ERISA-Third Circuit Rules That Plaintiffs’ Supplemental Coverage Is Part Of An ERISA Plan, So That State Law Claims Including Fraud Are Preempted By ERISA

In Menkes v. Prudential Insurance Company of America, No. 13-1408 (3rd Cir. 2014), the two plaintiffs were appealing the district court’s dismissal of their complaint for failure to state a claim.

In this case, the plaintiffs were employed by defense contractor defendant Qinetiq to work on a military base in Kirkuk, Iraq in 2008. As employees, the plaintiffs were automatically enrolled in Qinetiq’s ERISA-covered Basic Long Term Disability, Basic Life, and Accidental Death and Dismemberment insurance policies (the “Basic Policies”). These policies were established pursuant to a single group contract with the Prudential Insurance Company of North America (“Prudential”) and Qinetiq paid the premiums for each of these policies on behalf of its employees. Both plaintiffs also purchased, from Prudential, supplemental long term disability insurance coverage, and one plaintiff (Menkes) purchased supplemental accidental death and dismemberment insurance coverage, to augment their benefits under the Basic Policies, paying the premiums for this coverage out of their own funds (collectively, the “Supplemental Coverage”). The Basic Policies and Supplemental Coverage were explained in a single booklet (a “Booklet”) and summary plan description (“SPD”) for each type of insurance The Booklets and SPDs contained an exclusion for injuries occurring during war.

After Menkes filed a claim for disability benefits which Prudential rejected, and this suit ensued. One of the claims made by the plaintiffs was that Prudential fraudulently induced them to buy the Supplemental Coverage, knowing that any claim they filed would likely be subject to the war exclusion clauses because their place of employment was in a war zone in Iraq. Other state law claims were asserted. They wanted a return of premium for this coverage and punitive damages.

The District Court dismissed the suit in its entirety. It held that the Supplemental Coverage was governed by ERISA and could not be unbundled from the Basic Policies. Viewing the Basic Policies and Supplemental Coverage as closely related component parts of a single plan, it held that all of the plaintiffs’ claim of fraud, and the other state law claims they made, were expressly preempted by ERISA’s broad preemption clause, § 514(a). In the alternative, it held that the plaintiffs’ claims were preempted by § 502(a) of ERISA because the causes of action that the plaintiffs asserted conflicted with ERISA’s exclusive civil enforcement scheme. – The Third Circuit Court of Appeals agreed with this analysis, and therefore affirmed the district court’s decision.

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