Morstein v. National Insurance Svs.

United States Court of Appeals,
Eleventh Circuit.
No. 94-9152.
Margery A. MORSTEIN, Plaintiff-Appellant,
v.
NATIONAL INSURANCE SERVICES, INC.; Pan American Life Insurance
Company; the Shaw Agency; Scott Hankins, Defendants-Appellees.
Aug. 19, 1996.
Appeal from the United States District Court for the Northern
District of Georgia. (No. 1:92-cv-2686-RLV), Robert L. Vining, Jr.,
Judge.
Before TJOFLAT, Chief Judge, and KRAVITCH, HATCHETT, ANDERSON,
EDMONDSON, COX, BIRCH, DUBINA, BLACK, CARNES and BARKETT, Circuit
Judges.
BIRCH, Circuit Judge:
This case was taken en banc to clarify the law in our circuit
regarding state law preemption by the Employee Retirement Income
Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461 (1985). In
this appeal, we must decide whether state law claims asserted
against an independent insurance agent and his agency for
fraudulent inducement to purchase and negligence in processing an
application for an ERISA-governed insurance plan sufficiently
relate to an employee benefit plan within the meaning of section
514(a) of ERISA, 29 U.S.C. § 1144(a), so as to be preempted.
Because we find that the state law claims in this case do not
sufficiently relate to the employee benefit plan to be preempted by
ERISA, we reverse the district court's grant of summary judgment in
favor of the insurance agent and his agency.
I. FACTS
Plaintiff-appellant, Margery Morstein, is the president,
director, and sole shareholder of Graphic Promotions, Inc.
("Graphic"). At all times relevant to this appeal, Morstein was
one of two employees of Graphic. In 1991, Morstein met with Scott
Hankins, an insurance broker and employee of the Shaw Agency, for
the purpose of obtaining a replacement policy of major medical
insurance for herself and Graphic's other employee. The policy was
to be administered by National Insurance Services, Inc.
("National") and underwritten by Pan-American Life Insurance
1
Company ("Pan-American"). Morstein alleges that during her
meeting with Hankins, she advised him that any policy of major
medical insurance that would replace her current policy would be
unacceptable if it excluded from coverage medical treatment related
to any preexisting medical condition. Morstein asserts that
Hankins assured her that the policy that he proposed would provide
the same coverage for preexisting conditions as her current policy.
The policy offered by Hankins was issued to Graphic, and Graphic
paid the initial premium.
Over one year after the policy was issued, Morstein underwent
total hip replacement surgery. When she submitted a claim for
payment for this procedure, National refused payment because it
asserted that Morstein's surgery treated a preexisting condition,
which she failed to disclose during the application process.
National then rescinded the policy and refunded to Graphic the
premium payments that were made on behalf of Morstein. Morstein
claims that Hankins and the Shaw Agency fraudulently induced her to
1
Morstein voluntarily dismissed National and Pan-American
before the commencement of this appeal, although they were
defendants in the original action.
purchase a policy of major medical insurance and that she therefore
allowed a separate full-coverage insurance policy to lapse. She
further alleges that Hankins and the Shaw Agency were negligent in
processing her application for insurance and that she has state law
claims against them for negligence and fraud.2
Morstein filed an action in state court, alleging negligence,
malfeasance, misrepresentations, and breach of contract.
Defendants removed the action to federal court on the basis that
Morstein's claims were governed by ERISA. The district court
denied Morstein's motion to remand and found that defendants were
entitled to summary judgment as to the state law claims against
them. The district court concluded that Morstein's claims "clearly
relate to the employee benefit plan established by Graphic
Promotions; therefore, those claims are preempted by ERISA." R2-
29-3. Morstein appealed the district court's grant of summary
judgment, and the original appellate panel in this case reluctantly
affirmed the district court's grant of summary judgment and held
that it was bound by our decision in Farlow v. Union Cent. Life
Ins. Co., 874 F.2d 791 (11th Cir.1989). Morstein v. National Ins.
Servs., Inc., 74 F.3d 1135, 1138-39 (11th Cir.), vacated and reh'g
en banc granted, 81 F.3d 1031 (11th Cir.1996).
The original panel found the facts in this case to be
2
The Shaw Agency is an independent agency or brokerage that
is authorized to write policies for several insurance companies.
See Hankins Depo. at 11-14. In Georgia, independent insurance
agents are generally considered to be agents of the insured, not
the insurer. European Bakers, Ltd. v. Holman, 177 Ga.App. 172,
338 S.E.2d 702, 704 (1985), cert. denied (Jan. 17, 1986).
duplicative of the facts in Farlow.3 Id. at 1137. The panel,
therefore, was bound to adhere to the holding of Farlow that ERISA
preempted a designated beneficiary's state law misrepresentation
and negligence claims against an insurance company and its agent.4
Following our decision in Farlow, several district courts in our
circuit, faced with similar state law claims, have attempted to
distinguish their cases from Farlow. See Wiesenberg v. Paul Revere
Life Ins. Co., 887 F. Supp. 1529, 1532-33 (S.D.Fla.1995) (reasoning
that the decision in Farlow was ambiguous with regard to whether or
not its holding applied to independent insurance agent as well as
the insurance company, and turning to law in other circuits to
3
In Farlow, plaintiff was a shareholder, president, and
member of the board of directors of Pace-Plus, Inc. Farlow and
his wife were designated beneficiaries under Pace-Plus's employee
benefit plan. The Farlows alleged that an insurance agent
induced them to purchase a new group health life insurance plan,
and that the insurance agent fraudulently misrepresented that,
among other things, the new policy would provide the same
coverage as the company's old policy. Farlow, 874 F.2d at 792.
After switching to the new policy, Farlow's wife became pregnant.
The Farlows then discovered that, unlike Pace-Plus's old policy,
the new policy did not provide maternity or pregnancy coverage.
Id.
4
Our court found the conduct alleged by the Farlows to be
"intertwined" with the refusal to pay benefits:
[T]he conduct alleged in these claims is not only
contemporaneous with [the insurer's] refusal to pay
benefits, but the alleged conduct is intertwined with
the refusal to pay benefits. Finding the Farlows'
state law claims not wholly remote in content from the
[insurer's] plan, we reject the Farlows' contention
that simply because their claims invoke misconduct in
the sale and implementation of the [insurer's] plan,
their claims do not relate to the plan.
Consequently, we hold that ERISA preempts the Farlows'
misrepresentation and negligence claims.
Farlow, 874 F.2d at 794.
support its holding that Wiesenberg's state law fraud claims
against the insurance agency and its agent were not preempted by
ERISA); Barnet v. Wainman, 830 F. Supp. 610, 611-12 (S.D.Fla.1993)
(finding no preemption of plaintiff's claims against insurance
agent for fraudulent misrepresentation because, unlike Farlow, the
scope of coverage of plaintiff's claim would not be the focus of
the litigation); Martin v. Pate, 749 F. Supp. 242, 246-47
(S.D.Ala.1990) (finding "the applicability of Farlow to the facts
of this case" to be "questionable" and holding that plaintiff's
state law claim of fraudulent misrepresentation of coverage of
policy was not preempted), aff'd sub nom. Martin v. Continental
Investors, 934 F.2d 1265 (11th Cir.1991) (table).
Our decisions in the ERISA preemption area have been neither
consistent nor clear. Since Farlow was decided, the Supreme Court
and several other circuit courts have issued opinions that clarify
the purpose and intent of the ERISA state law preemption doctrine.
Furthermore, the conflict among the district courts in our circuit
demands that we revisit this issue and attempt to provide some
clear guidance in the morass of ERISA preemption law. We find it
helpful, therefore, to trace the development of the preemption
doctrine before applying the words of the statute to the case at
bar.
II. ANALYSIS
Morstein alleges that the district court erred in applying
the preemption doctrine under ERISA to bar her state law claims and
thus erred in granting summary judgment in favor of Hankins and the
Shaw Agency. We review a grant of summary judgment de novo.
Forbus v. Sears Roebuck & Co., 30 F.3d 1402, 1404 (11th Cir.1994),
cert. denied, --- U.S. ----, 115 S. Ct. 906, 130 L. Ed. 2d 788 (1995).
A. ERISA Legislative History
The Supreme Court has described the overall intent of ERISA as
follows: "ERISA is a comprehensive statute designed to promote the
interests of employees and their beneficiaries in employee benefit
plans." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S. Ct.
2890, 2896, 77 L. Ed. 2d 490 (1983); see also Lordmann Enters., Inc.
v. Equicor, Inc., 32 F.3d 1529, 1533 (11th Cir.1994), cert. denied,
--- U.S. ----, 116 S. Ct. 335, 133 L. Ed. 2d 234 (1995). Section
514(a) of ERISA provides that its provisions "shall supersede any
and all State laws insofar as they may now or hereafter relate to
any employee benefit plan described in section 1003(a) of this
title and are not exempt under section 1003(b) of this title." 29
U.S.C. § 1144(a) (1985).5 Unfortunately, the statute does not
5
Section 1003(a) provides that ERISA applies to all employee
benefit plans established or maintained "by any employer engaged
in commerce or in any industry or activity affecting commerce."
28 U.S.C. § 1003(a) (1985). The exemptions described in section
1003(b) are not applicable in this case. Id. at § 1003(b).
An "employee benefit plan" is defined under ERISA as
"an employee welfare benefit plan or an employee pension
benefit plan or a plan which is both an employee welfare
benefit plan and an employee pension benefit plan." Id. at
§ 1002(3) (1985).
The medical insurance policies involved in this case
qualify as "employee welfare benefit plans", which, together
with the term "welfare plan," are defined in ERISA section
3(1) as:
any plan, fund, or program which was heretofore or is
hereafter established or maintained by an employer or
by an employee organization, or by both, to the extent
that such plan, fund, or program was established or is
maintained for the purpose of providing for its
participants or their beneficiaries, through the
define the term "relate to," and it has fallen to the courts to
deduce Congress's intent and apply this interpretation to the facts
of each case that arises. A search through the volumes of
legislative history of ERISA provides very little information
regarding federal preemption of state law.
The Supreme Court in Shaw relied heavily on the statements of
Representative Dent and Senators Williams and Javits in support of
its conclusion that the intent of Congress was to preempt broadly.
Shaw, 463 U.S. at 99-100, 103 S.Ct. at 2901. Both Representative
Dent and Senator Williams emphasized the intent of Congress to
broadly preempt state and local regulation of employee benefit
plans. Representative Dent called the preemption doctrine "the
crowning achievement of this legislation," and promised that it
would "eliminat[e] the threat of conflicting and inconsistent State
and local regulation." 120 Cong.Rec. 29,197 (1974). Senator
Williams stated that preemption was "intended to apply in its
broadest sense to all actions of State or local governments, or any
instrumentality thereof, which have the force or effect of law."
Id. at 29,933. Only Senator Javits remarked that the final
language of the preemption clause was a product of compromise
between the House and Senate versions of the bill and that further
evaluation of preemption policy was necessary.6
purchase of insurance or otherwise, (A) medical,
surgical, or hospital care or benefits, or benefits in
the event of sickness, accident, disability, death or
unemployment,....
Id. at § 1002(1).
6
Senator Javits made the following comments:
B. Supreme Court Case Law
Because the legislative history is sparse, it has fallen to
the courts to interpret the phrase "relate to" and give it meaning
Both House and Senate bills provided for
preemption of State law, but—with one major exception
appearing in the House bill—defined the perimeters of
preemption in relation to the areas regulated by the
bill. Such a formulation raised the possibility of
endless litigation over the validity of State action
that might impinge on Federal regulation, as well as
opening the door to multiple and potentially
conflicting State laws hastily contrived to deal with
some particular aspect of private welfare or pension
benefit plans not clearly connected to the Federal
regulatory scheme.
Although the desirability of further regulation—at
either the State or Federal level—undoubtedly warrants
further attention, on balance, the emergence of a
comprehensive and pervasive Federal interest and the
interests of uniformity with respect to interstate
plans required—but for certain exceptions—the
displacement of State action in the field of private
employee benefit programs. The conferees—recognizing
the dimensions of such a policy—also agreed to assign
the Congressional Pension Task Force the responsibility
of studying and evaluating preemption in connection
with State authorities and reporting its findings to
Congress. If it is determined that the preemption
policy devised has the effect of precluding essential
legislation at either the State or Federal level,
appropriate modifications can be made.
120 Cong.Rec. 29,942 (1974).
The ERISA Oversight Report of the Pension Task Force of
the Subcommittee on Labor Standards was issued in 1977.
Pension Task Force of Subcomm. on Labor Standards of House
Comm. on Educ. and Labor, ERISA Oversight Report, H.R.Rep.
No. 365, 94th Cong., 2d Sess. (1977). The Task Force
concluded that, "[b]ased on our examination of the effects
of section 514, it is our judgment that the legislative
scheme of ERISA is sufficiently broad to leave no room for
effective state regulation within the field preempted.
Similarly it is our finding that the Federal interest and
the need for national uniformity are so great that
enforcement of state regulation should be precluded." Id.
at 9.
in the context of the facts that arise in each particular case.7
The Supreme Court noted as early as 1981 that defining boundaries
of the preemption doctrine would not be an easy task. Alessi v.
Raybestos-Manhattan, Inc., 451 U.S. 504, 525, 101 S. Ct. 1895, 1907,
68 L. Ed. 2d 402 (1981). In Alessi, retired employees challenged a
provision in their employer-provided pension plan, which provided
that an employee's retirement benefits are offset by any worker's
compensation awards for which the employee is eligible, as
violating a New Jersey statute that prohibited these offsets. Id.
7
According to Prof. Catherine L. Fisk:
In the twenty-one years since ERISA was enacted,
the Court has rendered decisions with written opinions
in twelve ERISA preemption cases, and has decided a
number of others without opinion. Preemption cases
constitute roughly half of all the ERISA cases the
Court has considered. The relatively large number of
ERISA preemption opinions has not, however, led to
clarity in the law. The lower courts have decided
thousands of preemption cases, yet remain mired in
confusion about basic points. ERISA preemption offers
proof that plain language textualism leads to
uncertainty and incoherence in the law.
Catherine L. Fisk, The Last Article About the Language of
ERISA Preemption? A Case Study of the Failure of
Textualism, 33 Harv.J. on Legis. 35, 58-59 (1996) (footnotes
omitted).
The Supreme Court apparently has not uttered its final
word on the issue of preemption either. The Court recently
granted certiorari in Dillingham Construction N.A., Inc. v.
Sonoma County, 57 F.3d 712 (9th Cir.1995), and requested
briefing on the issue of whether Congress intended, in
enacting ERISA, to preempt states' traditional regulation of
wages, apprenticeship, and state-funded public works
construction through a state prevailing wage law that
restricts a contractor's payment of lower
apprentice-specific wages to apprentices who are registered
in programs approved as meeting federal standards.
California Div. of Labor Standards Enforcement v. Dillingham
Constr. N.A., Inc., --- U.S. ----, 116 S. Ct. 1415, 134
L. Ed. 2d 541 (1996).
at 507-08, 101 S. Ct. at 1898. The Court remarked that it "need not
determine the outer bounds of ERISA's pre-emptive language to find
this New Jersey provision an impermissible intrusion on the federal
regulatory scheme." Id. at 525, 101 S.Ct. at 1907. The Court
noted that, "[o]ther courts have reached varying conclusions as to
the meaning of ERISA's pre-emptive language in other contexts....
We express no views on the merits of any of those decisions." Id.
at 525 n. 21, 101 S. Ct. at 1907 n. 21 (citations omitted).
Nevertheless, the Court indicated that it leaned towards a broad
interpretation: "ERISA makes clear that even indirect state action
bearing on private pensions may encroach upon the area of exclusive
federal concern.... ERISA's authors clearly meant to preclude the
States from avoiding through form the substance of the pre-emption
provision." Id.
The Court next addressed the preemption issue in Shaw v. Delta
Air Lines, Inc., 463 U.S. 85, 103 S. Ct. 2890, 77 L. Ed. 2d 490
(1983). The issue before the Court in Shaw was whether two New
York human rights and disability statutes that prohibited
discrimination on the basis of pregnancy were preempted by ERISA.
Id. at 88, 103 S.Ct. at 2895. The Supreme Court in a prior
unrelated case had determined that discrimination based on
pregnancy was not actionable under Title VII of the Civil Rights
Act of 1964. Id.; General Elec. Co. v. Gilbert, 429 U.S. 125, 97
S. Ct. 401, 50 L. Ed. 2d 343 (1976). The Court held that even though
ERISA does not contain any provisions proscribing discrimination in
the provision of employee benefits, the New York laws were
"relat[ed] to" employee benefit plans and, therefore, fell under
section 514(a). Shaw at 96, 103 S. Ct. at 2899. Citing Black's Law
Dictionary in support thereof, the Court made the following attempt
to define "relates to":
A law "relates to" an employee benefit plan, in the normal
sense of the phrase, if it has a connection with or reference
to such a plan. Employing this definition, the Human Rights
Law, which prohibits employers from structuring their employee
benefit plans in a manner that discriminates on the basis of
pregnancy, and the Disability Benefits Law, which requires
employers to pay employees specific benefits, clearly "relate
to" benefit plans. We must give effect to this plain language
unless there is good reason to believe Congress intended the
language to have some more restrictive meaning.
In fact, however, Congress used the words "relate to" in
§ 514(a) in their broad sense. To interpret § 514(a) to
preempt only state laws specifically designed to affect
employee benefit plans would be to ignore the remainder of §
514. It would have been unnecessary to exempt generally
applicable state criminal statutes from preemption in §
514(b), for example, if § 514(a) applied only to state laws
dealing specifically with ERISA plans.
Id. at 96-98, 103 S.Ct. at 2900 (footnote & citations omitted).
Once again, however, the Supreme Court declined to remark on how
broad the preemption language of ERISA sweeps, except to note that
there is some boundary:
Some state actions may affect employee benefit plans in too
tenuous, remote, or peripheral a manner to warrant a finding
that the law "relates to" the plan.... The present litigation
plainly does not present a borderline question, and we express
no views about where it would be appropriate to draw the line.
Id. at 100 n. 21, 103 S. Ct. at 2901 n. 21.
The Supreme Court first addressed the issue of whether ERISA
preempts state common law tort and contract claims in Pilot Life
Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S. Ct. 1549, 95 L. Ed. 2d 39
(1987). Dedeaux was injured in an employment-related accident and
filed a disability claim with Pilot Life Insurance Company ("Pilot
Life"), the provider of Dedeaux's employer's long term disability
employee benefit plan. Id. at 43, 107 S.Ct. at 1551. When
Dedeaux's benefits were terminated by Pilot Life, he instituted a
diversity suit against the company alleging tortious breach of
contract, breach of fiduciary duties, and fraud in the inducement.
Id. Pilot Life argued that Dedeaux's state law claims were
preempted by ERISA. After discussing the legislative history of
ERISA and emphasizing its broad preemptive intent, the Supreme
Court held that Dedeaux's state law claims were preempted and that
the insurance savings clause did not apply to the claims. The
Court did not hesitate in its conclusion that Dedeaux's common law
causes of action, "each based on alleged improper processing of a
claim for benefits under an employee benefit plan, undoubtedly meet
the criteria for pre-emption under § 514(a)." Id. at 48, 107 S.Ct.
at 1553.8
In Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S. Ct.
478, 112 L. Ed. 2d 474 (1990), an employee brought a state law action
against his employer alleging that the employer had wrongfully
terminated him in order to avoid contributing to, or paying
benefits under, the employee's pension plan. The Court found that
8
The sticking-point for the Court came in its determination
of whether the causes of action should be saved under the
insurance savings clause. Pilot Life, 482 U.S. at 48-50, 107
S.Ct. at 1553-54; 29 U.S.C. § 1144(b)(2)(A). The Court
determined that the savings clause should be interpreted narrowly
and that Dedeaux's claims could not be saved because his common
law claims could not be viewed as laws that "regulate[d]
insurance" as they were not specifically directed toward the
insurance industry. Pilot Life, 482 U.S. at 50, 107 S.Ct. at
1554. The Court also looked to the intent of Congress that the
civil enforcement provisions of ERISA be the exclusive vehicle
for actions brought by ERISA plan participants and beneficiaries,
who assert claims for improper processing of benefits. Id. at
52-54, 107 S.Ct. at 1555-57.
the employee's claim was preempted under ERISA. Id. at 142, 111
S.Ct. at 484. In discussing whether the claim "relates to" an
employee benefit plan covered by ERISA, the Court stated that:
[I]n order to prevail, a plaintiff must plead, and the court
must find, that an ERISA plan exists and the employer has a
pension-defeating motive in terminating the employment.
Because the court's inquiry must be directed to the plan, this
judicially created cause of action "relate[s] to" an ERISA
plan.
Id. at 140, 111 S.Ct. at 483.
In 1995, the Supreme Court issued its opinion in New York
Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,
--- U.S. ----, 115 S. Ct. 1671, 131 L. Ed. 2d 695 (1995) (hereinafter
"New York Blues "). The issue in New York Blues was whether ERISA
"pre-empts the state provisions for surcharges on bills of patients
whose commercial insurance coverage is purchased by employee
health-care plans governed by ERISA, and for surcharges on [health
maintenance organizations (HMOs) ] insofar as their membership fees
are paid by an ERISA plan." Id. at ----, 115 S.Ct. at 1673-74.
The district court in the case had determined that the New York
surcharge law was preempted by ERISA because the surcharges would
affect commercial insurers and HMOs, and, therefore, indirectly
affect ERISA plans by increasing plan costs. Id. at ----, 115
S.Ct. at 1675. The Second Circuit affirmed the decision of the
district court and cited Shaw v. Delta Air Lines and Ingersoll-Rand
v. McClendon in support of its finding of broad preemption. See
Travelers Ins. Co. v. Cuomo, 14 F.3d 708, 717-19 (2d Cir.1993),
rev'd, --- U.S. ----, 115 S. Ct. 1671, 131 L. Ed. 2d 695 (1995).
The Supreme Court rejected the conclusions of the Second
Circuit and essentially turned the tide on the expansion of the
preemption doctrine:
The governing text of ERISA is clearly expansive.... If
"relate to" were taken to extend to the furthest stretch of
its indeterminacy, then for all practical purposes pre-emption
would never run its course, for "[r]eally, universally,
relations stop nowhere," H. James, Roderick Hudson xli (New
York ed., World's Classics 1980). But that, of course, would
be to read Congress's words of limitation as a mere sham, and
to read the presumption against pre-emption out of the law
whenever Congress speaks to the matter with generality. That
said, we have to recognize that our prior attempt to construe
the phrase "relate to" does not give us much help drawing the
line here.
Id. at ----, 115 S. Ct. 1677. The Court next cited the often-quoted
language in Shaw that defined a law "relat[ing] to" an employee
benefit plan as one that " "has a connection with or reference to
such a plan.' " Id. at ----, 115 S. Ct. 1677 (quoting Shaw, 463
U.S. at 96-97, 103 S.Ct. at 2900). After acknowledging that the
statute in question made no reference to an employee benefit plan,
the Court hinged its analysis on interpreting the phrase
"connection with" from Shaw. The Court then stated:
But this still leaves us to question whether the surcharge
laws have a "connection with" the ERISA plans, and here an
uncritical literalism is no more help than in trying to
construe "relate to." For the same reasons that infinite
relations cannot be the measure of pre-emption, neither can
infinite connections. We simply must go beyond the unhelpful
text and the frustrating difficulty of defining its key term,
and look instead to the objectives of the ERISA statute as a
guide to the scope of the state law that Congress understood
would survive.
Id. at ----, 115 S.Ct. at 1677. The Court went on to reason that
a reading of the preemption provision that is so broad as to
displace "all state laws affecting costs and charges on the theory
that they indirectly relate to ERISA plans ... would effectively
read the limiting language in § 514(a) out of the statute...." Id.
at ----, 115 S.Ct. at 1679. This conclusion, the Court stated,
would contradict the "basic principles of statutory interpretation"
and would go against the Court's prior determination that a state
law is not preempted when the law has too tenuous a connection with
the ERISA plan. Id. at ----, 115 S.Ct. at 1679-80. The Court
concluded:
While Congress's extension of pre-emption to all "state laws
relating to benefit plans" was meant to sweep more broadly
than "state laws dealing with the subject matters covered by
ERISA[,] reporting, disclosure, fiduciary responsibility, and
the like," Shaw, 463 U.S., at 98, and n. 19, 103 S. Ct. at
2900, and n. 19, nothing in the language of the Act or the
context of its passage indicates that Congress chose to
displace general health care regulation, which historically
has been a matter of local concern....
Id. at ----, 115 S.Ct. at 1679-80 (citations omitted).
C. Application to Morstein's Claims
While the narrow holding in New York Blues, i.e., state laws
that govern general health care regulation and affect ERISA plans
only by means of indirect economic effects are not preempted, is
not particularly relevant to the instant case, the broad guidance
that the Court gave in analyzing a state law is helpful. Using the
analysis outlined by the Supreme Court in New York Blues, we look
to see whether the state law claims brought by Morstein have a
"connection with" the ERISA plan. To determine that, we examine
whether the claims brought fit within the scope of state law that
Congress understood would survive ERISA.
The Fifth Circuit has found that Congress did not intend for
ERISA preemption to extend to state law tort claims brought against
an insurance agent. Perkins v. Time Ins. Co., 898 F.2d 470, 473
(5th Cir.1990). Such preemption, reasoned the Fifth Circuit, would
"immunize agents from personal liability for their solicitation of
potential participants in an ERISA plan prior to its formation."
Id. We now adopt the rationale of the Fifth Circuit as stated in
Perkins and hold that when a state law claim brought against a
non-ERISA entity does not affect relations among principal ERISA
entities as such, then it is not preempted by ERISA. To the extent
that any of our prior opinions differ from this holding, they
should be deemed overruled.9
Morstein is a plan beneficiary who is bringing a suit against
the insurance agency and agent who allegedly fraudulently induced
her to change benefit plans. The insurance agent and agency are
not ERISA entities. ERISA entities are the employer, the plan, the
plan fiduciaries, and the beneficiaries under the plan. See
Travitz v. Northeast Dept. ILGWU Health & Welfare Fund, 13 F.3d
704, 709 (3d Cir.), cert. denied, --- U.S. ----, 114 S. Ct. 2165,
128 L. Ed. 2d 888 (1994); Sommers Drug Stores v. Corrigan Enters.,
Inc., 793 F.2d 1456, 1467 (5th Cir.1986), cert. denied, 479 U.S.
1034, 107 S. Ct. 884, 93 L. Ed. 2d 837 (1987). Hankins and the Shaw
Agency had no control over the payment of benefits or a
determination of Morstein's rights under the plan.10
9
We recognize that the factual circumstance now before us is
not the only one in which a state law claim will not be preempted
by ERISA.
10
Our conclusion contradicts the reasoning offered by this
court in Belasco v. W.K.P. Wilson & Sons, Inc., 833 F.2d 277
(11th Cir.1987). There we reasoned that because the preemption
doctrine extended to claims brought by an employee against an
employer, it must extend to claims against insurance agents as
well. "This indicates that the "broad common-sense meaning' of
the term "relate to,' ... is quite broad indeed." Id. at 281
(citation omitted). Subsequent cases have made clear, however,
that employers, unlike independent insurance agents, are ERISA
entities and thus much more closely "related to" the plan.
In Variety Children's Hosp., Inc. v. Century Medical Health
Plan, Inc., 57 F.3d 1040 (11th Cir.1995), we held that state law
fraud claims can be intertwined with benefit plans "where state law
claims of fraud and misrepresentation are based upon the failure of
a covered plan to pay benefits, the state law claims have a nexus
with the ERISA plan and its benefits system." Id. at 1042. In
Variety, the action was brought by a hospital, via an assignment of
the claims of the parents of the beneficiary, against the plan
itself and alleged that the plan had engaged in fraud and
misrepresentation by allegedly denying coverage of an experimental
bone marrow transplant performed at the hospital. Id. These
claims involved ERISA entities, the beneficiary (before
assignment), and the plan, and the state law claims were based on
an interpretation of the plan's terms. When a state law claim
involves the reliance on an insurer's promise that a particular
treatment is fully covered under a policy, however, a claim of
promissory estoppel is not "related to" the benefits plan. See
Variety at 1043 & n. 5.11
Although the remedy sought may affect the plan in that
Morstein's damages (should she successfully prevail on her claims)
against Hankins and/or the Shaw Agency may be measured based on
what she would have received under her old plan, such indirect
relation between a beneficiary and the plan is not enough for
11
This type of claim can be contrasted with an action
brought by a beneficiary against an insurance company regarding
the scope of the coverage of the plan. The claim brought by
Morstein against Pan-American and National was of the latter type
and would be preempted, but Morstein's claims against Pan-
American and National are not at issue on appeal.
preemption. Forbus, 30 F.3d at 1406-67 (noting that "the mere fact
that the plaintiffs' damages may be affected by a calculation of
pension benefits is not sufficient to warrant preemption"); see
also Smith v. Texas Children's Hosp., 84 F.3d 152, 155 (5th
Cir.1996). The Supreme Court in New York Blues made it clear that
economic impact alone is not necessarily enough to preempt a state
law. New York Blues, --- U.S. at ----, 115 S. Ct. at 1683.
Therefore, the possibility that insurance premiums will be higher
or that insurance will be more difficult to obtain because
independent agents will have less incentive to sell insurance to
employers whose employee benefit plans will be governed by ERISA,
does not provide a reason to preempt state laws that place
liability on agents for fraud. These same agents currently face
the threat of state tort claims if they make fraudulent
misrepresentations to individuals and entities not governed by
ERISA. To hold these agents accountable in the same way when
making representations about an ERISA plan merely levels the
playing field.
Allowing preemption of a fraud claim against an individual
insurance agent will not serve Congress's purpose for ERISA. As
discussed above, Congress enacted ERISA to protect the interests of
employees and other beneficiaries of employee benefit plans. See
Shaw, 463 U.S. at 90, 103 S.Ct. at 2896. To immunize insurance
agents from personal liability for fraudulent misrepresentation
regarding ERISA plans would not promote this objective. If ERISA
preempts a beneficiary's potential cause of action for
misrepresentation, employees, beneficiaries, and employers choosing
among various plans will no longer be able to rely on the
representations of the insurance agent regarding the terms of the
plan. These employees, whom Congress sought to protect, will find
themselves unable to make informed choices regarding available
benefit plans where state law places the duty on agents to deal
honestly with applicants.
III. CONCLUSION
Morstein challenges the district court's conclusion that her
state law claims against an independent insurance agent and his
agency for fraudulent inducement to purchase and negligence in
processing her application for an ERISA-governed insurance plan are
preempted by section 514(a) of ERISA. We conclude that these
claims do not fall within ERISA's broad preemptive scope, as they
do not have a sufficient connection with the plan to "relate to"
the plan. Accordingly, the district court's grant of summary
judgment in favor of Hankins and the Shaw Agency is REVERSED.