In Prince v. Sears Holdings Corporation, No. 16-1075 (4th Cir. 2017), alleging that his employer improperly administered life insurance benefits, an employee brought suit for misrepresentation, constructive fraud, and infliction of emotional distress. The district court dismissed the employee’s case, and the employee appealed. The Fourth Circuit Court of Appeals (the “Court”) ruled that, because, ERISA completely preempts these state law claims, the Court affirms the district court’s dismissal of the complaint.
In this case, in November 2010, Billy E. Prince (“Prince”) submitted an application to his employer for $150,000 in life insurance coverage for his wife, Judith Prince. The employer, Sears, sponsored and administered the life insurance program through The Prudential Insurance Company of America. In May 2011, Sears sent an acknowledgment letter to Prince and began withholding premiums from his pay shortly thereafter. Later in 2011, Mrs. Prince learned she had Stage IV liver cancer. Almost a year after Mrs. Prince’s initial diagnosis, Prince checked his online benefits summary, which confirmed his election to purchase life insurance coverage for his wife in the amount of $150,000. Another year passed, and Sears sent Prince a letter advising him that Mrs. Prince’s coverage had never become effective because no “evidence of insurability questionnaire” had been submitted. Sears explained that Prudential had sent a notice to Prince in January 2011 advising that unless a completed insurability questionnaire was submitted, Prudential would terminate his application for the life insurance coverage. Prince claims that he has no record of receipt of that notice but does not dispute that Prudential sent it to him.
On May 26, 2014, Mrs. Prince died. Because Prince did not receive the $150,000 in life insurance, he filed a complaint against Sears in the Circuit Court of Marion County, West Virginia. The complaint asserted one count of “constructive fraud/negligent misrepresentation” and one count of “intentional/reckless infliction of emotional distress,” based on Sears’s alleged misrepresentations regarding the life insurance policy and the harm thereby inflicted on Mr. and Mrs. Prince. Sears removed the case to federal district court, which dismissed the case on the basis of complete ERISA preemption.
In affirming the dismissal, the Court said the following. ERISA § 502(a) completely preempts a state law claim when the following three-prong test is met: (1) the plaintiff must have standing under § 502(a) to pursue his or her claim; (2) the plaintiff’s claim must fall within the scope of an ERISA provision that he or she can enforce via § 502(a); and (3) the claim must not be capable of resolution without an interpretation of the contract governed by federal law, i.e., an ERISA-governed employee benefit plan. Prince concedes that the first prong is met. The Court also found that the second prong is met. Prince is challenging the administration of an ERISA plan -a core § 502(a) claim. Prince is entitled to life insurance benefits only if the ERISA plan provided them. The Court further found that the third prong is met, since resolution of Prince’s claims require interpretation of the ERISA plan. Thus, the complete preemption of the claims.