United States District Court, N.D. Illinois, Eastern Division
June 6, 2005.
REID JACOBSON, Plaintiff,
HUMANA INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: MARK FILIP, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Reid Jacobson ("Plaintiff" or "Jacobson") initiated a
state court case against Defendant Humana Insurance Company
("Defendant" or "Humana"), alleging breach of contract, bad
faith, and vexatious delay. On Defendant's motion, the case was
removed to this Court on the ground that the Employee Retirement
Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et
seq., preempted these state law allegations.*fn1
Thereafter, Plaintiff filed his First Amended Complaint at Law
(the "Complaint"), which asserts a common law breach of contract
claim ("Count I") and an ERISA claim ("Count II"). (D.E.
13.)*fn2 This matter comes before the Court on Defendant's
Motion to Dismiss Count I of the Complaint (the "Motion to
Dismiss"). (D.E. 18.) For the reasons explained below, Defendant's Motion to
Dismiss is granted. Accordingly, Count I (but not Count II, the
ERISA claim) is dismissed.
I. Factual Background*fn3
According to the Complaint, Humana provided medical insurance
to Jacobson and his family, including his minor son, Joel
Jacobson, pursuant to a group insurance policy (the "Insurance
Policy"). (D.E. 13, Count I ¶¶ 2-3.) The Insurance Policy is
governed by ERISA (Id., Count II ¶ 3.)
Joel is confined to a wheelchair, with a diagnosis of spastic
quadraparesis, and he requires assistance with bathing, dressing,
and therapy. (Id., Count I ¶ 4.) As part of the treatment for
his condition, Joel requires daily hydrotherapy and gait training
at the Jacobsons' home. (Id., Count I ¶ 5.) The Complaint
alleges that a certain track-type lifting system is medically
necessary for safe caretaking of Joel, for access to his bath and
therapy pool, and for use in gait training and other therapy.
(Id., Count I ¶¶ 6-7.)
Under the Insurance Policy, Humana is required to pay for all
equipment and services medically necessary to treat Joel. (Id.,
Count I ¶¶ 8-9.) Jacobson allegedly purchased a track type
lifting system for $17,589.00 and submitted the invoice to Humana
for reimbursement. (Id., Count I ¶¶ 10-11.) According to the
Complaint, Humana has not reimbursed Jacobson for the cost of the
lift. (Id., Count I ¶ 12.)
Jacobson appealed Humana's denial of the claim. (Id., Count
II ¶ 14.) As part of the appeal, Jacobson requested guidelines,
criteria and the clinical rationale employed by Humana in denying the claim, but Humana never provided Jacobson the
requested materials. (Id., Count II ¶ 15.) Humana ultimately
denied Jacobson's appeal. (Id., Count II ¶ 16.)
Count I of the Complaint asserts that Humana's refusal to
reimburse Jacobson's claim for the cost of the lifting system
constitutes a breach of contract and was vexatious and done in
bad faith. (Id., Count I ¶ 13.) Humana moved to dismiss Count I
on the ground that Count I's state law claims are preempted by
ERISA. Thus, according to Defendant, Count I fails to assert a
claim upon which relief can be granted. (D.E. 18.)
II. Standard of Review
"A motion to dismiss under Rule 12(b)(6) challenges the
sufficiency of a complaint for failure to state a claim upon
which relief may be granted." Johnson v. Rivera, 272 F.3d 519,
520-21 (7th Cir. 2001). In deciding a motion to dismiss, the
court must assume all facts alleged in the complaint to be true,
construe the allegations generously and view the allegations in
the light most favorable to plaintiffs. See, e.g., Singer v.
Pierce & Assoc., P.C., 383 F.3d 596, 597 (7th Cir. 2004);
Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323,
326 (7th Cir. 2000). Dismissal for failure to state a claim is
appropriate where "the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief." Lee v.
City of Chicago, 330 F.3d 456, 459 (7th Cir. 2003) (quoting
Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
Supreme Court precedent teaches that Congress envisioned that
ERISA would "reserv[e] to Federal authority the sole power to
regulate the field of employee benefit plans." Pilot Life Ins.
Co. v. Dedeaux, 481 U.S. 41, 46 (1987) ("Pilot Life"). In
order to effectuate that policy, ERISA contains preemption provisions which are "deliberately
expansive" and designed to "establish pension plan regulation as
exclusively a federal concern." Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504, 423 (1981). Specifically, Section 1144(a) of
ERISA provides that ERISA "shall supersede any and all State laws
insofar as they may now or hereafter relate to any employee
benefit plan. . . ." 29 U.S.C. § 1144(a). Congress included a
savings provision, however, which excepts from preemption any
state law regulating, inter alia, insurance. See
29 U.S.C. § 1144(b)(2)(A). For the reasons discussed below, the Court finds
Count I is completely preempted by ERISA.
A. Preemption Analysis
The determination of whether a state law is preempted under
Section 1144(a) requires a two-step analysis: (i) there must be
an employee welfare benefit plan, and (ii) the state law must
"relate to" the employee benefit plan. See Pilot Life,
481 U.S. at 45. In the case sub judice, the parties do not dispute that
the Insurance Policy is an "employee welfare benefit plan." In
fact, the Complaint indicates that the Insurance Policy is
governed by ERISA. (D.E. 13, Count II ¶ 3.) Accordingly, the
Court concludes that the Insurance Policy is an employee welfare
benefit plan for purposes of Section 1144(a).
The second prong of Section 1144(a) requires the state law to
"relate to" the employee benefit plan. The Supreme Court has
instructed that the phrase "relate to" should be given a "broad
common-sense meaning." Metropolitan Life Ins. Co. v.
Massachusetts, 471 U.S. 724, 739 (1985). Accordingly, a state
law "relate[s] to" a benefit plan "in the normal sense of the
phrase, if it has a connection with or reference to such a plan."
Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983). The
character of the action is the "controlling factor of the
analysis: `It is not the label placed on a state law claim that determines whether it
is preempted, but whether in essence such a claim is for the
recovery of an ERISA plan benefit.'" Cencula v. John Alden Life
Ins. Co., 174 F.Supp.2d 794, 799 (N.D. Ill. 2001) (quoting
Zuniga v. Blue Cross & Blue Shield of Mich., 52 F.3d 1395, 1401
(6th Cir. 1995)). For purposes of the "relate to "analysis, the
Court separates Count I into two distinct claims: (i) breach of
contract and (ii) bad faith and vexatious delay.
With respect to the common law breach of contract claim,
Plaintiff alleges that "Humana's refusal to reimburse" pursuant
to the Insurance Policy is a breach of contract. (D.E. 13, Count
I ¶ 13.) In other words, Plaintiff is seeking benefits under the
Insurance Policy, albeit through a common law breach of contract
claim. Because the existence of the Insurance Policy is not only
an important factor, but also the linchpin, in establishing
liability with respect to the breach of contract claim, the
Court's inquiry would include reviewing the policy. Accordingly,
this claim "relate[s] to" an ERISA plan. See Pilot Life,
481 U.S. at 43-46 (holding that common law tortious breach of
contract claim was preempted by ERISA because the claim was based
on alleged improper processing of a claim for benefits under an
employee benefits plan); see also Ingersoll-Rand, Co. v.
McClendon, 498 U.S. 133, 139-40 (1990) (holding that court must
enforce Section 1144(a) when its "inquiry must be directed to the
With respect to the claims for bad faith and vexatious delay,
and related prayer for relief seeking to recover damages and
attorney's fees, Plaintiff avoided in the Complaint identifying
that he is seeking relief under the Illinois Insurance Code,
215 ILCS 5/155. In his response to the Motion to Dismiss, however,
Plaintiff conceded that these claims are, in fact, remedies
provided under Section 155 of the Illinois Insurance Code. (D.E.
21 at 1.) In this regard, Section 155 expressly provides that "[i]n any action by or against a company
. . . for an unreasonable delay in settling a claim [where] it
appears to the court that such action or delay is vexatious and
unreasonable," the Court may award attorney's fees and statutory
damages. 215 ILCS 5/155(1).
Plaintiff's concession is important because, as the court noted
in Dwyer v. Unum Life Insurance Company of America, "every
court in the Northern District of Illinois that has addressed the
issue has found that Section 155 of the Insurance Code `relate[s]
to' an ERISA plan." No. 03 C 1118, 2003 WL 22844234, *4 (N.D.
Ill. Dec. 1, 2003) (citing Dobner v. Heath Care Serv. Corp.,
No. 01 C 7968, 2002 WL 1348910, at *4 (N.D. Ill. June 19, 2002));
accord Cencula v. John Alden Life Ins. Co., 174 F.Supp.2d 794,
799 (2001); Gawrysh v. CNA Ins. Cos., 978 F.Supp. 790, 793
(N.D. Ill. 1997); Lutheran Gen. Hosp., Inc. v. Mass. Mut. Life
Ins. Co., No. 95 C 2504, 1996 WL 124449, at *3 (N.D. Ill. Mar.
12, 1996); Goodhart v. Benefit T. Life Ins. Co., No. 90 C 5110,
1990 WL 205821, at *3 (N.D.Ill. Nov.29, 1990); Buehler Ltd. v.
Home Life Ins. Co., 722 F.Supp. 1554, 1560-61 (N.D. Ill. 1989)).
In this case, Count I specifically seeks damages associated with
Defendant's alleged denial of a claim under the Insurance Policy.
See Dwyer, 2003 WL 22844342, at *4. Accordingly, like the
breach of contract claim, there is no doubt that Plaintiff's
Section 155 claim "relate[s] to" an employee benefit plan. For
these reasons, the Court finds that Count I is preempted unless
it falls within ERISA's savings clause.*fn4 B. Savings Clause Analysis
As noted above, ERISA provides that a state law is not
preempted if it regulates insurance. See
29 U.S.C. § 1144(b)(2); see also DeBruyne v. Equitable Life Assurance Soc.,
920 F.2d 457, 468 (7th Cir. 1990). Supreme Court precedent
teaches that two considerations determine whether ERISA's
insurance savings clause applies to a state law. First, courts
determine whether a "common sense view" suggests that the law at
issue regulates insurance and therefore falls within the Savings
Clause. Pilot Life, 481 U.S. at 47-48; accord, e.g., Kentucky
Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 341 (2003).
Second, courts generally consider the "business of insurance"
test from the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq.
Id. The "business of insurance" test consists of three factors:
(1) whether the practice has the effect of transferring or
spreading a policyholder's risk; (2) whether the practice is an
integral part of the policy relationship between the insurer and
the insured; and (3) whether the practice is limited to entities
within the insurance industry. See id. at 48-49 (citations and
Recently, the United States Supreme Court deviated from the
McCarran-Ferguson Act factors in determining when a state law
regulates insurance. See Kentucky Ass'n of Health Plans, Inc. v.
Miller, 538 U.S. 329, 338 (2003). In doing so, the Court
clarified that, to be protected by the insurance savings clause,
the state law must be directed specifically toward entities
engaged in insurance, and the state law must substantially affect
the risk pooling arrangement between the insurer and insured.
With respect to Plaintiff's breach of contract claim, it is
past dispute that state common law claims for breach of contract
are unprotected by ERISA's insurance savings provision. See, e.g., Tomcyzk v. Blue Cross & Blue Shield United of Wis.,
951 F.2d 771, 773 (7th Cir. 1991); Maciosek v. Blue Cross & Blue
Shield United of Wis., 930 F.2d 536, 540 (7th Cir. 1991). Breach
of contract law does not regulate insurance within the meaning of
the ERISA's savings provision. Tomcyzk, 951 F.2d at 773. Id.
With respect to Plaintiff's claim under Section 155 of the
Illinois Insurance Code, although the Seventh Circuit has not
addressed this issue, several courts in this district have
rejected the argument that claims brought under Section 155 of
the Illinois Insurance Code are protected by ERISA's insurance
savings clause. See, e.g., Dwyer, 2003 WL 22844234, at *5
(citing Casey, 2002 WL 31356453, at *3-5; Dobner, 2002 WL
1348910, at *4; Cencula, 174 F. Supp. 2d at 799-800; Gawrysh,
978 F. Supp. at 793; and Lutheran Gen. Hosp., 1996 WL 124449,
at *4); see also Dwyer, 2003 WL 22844234, at *5 ("Section 155
does not regulate the substantive content of insurance policies,
but merely regulates the procedural aspects of claims processing
by providing certain remedies in the event of vexatious insurance
practices") (citation and quotations omitted). In Lutheran
General, for example, the court concluded that, because Section
155 does not regulate the content of insurance policies, it does
not affect the transfer or spread of a policyholder's risk and is
not an integral part of the policy relationship between the
insurer and the insured. 1996 WL 124449, at *4. Plaintiff offers
no basis or argument to deviate from the Lutheran General
analysis, whether under the guidance of the McCarran-Ferguson
factors or the modified considerations as explained by the
Supreme Court in Kentucky Association of Health Plans, Inc.
What is more, it is well-settled that ERISA's comprehensive
provisions are meant to be the exclusive provisions for civil
enforcement of rights under ERISA. See Pilot Life, 481 U.S. at 51-54; see also 29 U.S.C. § 1132(a). Allowing Plaintiff to
assert a claim under Section 155 of the Illinois Insurance Code
would almost certainly undermine ERISA's explicit enforcement
procedures. See, e.g., Cencula, 174 F.Supp. 2d at 800;
Gawrysh, 978 F. Supp. at 794. Indeed, ERISA provides an
extensive list of remedies for a party alleging the claims that
Plaintiff brings here, including empowering plan participants to
bring civil actions to recover benefits owed under an employee
benefit plan. See 29 U.S.C. § 1132(a)(1)(B); see also Pilot
Life, 481 U.S. at 53 (1987) ("The six carefully integrated civil
enforcement provisions found in [Section 1132(a)] . . . provide
strong evidence that Congress did not intend to authorize other
remedies that it simply forgot to incorporate expressly.").
Section 155 of the Illinois Insurance Code allows for remedies
specifically rejected in ERISA. See Buehler,
722 F.Supp. at 1564 ("Section 155 allows a plaintiff to recover a substantial
statutory penalty much akin to punitive damages and completely at
odds with ERISA's implicit prohibition on punitive damages
recoveries."). Accordingly, the Court concludes that Plaintiff's
claim under Section 155 of the Illinois Insurance Code does not
fall under ERISA's insurance savings clause.*fn5
Finally, Plaintiff's reliance on Rush Prudential HMO, Inc. v.
Moran, 536 U.S. 355 (2002), is unavailing. In Rush Prudential
HMO, the Supreme Court decided whether the Illinois HMO Act,
which requires an HMO to provide a medical service "[i]n the
event that [a] reviewing physician determines the covered service
to be medically necessary," was preempted by ERISA. In reaching
its conclusion, the Court affirmed the Section 1132(a) preemption analysis discussed above. 536 U.S. at 373-74. In Rush Prudential
HMO, the issue before the Court was whether the remedies
available in the Illinois HMO Act conflicted with the explicit
ERISA remedies listed in Section 1132(a). The Court concluded
that the state regulatory scheme at work in the Illinois HMO Act
did not provide a "new cause of action under state law and
authorize[d] no new form of ultimate relief," and it did not
"enlarge the claim beyond the benefits available in any action
brought under § 1132(a)." Id. at 379-80. What the Court did not
do in Rush Prudential HMO was overturn or modify the precedent
ruling on ERISA's preemption regime described above. Unlike the
"medically necessary" provision of the Illinois HMO Act, which
the Court held was not preempted because it was consistent with
the civil remedies of ERISA, as described above, Section 155
undoubtedly would expand, and thus undermine, Congress's
carefully crafted civil enforcement scheme in Section 1132(a).
See, e.g., Buehler, 722 F.Supp. at 1562.*fn6 IV. Conclusion
For all of these reasons, Defendant's Motion to Dismiss Count I
is granted without prejudice.