is not alleging a violation of a legal duty (state or federal) that is independent of the plan’s terms or ERISA.

As recognized by the court, as to Count III, it is well settled that ERISA provides remedies for breach of contract so any state claim for breach of contract supplants, supplements, or duplicates remedies available under ERISA. As for the state interest penalty claim in Count IV, the court stated that other courts in the Eastern District of Michigan found that the statute is not an act regulating insurance and thus was preempted. Both state law claims in Counts III and IV were based on obligations and rights that existed pursuant to the medical insurance plan at issue that was governed by ERISA. Accordingly, the court ruled that plaintiffs’ claims for breach of contract (Count III) and for penalty interest under a Michigan state statute (Count IV) were preempted by ERISA and they were dismissed.

In sum, defendants should consider whether state law claims are preempted by ERISA when they are included in an ERISA benefit denial action.

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