Disability insurance benefits lawsuit against Prudential Insurance Company is dismissed by Pennsylvania Judge

A Federal District Court in Pennsylvania recently dismissed the case of a long-term disability claimant who claimed damages resulting from Prudential Insurance Company’s delay in the approval of her claim for long-term disability insurance benefits. Although the claimant was eventually awarded disability benefits by Prudential Insurance Company, she still filed a lawsuit for the damages she allegedly suffered due to the carrier’s delay in approving her disability benefits. The Court ultimately dismissed all of her claims against the carrier for the delay. As a disability insurance law firm that handles cases nationwide, it appears that the lawyer who filed this lawsuit was not a Pennsylvania disability insurance attorney. This case provides a good summary of how restrictive and unfair ERISA can be, but an experienced disability insurance lawyer would not have filed this disability lawsuit against Prudential. Check out our video on why ERISA is an unfair law. To understand the Court’s ruling, let’s take a look at the case of Carolyn Jobe v. Prudential.

Carolyn Jobe was employed by NiSource Inc., which provided a long-term disability insurance plan for its employees through Prudential Insurance Company. In late October of 2007, Jobe was diagnosed with longstanding relapsing multiple sclerosis which caused fatigue and lack of endurance that interfered with her cognition and ability to work. Jobe filed a disability claim on November 19, 2007. On March 6, 2008, Prudential sent a letter to Jobe initiating a review of her long-term disability claim. On May 8, 2008, Prudential denied Jobe’s claim, based upon Prudential’s determination, after reviewing her medical records, that Jobe was not disabled. On June 9, 2008, Jobe appealed Prudential’s decision. On November 6, 2008, nearly a year after she initially applied for benefits, Prudential finally approved Jobe’s claim. The only good thing that came out of this case is that Ms. Jobe continues to receive her disability insurance benefits.

In April of 2010, Jobe filed suit against Prudential for damages she allegedly suffered from Prudential’s delay in approving her claim for long-term disability benefits. In the suit Jobe alleged that Prudential:

  1. breached the contract;
  2. breached the duty of good faith and fair dealing;
  3. violated Pennsylvania’s insurance bad faith statute; and
  4. violated Pennsylvania’s Unfair Trade Practices in Consumer Protection Law and Pennsylvania’s Unfair Insurance Practices Act.

All four claims were based on state law from Pennsylvania.

Prudential’s Argument

Prudential filed a motion to dismiss the complaint based on the four state law claims. Prudential argued that Jobe’s disability plan qualifies as an employee welfare benefit plan, and as such, it falls under the regulatory regime of ERISA. Under ERISA, such state-law claims such as Jobe’s are preempted if the claims arise out of ERISA plans.

Plaintiff’s Argument

Jobe argued that her claims arose independently of ERISA and the terms of the employee benefit plan. In the alternative, Jobe argued that even if her claims fall under the terms of the employee benefit plan, her insurance bad faith claim is exempt from preemption under the provisions of ERISA’s savings clause.

The Federal District Court of Pennsylvania’s Analysis

The ERISA statute contains the “preemption clause” which states that “the provisions… shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan… ” Thus, once it is determined that a plan is an employee benefit plan then a state law claim is preempted under ERISA if the state law giving rise to the claim “relate(s) to” the benefit plan in that “it has a connection with or reference to such a plan,” even if the law is not specifically designed to affect employee benefit plans. See, Pilot Life Ins. Co. v. Dedeaux.

This “preemption clause” is, however, subject to the “savings clause” which provides: “nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.” The savings clause gives states the power to enforce state laws that “regulate insurance.” See, Pilot Life Ins. Co. v. Dedeaux.

Because both sides did not dispute that Jobe’s disability plan was an employee benefit plan covered under ERISA, the Court did not need to make this determination. The Court was left to determine how the preemption clause and the savings clause of the ERISA statute would affect each of Jobe’s claims.

1. Breach of Contract Claim:

With this claim, Jobe claimed that Prudential breached its duty to her under the insurance policy by failing to timely provide benefits contracted for. In the Pilot Life case, the United States Supreme Court held that breach of contract claims based upon claims related to benefits arising out of an employee benefit plan are preempted by ERISA. Therefore, the Court dismissed Jobe’s claim for breach of contract because Jobe was asserting a state law claim against Prudential based on an alleged mishandling of benefits owed pursuant to an employee welfare benefit plan that was governed by ERISA.

2. Breach of Duty of Good Faith and Fair Dealing:

Similarly to the first claim, the Court dismissed Jobe’s claim for breaching the contractual duties of good faith and fair dealing. The Court found that this state law claim was preempted by ERISA’s preemption clause because the contract that was allegedly breach is an employee benefit plan under ERISA.

3. Violation of Pennsylvania’s Insurance Bad Faith Statute:

Pennsylvania’s bad faith statute provides:

In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:

  1. Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.
  2. Award punitive damages against the insurer.

Jobe argued that the actions taken by Prudential violate legal duties that arise independently of ERISA and the terms of the employee benefit plan. Jobe maintained that her claims arising out of Pennsylvania’s bad faith statute were separate and distinct causes of action against insurers that are fully independent of any federally related contract.

Prudential argued that Jobe’s bad faith claim was preempted by ERISA because Pennsylvania’s bad faith statute sets forth a separate enforcement scheme, including a punitive damages provision, which conflicts with ERISA’s exclusive civil enforcement provision. Secondly, Prudential argued that Pennsylvania’s bad faith statute did not satisfy the requirements of ERISA’s savings clause.

The Court ultimately agreed with Prudential. The Court stated that a state statute is preempted by ERISA if it provides “a form of ultimate relief in a judicial forum that added to the judicial remedies provided by ERISA.” See, Rush Prudential HMO, Inc. v. Moran. The Court found that Pennsylvania’s bad faith statute is such a statute because it is a state remedy that allows an ERISA-plan participant to recover punitive damages for bad faith conduct by insurers, supplementing the scope of relief granted by ERISA. Accordingly, the Court held that Pennsylvania’s bad faith statute is subject to conflict preemption.

4. Violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Act:

Pennsylvania’s Unfair Trade Practices and Consumer Protection Act (UTPCPA) provides a private action and an award up to three times the actual damages sustained for any person who purchases or leases goods or services primarily for personal purposes and thereby suffers any ascertainable loss of money as a result of the use or employment by any person of a method, act or practice declared unlawful by section 3 of the act. Jobe’s fourth claim asserted that Prudential violated the UTPCPA. The Court, however, found this claim to be preempted by ERISA because the claim related to an employee benefits plan and was asserted under a state statute that is not directed to insurance.

Ultimately, the Court found that each of the four claims made by Jobe against Prudential to be preempted by ERISA. The Court found that each claim related to an ERISA employee benefit plan and fell outside the protective ambit of ERISA’s savings clause. For these reasons, Jobe’s case against Prudential for the damages she allegedly suffered due to the carrier’s delay in approving her disability benefits was dismissed.

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