In Fontaine v. Metropolitan Life Insurance Company, No. 14-1984 (7th Cir. 2015), the Seventh Circuit Court of Appeals (the “Court”) addressed a federal preemption challenge to an Illinois insurance law, which prohibits provisions “purporting to reserve discretion” to insurers to interpret health and disability insurance policies. These provisions are intended to prevent the insurer from having the discretion which, under ERISA, when the insurer denies a benefit under a plan covered by ERISA, would entitle the insurer to a deferential review of that denial by a court.
Upon reviewing the case, the Court said that, like our colleagues in the Ninth and Sixth Circuits, as well as the district court in this case, we reject the preemption challenge and apply the state law. Why?
The Court had noted that ERISA deals expressly with the issue of preemption of state law. It first preempts state laws that “relate to any employee benefit plan,” 29 U.S.C. § 1144(a), but then saves from preemption any state law “which regulates insurance,” 29 U.S.C. § 1144(b)(2)(A). Further, to be deemed a law that “regulates insurance” and thus avoid preemption, according to the Supreme Court decision in Miller, a state law must satisfy two requirements. First, it must be specifically directed toward entities engaged in insurance. Second, it must substantially affect the risk pooling arrangement between the insurer and the insured. The Court concluded that the provision in question does both, and thus is not preempted.
Further, the Court found that the provision is not preempted on the grounds that it conflicts with ERISA’s civil enforcement scheme. All the provision does is restore the state’s own default rule of de novo review in court cases challenging denials of health and disability benefits.