Thomas C. Cady
Morgantown, West Virginia
Attorney for the Appellants
Boyd L. Warner
Scott E. Wilson
Francis L. Warder
Waters, Warner & Harris
Clarksburg, West Virginia
Attorney for the Appellee
JUSTICE BROTHERTON delivered the Opinion of the Court.
West Virginia Code § 33-12-21 (1992) imposes personal
liability upon "[a]ny agent or broker who participates directly or
indirectly in effecting any insurance contract, except authorized
reinsurance, upon any subject of insurance resident, located or to
be performed in this State, where the insurer is not licensed to
transact insurance in this State . . . ." Because any effect this
statute might have on an employee welfare benefit plan would be
tenuous and remote at best, we conclude that the statute does not
"relate to" an employee welfare benefit plan within the meaning
intended by the use of that phrase in § 1144(a) of the federal
Employee Retirement Income Security Act of 1974 (ERISA).
Therefore, actions brought against agents or brokers under this
statute are not pre-empted by ERISA.
The question now before this Court is whether a civil
action which alleges insurer liability under W.Va. Code §§ 33-12-21
and 33-11-4(9) is pre-empted by the federal Employee Retirement
Income Security Act of 1974 (ERISA).
The appellants are nine employees of the Clarksburg/
Harrison County Public Library who appeal from an October 24, 1990,
order of the Circuit Court of Harrison County dismissing their
complaint against the appellee, Life Planning Services, Inc. (LPS),
a West Virginia corporation licensed to do business as an
independent insurance agency.
In February, 1988, LPS presented the appellants' employer with an employee welfare benefit plan known as Group Rental Insurance Plan Medical Trust ("GRIP Medical Trust"), which was sponsored by Rental Associates, Inc. This plan provided group term life and accidental death and dismemberment coverage, medical, surgical and hospital coverage, and dental coverage.See footnote 1 On
February 4, 1988, the appellants' employer executed a Participation
Agreement requesting membership as a participating employer in
Rental Associates, Inc., as well as coverage under the GRIP Medical
Trust, and permission to make contributions to the trust for its
employees. The request was approved, and coverage became effective
on March 1, 1988.
The appellants claim that Rental Associates, Inc., is a
Massachusetts insurance company which is not licensed to transact
business in West Virginia, and allege further that in January or
February, 1989, Rental Associates began to refuse to pay covered
medical expenses. The appellees admit that claims for the period
from approximately January 1, 1989, through May 31, 1989, were not
paid by the GRIP Medical Trust.
The appellants filed suit against LPS on May 7, 1990, charging that LPS's refusal to pay benefits was malicious, intentional, willful, wanton, and reckless, and in violation of W.Va. Code §§ 33-12-21 and 33-11-4(9). The latter section relates to unfair claim settlement practices, while W.Va. Code § 33-12-21 (1992) imposes personal liability upon an agent or broker under certain circumstances by providing that:
Any agent or broker who participates directly or indirectly in effecting any insurance contract, except authorized reinsurance, upon any subject of insurance resident, located or to be performed in this State, where the insurer is not licensed to transact insurance in this State, shall be personally liable upon such contract as though such agent or broker were the insurer thereof. This section shall not apply to excess line insurance procured in the manner provided in sections ten to seventeen [§§ 33-12-10 to 33-12-17], inclusive, of this article, nor to ocean marine insurance or marine protection and indemnity insurance. (Emphasis added.)
The appellants demanded judgment against LPS for policy
proceeds totalling $21,229.37, as well as $20,000 for each
plaintiff for costs and $20,000 in punitive damages for each
At a hearing on September 20, 1990, the appellee moved to dismiss the appellants' claims on grounds that the appellants' comprehensive medical insurance plan was an employee welfare benefit plan under the Employee Retirement Income Security Act of
1974, 29 U.S.C. § 1007, and that provisions of ERISA supersede and
pre-empt state laws relating to any employee benefit plan.
In an order dated October 24, 1990, the Circuit Court of
Harrison County concluded that the appellants' claims against LPS
were pre-empted by ERISA, citing the United States Supreme Court's
decision in Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107
S.Ct. 1549, 95 L.Ed.2d 39 (1987), and 29 U.S.C. § 1144(a). The
lower court dismissed the appellants' complaint with leave to amend
in order to allege an ERISA cause of action.
On appeal, the appellants argue simply that their claim
was not pre-empted by ERISA because it was not an ERISA claim that
was asserted against an ERISA fiduciary seeking ERISA relief, but
was instead a state law-based insurance claim against an agent or
broker, seeking state law-based remedies.
ERISA is "a startlingly sweeping and complex federal
statute,"See footnote 2 enacted by Congress in order to
protect . . . participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing
for appropriate remedies, sanctions, and ready
access to the Federal courts.
29 U.S.C. § 1001(b).
ERISA protects two types of employee benefit plans:
"welfare benefit," like the one which is at issue in this case, as
well as "pension benefit" plans. ERISA comprehensively regulates
employee welfare benefit plans that "through the purchase of
insurance or otherwise," provide medical, surgical, or hospital
care, or benefits in the event of sickness, accident, disability,
or death. 29 U.S.C. § 1002(1).
However, ERISA does not dictate what types of benefits
and services an employee benefit plan must contain or otherwise
regulate the substantive content of such plans in any manner.
Instead, ERISA's purpose is to impose "standards of fiduciary
responsibility upon plan fiduciaries and administrators, which are
directed toward plan participants and to the plan itself. ERISA
also requires plan administrators to report to the Labor
Department, and to disclose plan terms to participants."See footnote 3
State insurance laws govern the substantive content of insured welfare benefit plans. "For example, a state law requiring all group health insurance policies to include mental health benefits substantively regulates welfare benefit plans. Thus,
ERISA and state insurance laws regulate insured welfare benefit
plans simultaneously -- ERISA creates fiduciary, reporting and
disclosure standards while state insurance laws govern plan
content."See footnote 4
There are three major provisions in ERISA which explain
and qualify its pre-emptive effect. First, the "pre-emption
clause," 29 U.S.C. § 1144(a), provides that:
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 relate to any employee benefit plan . . . .
Thus, if a state law merely "relate[s] to" an employee benefit
plan, then the state law is pre-empted by ERISA. However, the
broad pre-emptive effect of this clause is itself limited by
several provisions in subsection (b). For example, the "saving
clause," 29 U.S.C. § 1144(b)(2)(A), states that:
Except as provided in subparagraph (B) [the deemer clause], 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 "deemer clause," 29 U.S.C. § 1144(b)(2)(B), then limits the
"saving clause," providing that:
Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or
investment company or to be engaged in the
business of insurance or banking for purposes
of any law of any State purporting to regulate
insurance companies, insurance contracts,
banks, trust companies, or investment
In this case, the petitioners seek damages from the
respondent, LPS, for violations of both W.Va. Code § 33-12-21 and
§ 33-11-4(9). The question before us is whether the petitioners'
causes of action under these statutes are pre-empted by ERISA.
As we noted above, ERISA's pre-emption clause will pre-empt a state law if the state law relates to an employee welfare
benefit plan, unless it falls within one of the exceptions. The
phrase "relate[s] to" has been interpreted by the United States
Supreme Court in two leading cases: Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981), and Shaw
v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d
In Alessi, retirees received pension benefits which were
offset by the amounts they received from workers' compensation.
This was referred to as the "integration" method for calculating
pension benefits. New Jersey subsequently amended its workers'
compensation law and prohibited these offsets, but they were
permitted by ERISA.
The retirees filed suit, alleging that the employers were
operating the plan in violation of New Jersey law. They also
maintained that ERISA did not pre-empt New Jersey law because the
law was a workers' compensation law rather than a pension law.
Therefore, they argued that the New Jersey law did not "relate to"
an employee welfare benefit plan within the meaning of the pre-emption clause. The United States Supreme Court disagreed.
It is of no moment that New Jersey intrudes indirectly, through a workers' compensation law, rather than directly, through a statute called "pension regulation." 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. at 525. Thus, the Supreme Court found that the New Jersey law
directly conflicted with and was pre-empted by ERISA. However, the
Court did not find it necessary to "determine the outer bounds of
ERISA's pre-emptive language . . . ." Id.
Instead, the scope of the ERISA pre-emption clause was
examined further in Shaw v. Delta Air Lines, supra, which involved
New York's Human Rights Law. The New York Court of Appeals held
that employers engaged in sex discrimination, within the meaning of
that law, when they treated pregnancy differently from other
nonoccupational disabilities in the context of employee benefit
The United States Supreme Court found that given the
broad meaning of the phrase "relate to", New York's Human Rights
Law related to employee benefit plans within the meaning of the
pre-emption clause. A unanimous Supreme Court explained that a
state law "relates to" an ERISA plan if the law merely has a
"connection with or reference to such a plan," rejecting the
narrower Alessi interpretation that the pre-emption clause
encompassed only state laws in direct conflict with ERISA
provisions. Shaw, 463 U.S. at 96-97. However, the Court noted
that "[s]ome 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." Id. at 100, n.21.
West Virginia Code § 33-12-21 imposes personal liability
upon "[a]ny agent or broker who participates directly or indirectly
in effecting any insurance contract, except authorized reinsurance,
upon any subject of insurance resident, located or to be performed
in this State, where the insurer is not licensed to transact
insurance in this State . . . ." Because any effect this statute
might have on an employee welfare benefit plan would be tenuous and
remote at best, we conclude that the statute does not "relate to"
an employee welfare benefit plan within the meaning intended by the
use of that phrase in § 1144(a) of the federal Employee Retirement
Income Security Act of 1974 (ERISA). Therefore, actions brought
against agents or brokers under this statute are not pre-empted by
In many cases in which courts have found pre-emption of a state action, the action arose from the alleged wrongful termination or denial of benefits.See footnote 5 Quite obviously, the case now before us was also initiated as a result of a refusal to pay benefits. However, for our purposes in determining ERISA's pre-emptive power with respect to W.Va. Code § 33-12-21, this refusal to pay benefits becomes a separate matter and has no effect on the appellants' claim that the appellee, LPS, is subject to personal liability for brokering an insurance contract with an unlicensed insurer in violation of W.Va. Code § 33-12-21.
While we find that the appellants' claim under W.Va. Code
§ 33-12-21 is not pre-empted by ERISA, we reach the opposite
conclusion with respect to their claim under W.Va. Code § 33-11-4(a). This claim relates to unfair claim settlement practices and
is clearly the same type of claim that the United States Supreme
Court found to be pre-empted by § 514(a) of ERISA in Pilot Life
Insurance Co. Dedeaux. The appellants offer no argument, and thus
apparently concede this point.
For the foregoing reasons, the October 24, 1990, order of the Circuit Court of Harrison County is affirmed in part, reversed
in part, and remanded for further proceedings consistent with this
Footnote: 1According to the respondent's brief, GRIP Medical Trust was a qualified ERISA trust sponsored and established by Rental Associates, Inc., to provide hospitalization and medical benefits for members and their employees. The GRIP Medical Trust was funded by payments made by members and their employees to Rental Associates, Inc. No plan payments were made directly to Life Planning.
At the time the plaintiffs' coverage went into effect, the hospitalization and medical benefits were partly self-funded
and partly insured. The hospitalization and medical benefits
were self-funded by the GRIP Medical Trust for each individual up
to $50,000 of eligible expenses in any one plan year with
coverage in excess of that amount provided by Life Insurance
Company of North America, a Cigna company. Life Insurance
Company of North America, a Cigna company, was authorized to
transact insurance business in the State of West Virginia at the
time the plaintiffs enrolled in the GRIP Medical Trust. The
policyholder of the excess insurance was Rental Associates, Inc.,
a corporation which was not licensed to transact insurance
business in the State of West Virginia. The Third Party
Administrators, Inc. ("T.P.A., Inc."), was the plan administrator
of the GRIP Medical Trust which provided claims processing and
other administrative services on a contract basis to the trust.
T.P.A., Inc., is a corporation. However, it is not licensed to
transact insurance business in the State of West Virginia.
On or about July 15, 1988, the plaintiffs' employer and the defendant were notified by Rental Associates, Inc., that effective May 1, 1988, all medical benefits are reinsured from first dollar with Arizona Life Reinsurance Company.
Footnote: 2Robert L. Aldisert, Note, Blind Faith Conquers Bad Faith: Only Congress Can Save Us After Pilot Life Insurance Co. v. Dedeaux, 21 Loy.L.A.L.Rev. 1343, 1345 (1988).
Footnote: 3Aldisert, supra note 2 at 1350, 1351.
Footnote: 4Aldisert, supra note 2, at 1351.
Footnote: 5Caroline Wrenn Cleveland, Note, ERISA Preemption: As the Federal Courts Identify the Outer Boundaries of ERISA's Preemption Clause, What are the Implications for South Carolina State Actions?, 42 S.C.L.Rev. 743, 764 (1991).