Timm v. Prudential Ins. Co. of Am.

259 P.3d 521

Sherry M. TIMM, Plaintiff–Appellant,

v.PRUDENTIAL INSURANCE COMPANY OF AMERICA, a/k/a Prudential Financial, a/k/a Prudential Disability Management Services, Defendant–Appellee.

No. 10CA0803.

Colorado Court of Appeals, Div. II.

May 26, 2011.

OPINION TEXT STARTS HEREWest CodenotesPreemptedWest's C.R.S.A. § 10–3–1116(1) Dennis P. Walker, Denver, Colorado, for Plaintiff–Appellant.Gordon & Rees LLP, Franz Hardy, Lance J. Ream, Denver, Colorado, for Defendant–Appellee.Opinion by Judge CASEBOLT.

The primary issue in this insurance dispute is whether certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 et seq. (2006), preempt the statutory insurance bad faith claim asserted under section 10–3–1116(1), C.R.S.2010, by plaintiff, Sherry M. Timm, against defendant, Prudential Insurance Company of America. We conclude that ERISA preempts this claim under principles of conflict preemption. We also conclude that the trial court erred by dismissing, under C.R.C.P. 12(b)(5), Timm's claim for benefits under ERISA on the bases of claim preclusion, exclusive federal jurisdiction, and lack of ripeness. Accordingly, we affirm in part, reverse in part, and remand for further proceedings.

I. Background

The following facts are taken from Timm's complaint, which we must accept as true. See Lobato v. State, 218 P.3d 358, 367 (Colo.2009) (upon motion to dismiss under C.R. C.P. 12(b)(5), the reviewing court must accept all averments of material fact as true).

Timm's employer established a long term disability plan for its employees and purchased a group long term disability insurance policy from Prudential to provide insurance coverage therefor. Prudential is also the administrator of the plan.

In 2002, Timm claimed to be disabled, ceased working, and sought benefits under the plan. Prudential denied her claim because it determined that she was not disabled.

After exhausting her administrative remedies, Timm filed a civil action in the United States District Court for the District of Colorado (the federal court), seeking, as relevant here, benefits due to her under the plan. In September 2007, the federal court entered a declaratory judgment vacating Prudential's decision and declaring Timm disabled. The federal court remanded the case to Prudential for a determination of benefits due under the plan. The court stated that, because the action before it only sought review of decisions by Prudential that had already been made, it “decline[d] to retain jurisdiction to assess the sufficiency of any determination by Prudential as to the amount or duration of benefits.”

In June 2009, Timm filed the complaint at issue here in Denver District Court (the trial court), claiming benefits due under the plan and seeking damages for insurance bad faith under section 10–3–1116(1). She alleged that Prudential had taken no action on her claim for benefits since the federal court entered its declaratory judgment in 2007. Specifically, she stated:

[Timm] reasonably sought the payment of benefits from Prudential following the judgment in the federal litigation. Prudential has not acted and has not followed the court's judgment. Prudential has refused or failed to address the amount and duration of benefits, despite the judgment. Prudential has made a postjudgment administrative appeal impossible because Prudential has taken no action in determining the amount and duration of [long term disability] benefits as required by the judgment.

Prudential moved to dismiss the action pursuant to C.R.C.P. 12(b)(5), contending that Timm's complaint failed to state a claim for which relief can be granted because the bad faith claim was preempted by ERISA and (1) the claim for benefits was barred by the doctrine of claim preclusion as a result of the federal court's judgment; (2) the claim for benefits was barred because the federal court retained jurisdiction over the case; or (3) the claim for benefits was not ripe because Timm had failed to exhaust her administrative remedies before commencing this action. The trial court agreed and dismissed the complaint. This appeal followed.

II. Preemption of Bad Faith Claim

Timm contends that the trial court erred by determining that her claim for bad faith under section 10–3–1116(1) is preempted by ERISA. We disagree.

A. Standard of Review

A motion to dismiss pursuant to C.R.C.P. 12(b)(5) tests the sufficiency of the complaint. Lobato, 218 P.3d at 367. A reviewing court must accept all averments of material fact as true and view the allegations in the light most favorable to the plaintiff. Id. The court cannot grant a motion to dismiss for failure to state a claim unless it appears beyond doubt that no set of facts can prove that the plaintiff is entitled to relief. Id.

Federal preemption is a question of law that we review de novo. Griffin v. Capital Securities of America, Inc., ––– P.3d ––––, ––––, 2010 WL 4361378 (Colo.App.2010) ( cert. granted Mar. 14, 2011); Kohn v. Burlington Northern & Santa Fe R.R., 77 P.3d 809, 811 (Colo.App.2003).

B. Law

Section 10–3–1116(1) provides that a “first-party claimant ... whose claim for payment of benefits has been unreasonably delayed or denied may bring an action in a district court to recover reasonable attorney fees and court costs and two times the covered benefit.” A “first party claimant” includes an individual asserting an entitlement to benefits owed directly to an insured under an insurance policy. § 10–3–1115(1)(b)(I), C.R.S.2010.

ERISA contains an express preemption provision, providing that it supersedes state laws that “relate to” any employee benefit plan covered by its terms. 29 U.S.C. § 1144(a) (2006). The same section, however, includes a provision commonly called the savings clause, which provides that ERISA does not preempt any state law that “regulates insurance.” 29 U.S.C. § 1144(b)(2)(A) (2006). A law regulates insurance and is therefore saved from express preemption if it (1) is specifically directed toward entities engaged in insurance, and (2) substantially affects the risk pooling arrangement between the insurer and the insured. Ky. Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342, 123 S.Ct. 1471, 155 L.Ed.2d 468 (2003).

A state law claim for relief is also preempted if it “duplicates, supplements, or supplants” ERISA's civil enforcement remedies, because such a law conflicts with congressional intent to make ERISA's enforcement mechanism exclusive. Aetna Health Inc. v. Davila, 542 U.S. 200, 209, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004); see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 51–54, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). Commonly referred to as conflict preemption, this rule applies even if a law regulates insurance under ERISA's savings clause. Aetna Health, 542 U.S. at 217–18, 124 S.Ct. 2488.

A plan participant or beneficiary may bring a civil action under ERISA “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B) (2006). Remedies can include an injunction or other equitable relief and attorney fees and costs. 29 U.S.C. § 1132(a)(3), (g) (2006). Also, a participant may bring an action for breach of fiduciary duty and may seek removal of the fiduciary as a remedy for such a breach. 29 U.S.C. §§ 1109(a), 1132(a)(2) (2006).

C. Application

1. Conflict Preemption

Timm contends that section 10–3–1116(1) does not conflict with ERISA's remedial scheme because it furthers a primary purpose of ERISA: to ensure that plan participants receive the benefits to which they are entitled. We disagree.

As indicated, ERISA already provides a remedy for the unreasonable withholding of benefits. But ERISA does not provide for consequential or punitive damages. Kidneigh v. UNUM Life Ins. Co., 345 F.3d 1182, 1185 (10th Cir.2003); see Pilot Life, 481 U.S. at 53–54, 107 S.Ct. 1549.

Congress intended these remedies to be exclusive. Aetna Health, 542 U.S. at 216, 124 S.Ct. 2488; Pilot Life, 481 U.S. at 54, 107 S.Ct. 1549. Therefore, any additional remedies provided by state law conflict with the comprehensive remedial scheme adopted by Congress. Pilot Life, 481 U.S. at 54, 107 S.Ct. 1549. Because section 10–3–1116(1) allows a double recovery of benefits, it supplements and conflicts with ERISA's remedies and is therefore preempted. See Pilot Life, 481 U.S. at 57, 107 S.Ct. 1549 (holding that Mississippi common law bad faith claims were preempted by ERISA in part because they conflicted with ERISA's exclusive remedial scheme); Barber v. UNUM Life Ins. Co., 383 F.3d 134, 141 (3d Cir.2004) (holding that a Pennsylvania bad faith statute was preempted by ERISA because its punitive damages remedy supplemented ERISA's exclusive remedial scheme); Kidneigh, 345 F.3d at 1185 (holding that Colorado common law bad faith claims were preempted by ERISA because they conflicted with ERISA's remedial scheme by providing an additional claim to plaintiffs); Conover v. Aetna U.S. Health Care, Inc., 320 F.3d 1076, 1080 (10th Cir.2003) (holding that Oklahoma bad faith claims conflicted with ERISA's remedial scheme).

We are not persuaded by Timm's arguments that Kidneigh is distinguishable because it dealt with a common law claim for bad faith, not a statutory one; that the case predates the adoption of section 10–3–1116; or that section 10–3–1116(7), C.R.S.2010, declares that section 10–3–1116(1) is a law regulating insurance. None of these arguments overcomes the conflict preemption analysis. See Aetna Health, 542 U.S. at 217–18, 124 S.Ct. 2488 (conflict preemption rule applies even if a law regulates insurance under ERISA's savings clause); Barber, 383 F.3d at 141 (Pennsylvania bad faith statute preempted); Kidneigh, 345 F.3d at 1187 (bad faith claims, whether common law or statutory, provide an additional remedy and thus are preempted).

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