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The decedent-insured held a long-term disability policy obtained through his employer. After receiving short and long-term disability benefits the insurer gave notice of termination that the benefits would terminate unless the insurer was provided with an update on his condition. The insured and insurer then disputed over whether he was totally disabled; a dispute which went on past his death as to benefits. Suit was brought for breach of the implied covenant of good faith and fair dealing and bad faith denial of insurance benefits, among others. The insurer moved to dismiss arguing ERISA pre-emption.

The Third Circuit has set forth the following test on whether a policy falls within ERISA coverage: “an ERISA plan ‘is established if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.” The test also states that the “crucial factor” is “whether the employer has expressed an intention to provide benefits on a regular and long-term basis.” In this case “it is undisputed” that the policy at issue falls under ERISA.

Plaintiff’s bad faith claims and other state law claims were preempted by ERISA. The ERISA statute makes clear that it preempts all state laws that “relate to” employee benefit plans. “A ‘state law relates to an ERISA plan if among other things, the rights or restrictions’ created by the state law ‘are predicated on the existence of . . . an [ERISA] plan.” Here, the bad faith claims and other state law claims, were predicated on the employer plan, and thus preempted under ERISA.

The plaintiff argued that the policy should fall under ERISA’s safe harbor provision. Under the safe harbor provision, a policy is not governed by ERISA when it is neither established nor maintained by the employer. However, because the record clearly indicated that the employer created a comprehensive package of insurance coverage, the Court ruled that the safe harbor provisions do not apply. As such, the Court dismissed all of the plaintiff’s state law claims, including the bad faith claims.

Date of Decision: December 28, 2017

Rizzo v. First Reliance Std. Life Ins. Co., No. 17-745, 2017 U.S. Dist. LEXIS 212484 (D. N.J. Dec. 28, 2017) (Sheridan, J.)