Bill Gilbert v. Alta Health & Life Insurance Company, et al.

This appeal involves the scope of state law preemption under the Employment Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. Specifically, the case presents two questions: (1) whether ERISA's saving clause applies to Alabama's bad faith law, saving it from preemption by ERISA; and (2) whether a sole shareholder of a corporation can be a "beneficiary," within the meaning of 29 U.S.C. § 1002(8). We hold that Alabama's bad faith law is not saved from preemption by the saving clause, and that a sole shareholder can be a "beneficiary" and thus is subject to ERISA preemption.

I. FACTS

A. The Factual Background

The plaintiff, Bill Gilbert is sole shareholder of Winfield Monument Company, a corporation which purchased a health insurance policy from Alta Health & Life Insurance Company ("Alta"). Gilbert v. Alta Health & Life Ins. Co., 122 F.Supp.2d 1267, 1268 (N.D.Ala. 2000). Because the insurance policy covered at least one other employee of Winfield Monument Company, besides Gilbert and his wife, there is no dispute that it constituted an ERISA plan. Id. In October 1999, Gilbert had gallbladder surgery, incurring medical bills of $10,729. Id. He properly filed claims for coverage under the insurance policy. Alta denied the claims in part, agreeing to pay only $5710 of the total bill, an amount it said was usual and customary. Gilbert responded by filing suit in Alabama state court against Alta and Alta's parent company, Great-West Life & Annuity Insurance Company. The complaint alleged fraud, breach of contract, and bad faith denial of an insurance claim. (1) Gilbert sought both compensatory and punitive damages. R-1, Tab 1, Complaint at 3. Upon receipt of the complaint, Alta paid the medical bill in full.

Alta removed the state action to federal court on grounds of diversity and subject matter jurisdiction. It then filed a motion to dismiss on the grounds that the state law claims are preempted by ERISA. Gilbert argued that his state law claims are not preempted because the sole shareholder of a corporation cannot be a "participant" or a "beneficiary," as defined by ERISA, and thus is not subject to ERISA regulation. In addition, he argued that ERISA's saving clause applies to Alabama's bad faith law, saving that claim from preemption.

The district court dismissed the case in part. It ruled that Gilbert is a "beneficiary" of an ERISA plan, and subject to ERISA preemption. 122 F.Supp.2d at 1273. It dismissed Gilbert's breach of contract and fraud claims, but found that Alabama's bad faith law escapes preemption under the saving clause. Id. This interlocutory appeal was granted pursuant to 28 U.S.C. § 1292(b) to resolve the questions of whether Alabama's bad faith law is preempted by ERISA or saved from preemption by the saving clause, and whether Gilbert is a "beneficiary" within the meaning of 29 U.S.C. § 1002(8).

B. The Statutory Background

ERISA creates a comprehensive regulatory scheme for employee welfare benefits plans, including health insurance. Section 502 establishes a civil enforcement scheme for benefit plans subject to ERISA regulation. 29 U.S.C. § 1132. (2) Only "participants or beneficiaries" of a plan are authorized to file lawsuits seeking benefits due under the plan. 29 U.S.C. § 1132(a)(1)(B).

The term "beneficiary" is defined as "a person designated by a participant or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." (3) 29 U.S.C. § 1002(8). A "beneficiary" is authorized to bring a civil suit to recover benefits due, and to enforce or clarify his rights under the terms of the plan. 29 U.S.C. § 1132(a)(1). A "beneficiary" may also file suit seeking equitable relief to redress violations or to enforce provisions of ERISA and of the benefits plan. 29 U.S.C. § 1132(a)(3).

The causes of action and available remedies under the civil enforcement scheme are limited by ERISA's preemption clause, 29 U.S.C. § 1144(a), which provides that the terms of ERISA generally supersede state laws affecting employee benefit plans. The clause states:

Except as provided in subsection (b) of this section [the saving clause], the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter related to any employee benefit plan . . . .

29 U.S.C. § 1144(a). The exception to preemption is contained in section 1144(b)(2)(A), the saving clause, which exempts from preemption any state law which "regulates insurance":

Except as provided in subparagraph (B) [the deemer clause (4)], 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.

29 U.S.C. § 1144(b)(2)(A). Therefore, for a person who is a "participant" or "beneficiary" of an ERISA plan to have a cause of action, it must either be (1) a cause of action specifically included in ERISA itself, or (2) a state cause of action created by a law saved from preemption by the saving clause. We turn first to the saving clause issue.

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Affirmed in part and reversed and remanded inpart.

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