Barber v. Unum Life Ins Co

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit

9-7-2004

Barber v. Unum Life Ins Co
Precedential or Non-Precedential: Precedential

Docket No. 03-4363

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 PRECEDENTIAL E. Thomas Henefer, Esquire (Argued)
Stevens & Lee
UNITED STATES 111 North Sixth Street
COURT OF APPEALS P.O. Box 679
FOR THE THIRD CIRCUIT Reading, Pennsylvania 19603
Attorney for Appellant

No. 03-4363 Joseph F. Roda, Esquire (Argued)
Roda & Nast
801 Estelle Drive
JAMES BARBER Lancaster, Pennsylvania 17601
Attorney for Appellee
v.
Glen D. Nager, Esquire
UNUM LIFE INSURANCE Jones Day
COMPANY OF AMERICA, 51 Louisiana Avenue, N.W.
Appellant Washington, D.C. 20001
Attorney for Amicus Curiae-
Appellant, Chamber of
On Appeal from the Commerce of the United States
United States District Court for the
Eastern District of Pennsylvania Arnold R. Levinson, Esquire
D.C. Civil Action No. 03-cv-03018 Pillsbury & Levinson
(Honorable Clarence C. Newcomer) One Embarcadero Center, Suite 3860
San Francisco, California 94111
Attorney for Amicus Curiae-
Argued May 25, 2004 Appellee, United Policyholders

Before: SCIRICA, Chief Judge,
RENDELL and ALARCÓN * , OPINION OF THE COURT
Circuit Judges

(Filed September 7, 2004) SCIRICA, Chief Judge.
At issue is whether ERISA
preempts Pennsylvania’s bad faith statute
for insurance claims, 42 Pa. C.S. § 8371,
through express or conflict preemption.
The District Court denied defendant’s Fed.
*
R. Civ. P. 12(b)(6) motion moving for
The Honorable Arthur L. Alarcón,
dismissal of plaintiff’s bad faith claim
United States Circuit Judge for the Ninth
based on ERISA preemption. Barber v.
Judicial Circuit, sitting by designation.
UNUM Life Ins. Co. of Am., No. 03-3018 UNUM moved under Fed. R. Civ.
(E.D. Pa. filed Sept. 9, 2003). Because we P. 12(b)(6) to dismiss the bad faith claim,
hold 42 Pa. C.S. § 8371 is conflict citing ERISA preemption. UNUM
preempted by ERISA, or alternatively contends conflict preemption applies
expressly preempted under ERISA § because 42 Pa. C.S. § 8371's remedial
514(a), we will reverse the judgment of the scheme conflicts with Congress’ intent in
District C ourt and rema nd w ith enac ting ERISA’s exclusive civil
instructions to dismiss Barber’s bad faith enforcement provision in § 502(a), 29
claim. U.S.C. § 1132(a). § 502(a) allows an
ERISA-plan participant to recover
I.
benefits, to obtain a declaratory judgment
Facts that he is entitled to benefits, and to enjoin
an improper refusal to pay benefits. 29
This matter involves a dispute over
U.S.C. § 1132(a). UNUM contends
disability benefits provided to plaintiff
ERISA preempts 42 Pa. C.S. § 8371
James Barber by his employer under an
because it is a separate enforcement
employee benefit plan governed by the
scheme with a punitive damages provision
Employee Retirement Income Security Act
that adds to the detailed provisions of
of 1974, as amended 29 U.S.C. §§ 1001-
ERISA’s remedial mechanism.
1461. Benefits under the plan were
insured under a group long-term disability Citing express ERISA preemption,
policy Barber’s employer obtained from UNUM also contends 42 Pa. C.S. § 8371
defendant UNU M Life Insura nce falls outside the protective ambit of
Company of America. ERISA’s saving clause. ERISA § 514(a),
After Barber became disabled, he
applied for and received long-term
acted in bad faith toward the
disability benefits. But U NUM
insured, the court may take
subsequently terminated the benefits after
all of the following actions:
determining Barber was no longer disabled
(1) Award interest on the
under the policy’s terms. Barber brought
amount of the claim from
suit for breach of contract and for bad
the date the claim was made
faith, requesting punitive damages under
by the insured in an amount
42 Pa. C.S. § 8371 for UNUM’s alleged
equal to the prime rate of
bad faith in denying benefits.1
interest plus 3%.
(2) Award punitive damages
against the insurer.
1
42 Pa. C.S. § 8371 provides: (3) Assess court costs and
In an action arising under an attorney fees against the
insurance policy, if the court insurer.
finds that the insurer has Id.

2
the express preemption clause, broadly Barber responds that 42 Pa. C.S. § 8371,
provides that “[e]xcept as provided in the bad faith statute, “regulates insurance”
subsection (b) of this section, the and accordingly falls within the saving
provisions of this title . . . shall supersede clause’s parameters.
any and all State laws insofar as they may
Procedural Background
now or hereafter relate to any employee
benefit plan.” 29 U.S.C. § 1144(a). In In Rosenbaum v. UNUM Life
apparent tension, however, and reflecting Insurance Co. of America, No. 01-6758,
its concern with limiting states’ rights to 2003 U.S. Dist. LEXIS 15652 (E.D. Pa.
regulate insurance, banking, or securities, Sept. 8, 2003) (“Rosenbaum II”),3 the
Congress drafted a saving clause, ERISA
§ 514(b)(2)(A), that provides: “Except as
provided in subparagraph (B), nothing in . employee benefit plan[s],”
this title shall be construed to exempt or it is pre-empted. § 514(a).
relieve any person from any law of any The saving clause excepts
State which regulates insurance, banking, from the pre-emption clause
or securities.” 29 U.S.C. § 1144(b)(2)(A).2 l aw s t hat “ r e g u l a t[ e ]
insurance.” § 514(b)(2)(A).
The deemer clause makes
clear that a state law that
2
Subparagraph (B) (“the deemer “purport[ s] to regulate
clause”) provides: insurance” cannot deem an
Neither an employee benefit employee benefit plan to be
plan . . . nor any trust an insurance company.
established under such a § 514(b)(2)(B).
plan, shall be deemed to be Pilot Life Ins. Co. v. Dedeaux, 481 U.S.
an insurance company or 41, 45 (1987).
other insurer, bank, trust
3
company, or investment In Rosenbaum v. UNUM Life
company or to be engaged Insurance Co. of America, No. 01-6758,
in the business of insurance 2002 U.S. Dist. LEXIS 14155 (E.D. Pa.
or banking for purposes of July 29, 2002) (“Rosenbaum I”), the
any law of any State District Court held 42 Pa. C.S. § 8371 is
purp orting to regu late not expressly preempted because it
i n s u r an c e c o m p a n i e s , “regulates insurance” under ERISA’s
insurance contracts, banks, saving clause. Id. at *1-9. UNUM filed a
trust com panie s, or motion for reconsideration. While that
investment companies. motion was pending, the Supreme Court
Id. § 1144(b)(2)(B). As summarized by decided Kentucky Association of Health
the Supreme Court: Plans, Inc. v. Miller, 538 U.S. 329 (2003),
If a state law “relate[s] to . . which clarified a statute “regulates

3
District Court held 42 Pa. C.S. § 8371 certified for interlocutory appeal, but the
satisfied the saving clause and found ruling came after parties had advised the
conflict preemption did not apply. Id. at District Court they had settled the matter,
*10-25.4 The order in Rosenbaum II was eliminating a case or controversy. But the
district judge in Rosenbaum II was also
assigned to this lawsuit. On September 9,
insurance” and satisfies the saving clause 2003, the District Court denied UNUM’s
only if it (1) is “specifically directed motion to dismiss for the reasons provided
toward entities engaged in insurance” and in Rosenbaum II. Barber v. UNUM Life
(2) “substantially affect[s] the risk pooling Ins. Co., No. 03-3018 (E.D. Pa. filed Sept.
arrangement between the insurer and the 9, 2003). The District Court certified the
insured.” Id. at 341-42. issue for interlocutory review. Id. We
4 granted the petition for allowance of
Several other federal district courts in
appeal.5
Pennsylvania held ERISA preempts 42 Pa.
C.S. § 8371. See Hunter v. Fed. Express
Corp., No. 03-6711, 2004 U.S. Dist. UNUM Life Ins. Co. of Am., No. 02-2019,
LEXIS 13271 (E.D. Pa. July 15, 2004); 2003 U.S. Dist. LEXIS 1540 (M.D. Pa.
Rieser v. Standard Life Ins. Co., No. 03- Feb. 4, 2003); Snook v. Penn State
5040, 2004 U.S. Dist. LEXIS 9378 (E.D. Geisinger Health Plan, 241 F. Supp. 2d
Pa. May 25, 2004); Waters v. Kemper Ins. 485 (M.D. Pa. 2003); Bell v. UNUM
Cos., No. 03-1803, 2004 U.S. Dist. LEXIS Provident Corp., 222 F. Supp. 2d 692
7379 (W.D. Pa. April 19, 2004); (E.D. Pa. 2002); Kirkhuff v. Lincoln Tech.
Tannenbaum v. UNUM Life Ins. Co. of Inst., Inc., 221 F. Supp. 2d 572 (E.D. Pa.
Am., No. 03-CV-1410, 2004 U.S. Dist. 2002); Sprecher v. Aetna U.S. Healthcare,
LEXIS 5664 (E.D. Pa. Feb. 27, 2004); Inc., No. 02-CV-00580, 2002 U.S. Dist.
Dolce v. Hercules Inc. Ins. Plan, No. 03- LEXIS 15571 (E.D. Pa. Aug. 19, 2002).
CV-1747, 2003 U.S. Dist. LEXIS 23890 One district court agreed with
(E.D. Pa. Dec. 15, 2003); Nguyen v. Rosenbaum II, 2003 U.S. Dist. LEXIS
Healthguard of Lancaster, Inc., 282 F. 15652, and held ERISA does not preempt
Supp. 2d 296 (E.D. Pa. 2003) 42 Pa. C.S. § 8371. Stone v. Disability
reconsideration denied 03-3106, 2003 Mgmt. Servs., 288 F. Supp. 2d 684 (M.D.
U.S. Dist. LEXIS 22043 (E.D. Pa. Oct. 7, Pa. 2003).
2003); Leuthner v. Blue Cross & Blue
5
Shield of Northeastern Penn., 270 F. Supp. We have subject matter jurisdiction
2d 584 (M.D. Pa. 2003); Morales-Ceballos under 28 U.S.C. § 1331. We have
v. First UNUM Life Ins. Co. of Am., No. jurisdiction to hear an interlocutory appeal
03-CV-925, 2003 U.S. Dist. LEXIS 9801 under 28 U.S.C. § 1292(b).
(E.D. Pa. May 27, 2003); McGuigan v. The issues presented are legal
Reliance Standard Life Ins. Co., 256 F. issues over which we exercise plenary
Supp. 2d 345 (E.D. Pa. 2003); Emil v. review. Concepcion v. Morton, 306 F.3d

4
 II. brought a common law tort and contract
action asserting improper processing of a
A. Conflict Preemption
benefits claim. Id. The Court found the
Under the doctrine of conflict saving clause did not save the bad faith
preemption, a state law may be preempted claim because it did not “regulate
“to the extent that it actually conflicts with insurance.” Id. at 50. But stating it was
federal law,” English v. Gen. Elec. Co., obliged to consider “the role of the saving
496 U.S. 72, 79 (1990), that is, where it clause in ERISA as a whole,” the Court
“sta n d s a s a n obstacle to th e noted an “understanding of the saving
accomplishment and execution of the full clause must be informed by the legislative
purposes and objectives of Congress.” intent concern ing [ER ISA’s] civil
Hines v. Davidowitz, 312 U.S. 52, 67 enforcement provisions,” which, the Court
(1941). UNUM contends conflict said, were “intended to be exclusive.” Id.
preemption applies because 42 Pa. C.S. § at 51-52. In ruling that punitive damages
8371 is a separate enforcement scheme in a bad faith cause of action constituted
that enlarges the remedies otherwise an additional remedy, the Court explained:
available under the detailed civil
[The provisions of ERISA]
enforcement provision of ERISA § 502(a).
set forth a comprehensive
Until the Supreme Court’s recent civil enforcement scheme
decision in Aetna Health Inc. v. Davila, that represents a careful
124 S. Ct. 2488 (2004), the debate over balancing of the need for
ERISA conflict preemption centered on prompt and fair claims
two Supreme Court cases—Pilot Life, 481 settlement procedu res
U.S. 41, and Rush Prudential, 536 U.S. against the public interest in
355. In Pilot Life, an insurance company encouraging the formation
terminated an injured employee’s disability of employee benefit plans.
plan. 481 U.S. at 43-44. The employee The policy choices reflected
in the inclusion of certain
remedies and the exclusion
1347, 1352 (3d Cir. 2002). Because this is of others under the federal
an appeal of a Fed. R. Civ. P. 12(b)(6) scheme would be
motion, we accept all factual allegations in completely undermined if
the complaint and all reasonable inferences ER ISA-p lan participants
to be drawn therefrom in the light most and beneficiaries were free
favorable to the plaintiffs. Rossman v. to obtain remedies under
Fleet Bank Nat’l Ass’n, 280 F.3d 384, 387
n.1 (3d Cir. 2002). We may dismiss a
claim only if it is certain that no relief
could be granted under any set of facts
which could be proven. Id.

5
 state law that Congress remedies . . . that Congress
rejected in ERISA. rejected in ERISA.”
Id. at 54. The Court stated the “‘six Id. at 378 (quoting Pilot Life, 481 U.S. at
carefully integrated civil enforcement 54) (citation and internal quotations
provisions found in § 502(a) of the omitted). The Court explained the civil
[ERISA] statute as finally enacted . . . remedies provided in ERISA § 502(a) are
provide strong evidence that Congress did an “‘interlocking, interrelated, and
not intend to authorize other remedies that interdependent remedial scheme,’” id. at
it simply forgot to incorporate expressly.’” 376 (quoting Mass. Mutual, 473 U.S. at
Id. (quoting Mass. Mutual Life Ins. Co. v. 146), that “‘represent[s] a careful
Russell, 473 U.S. 134, 146 (1985)) balancing of the need for prompt and fair
(emphasis in original). Accordingly, the claims settlement procedures against the
Court found the state claims permitting public interest in encouraging the
punitive damages were preempted by formation of employee benefit plans.’” Id.
ERISA. Id. at 57. at 376 (quoting Pilot Life, 481 U.S. at 54).
ERISA § 502(a)’s civil enforcement
The Supreme Court revisited
provisions are the “sort of overpowering
conflict preemption in Rush Prudential,
federal policy” that is so strong it even
536 U.S. 355, narrowly reaffirming the
“overrides a statutory provision designed
applicability of conflict preemption in the
to save state law from being preempted.”
ERISA context. The Court “recognized a
Id. at 375.6
limited exception from the savings clause
for alternative causes of action and
alternative remedies,” describing this 6
In addition to Pilot Life and Rush
exception as “Pilot Life’s categorical
Prudential, the Supreme Court has
preemption.” Id. at 380-81. The Court
asserted on other occasions Congress did
noted:
not intend to authorize remedies other than
Although we have yet to those provided under ERISA § 502(a),
encounter a forced choice emphasizing the “overpowering” federal
between the congressional policy in ERISA’s exclusive civil
policies of exclusively enforcement provisions. See Metropolitan
federal remedies and the Life Ins. Co. v. Taylor, 481 U.S. 58, 64-65
reservation of the business (1987) (“As we have made clear today in
of insurance to the States, Pilot Life . . . the policy choices reflected
we have anticipated such a in the inclusion of certain remedies and the
conflict, with the state exclusion of others under the federal
insurance regulation losing scheme would be completely undermined
out if it allows plan i f E R I S A - p l a n p a r t ic i p a n ts a nd
participants “to ob tain beneficiaries were free to obtain remedies
under state law that Congress rejected in

6
 The parties here have focused on Dist. LEXIS 15652, at *20-21.7 Whatever
whether the Supreme Court treatment of the outcome of that debate, it is no longer
conflict preemption in Pilot Life and Rush material because in Aetna Health, 124 S.
Prudential is dicta, noting Rosenbaum II Ct. 2488,8 the Court confirmed that state
found it to be “dicta” that was
“unpersuasive.” Rosenbaum II, 2003 U.S. 7
Even if the Supreme Court’s
discussion of conflict preemption were
dicta, we do not view their dicta lightly:
[W]e should not idly ignore
considered statements the
Supreme Court makes in
dicta. The Supreme Court
uses dicta to help control
and influence the many
issues it cannot decide
because of its limited
docket. “Appellate courts
t h a t dismiss these
expressions [in dicta] and
strike off on their own
increase the disparity among
tribunals (for other judges
are likely to follow the
Supreme Court’s marching
orders) and frustrate the
evenhanded administration
of justice by giving litigants
an outcome other than the
one the Supreme Court
would be likely to reach
were the case heard there.”
Official Comm. of Unsecured Creditors of
Cybergenics Corp. ex rel. Cybergenics
Corp. v. Chinery, 330 F.3d 548, 561 (3d
ERISA.”); Mass. Mutual, 473 U.S. at 146 Cir. 2003) (quoting McDonald v. Master
(ERISA § 502(a)’s “carefully integrated Fin., Inc. (In re McDonald), 205 F.3d 606,
civil enforcement provisions . . . provide 612-13 (3d Cir. 2000)).
strong evidence that Congress did not
8
intend to authorize other remedies that it The District Court decided this case
simply forgot to incorporate expressly.”). before the decision in Aetna Health, 124 S.

7
laws that supplement ERISA’s civil remedy to those provided by the ERISA
enforcement scheme conflict w ith civil enforcement mechanism” because
Congress’ intent to make the ERISA such a cause of action “conflicts with
remedy exclusive. Id. at 2495. Congress’ clear intent to make the ERISA
mechanism exclusive.” Id. at 2498 n.4.
In Aetna Health, the Court held the
plaintiffs’ claims under the Texas R eading Pilot L ife, Rush
Healthcare Liability Act, which imposed a Prudential, and Aetna Health together, a
duty of ordinary care in the handling of state statute is preempted by ERISA if it
coverage decisions, were completely provides “a form of ultimate relief in a
preempted by ERISA and therefore judicial forum that added to the judicial
removable to federal court. Id. at 2492-93, remedies provided by ERISA,” Rush
2498. Noting that ERISA’s “integrated Prudential, 536 U.S. at 379, or stated
enforcement mechanism, ERISA § another way, if it “duplicates, supplements,
502(a),” is “essential to accomplish or supplants the ERISA civil enforcement
Congress’ purp ose o f crea ting a remedy.” Aetna Health, 124 S. Ct. at 2495
comprehensive statute for the regulation of (citing Pilot Life, 481 U.S. at 54-56). 42
employee benefit plans,” the Court held Pa. C.S. § 8371 is such a statute because it
“any state-law cause of action that is a state remedy that allows an ERISA-
duplicates, supplements, or supplants the plan participant to recover punitive
ERISA civil enforcement remedy conflicts damages for bad faith conduct by insurers,
with the clear congressional intent to make supplementing the scope of relief granted
the ERISA remedy exclusive and is by ERISA. Accordingly, 42 Pa. C.S. §
therefore pre-empted.” Id. at 2495 (citing 8371 is subject to conflict preemption.
Pilot Life, 481 U.S. at 54-56). The Court
explained “Congress’ intent to make the
ERISA civil enforcement mechanism
exclusive would be undermined if state
causes of action that supplement the
ERISA § 502(a) remedies were permitted,
even if the elements of the state cause of
action did not precisely duplicate the
elements of an ERISA claim.” Id. at 2499-
2500. In short, Aetna Health confirms that
conflict preemption applies to any “state
cause of action that provides an alternative

Ct. 2488. Because Aetna Health was
issued after oral argument, we requested
briefing from the parties.

8
B. Express Preemption and the Saving claim for benefits outside
Clause of, or in addition to,
ERISA’s remedial scheme.
1. The Saving Clause’s Effect on
Conflict Preemption Id. at 2500.9 Citing Pilot Life, 481 U.S.
41, the Court noted Congress’ policy
Barber contends 42 Pa. C.S. § 8371
choices reflected in ERISA’s exclusive
is a law that “regulates insurance,” and
remedial provision would be undermined
therefore, under ERISA § 514(b)(2)(A),
by state laws allowing alternate remedies,
his bad faith claim is saved from
and concluded that “Pilot Life’s reasoning
preemption, including conflict preemption.
applies here with full force.” Aetna
He notes Congress could have qualified §
Health, 124 S. Ct. at 2500. For those
514(b)(2)(A)’s saving clause by limiting
reasons, even if 42 Pa. C.S. § 8371 were
its applicability if state law remedies
found to “regulate insurance” under the
conflict with or add to ERISA’s remedies,
saving clause, it would still be preempted
but it did not do so.
because the punitive damages remedy
In Aetna Health, 124 S. Ct. 2488, supplements ERISA’s exclusive remedial
the Supreme Court found a similar scheme.
argument “unavailing,” holding that the
2. Express Preemption
presence of ERISA’s saving clause does
not disrupt the normal conflict preemption In the alternative, we believe the
analysis: District Court erred in finding 42 Pa. C.S.
§ 8371 “regulates insurance” under the
ERISA § 514(b)(2)(A) must
saving clause. Accordingly, express
be interpreted in light of the
preemption under ERISA § 514(a) would
congressional intent to
apply. As stated, in Miller, 538 U.S. 329,
create an exclusive federal
the Supreme Court set forth a two-part test
remedy in ERISA § 502(a).
Under ordinary principles of
conflict pre-emption, then, 9
Amicus supporting Barber’s position
even a state law that can
contend that because 42 Pa. C.S. § 8371
arguably be characterized as
does not “provide[] a separate vehicle to
‘regulating insurance’ will
assert a claim for benefits,” Aetna Health,
be pre-empted if it provides
124 S. Ct. at 2500 (emphasis added),
a separate vehicle to assert a
Barber’s claim for punitive damages, as
opposed to additional benefits, is not
preempted. But this is too narrow a
reading given the Supreme Court’s
emphasis on the “congressional intent to
create an exclusive federal remedy in
ERISA § 502(a).” Id. (emphasis added).

9
which clarified that a statute “regulates For the first prong of the
insurance” and satisfies the saving clause test—whether 42 Pa. C.S. § 8371 is
only if it (1) is “specifically directed “specifically directed towards entities
toward entities engaged in insurance” and engaged in insurance,” 538 U.S. at
(2) “substantially affect[s] the risk pooling 342—the inquiry must be answered in the
arrangement between the insurer and the affirmative. 42 Pa. C.S. § 8371 is entitled
insured.” Id. at 341-42.10 “actions on insurance policies,” and its
first sentence limits the provision’s scope
to insurers: “In an action arising under an
10 insurance policy, if the court finds that the
Prior to Miller, the seminal case
insurer has acted in bad faith toward the
interpreting ERISA’s insurance regulation
insured . . . .” Id. (emphasis added).
preemption exception was Metropolitan
Moreover, the remedies offered under 42
Life Insurance Co. v. Massachusetts, 471
Pa. C.S. § 8371 are awarded or assessed
U.S. 724 (1985). In Metropolitan Life, the
“against the insurer.” Id.
Supreme Court applied the McCarran-
Ferguson test to determine whether a law UNUM responds that 42 Pa. C.S. §
regulates insurance for purposes of the 8371 fails this prong because it regulates
ERISA saving clause. First, the law must the insurer’s conduct rather than the
have regulated insurance from a “common underlying insurance by creating extra-
sense” view. Id. at 740. Second, the Court contractual remedies for certain types of
adopted the three factors used in the insurer conduct. We believe Miller
McCarran-Ferguson Act to determine forecloses this argument. In Miller, the
whether a regulation falls within the Supreme Court considered Kentucky’s
business of insurance, that is, whether the Any Willing Provider Law which
regulation (1) transferred or spread policy regulated insurers’ conduct with regard to
risk; (2) was an integral part of the policy third-party providers. 538 U.S. at 337-38.
relationship between the insurer and the The Court explained ERISA’s savings
insured; and (3) applied only to entities clause “is not concerned . . . with how to
within the insurance industry. Id. at 743. characterize conduct undertaken by private
Applying the McCarran-Ferguson actors, but with how to characterize state
factors, the Supreme Court has saved from
preemption: an Illinois law requiring
HMOs to provide independent review of requiring coverage of certain minimum
whether services are medically necessary, mental health services under any health
Rush Prudential, 536 U.S. at 374-75; a insurance policy issued in that state,
California law requiring an insurer to Metropolitan Life, 471 U.S. at 742-47. In
demonstrate prejudice in order to deny an Miller, 538 U.S. 329, the Supreme Court
untimely claim for benefits, UNUM Life jettisoned Metropolitan Life’s test, stating
Ins. Co. of Am. v. Ward, 526 U.S. 358, it was making “a clean break from the
367-79 (1999); and a Massachusetts law McCarran-Ferguson factors.” Id. at 341.

10
laws in regard to what they ‘regulate.’” Id. explained the “any willing provider”
The Court provided the following analogy: statute under review, the “mandated-
benefit” law in Metropolitan Life, 471 U.S.
Suppose a state law required
724, the “notice-prejudice” rule in UNUM
all licensed attorneys to
Life, 526 U.S. 358, and the “independent
participate in 10 hours of
review” provision in Rush Prudential, 536
continuing legal education
U.S. 355, “alter the scope of permissible
(CLE) each year. This
bargains between insurers and insureds”
statute “regu lates” th e
and therefore “substantially affect[] the
practice of law — even
type of risk pooling arrangements that
though sitting through 10
insurers may offer.” 538 U.S. at 338-39.
hours of CLE classes does
In comparison, the bad faith statute here is
not constitute the practice of
remedial in nature—it is a remedy to
law—because the state has
which the insured may turn when injured
conditioned the right to
by the bad faith of an insurer. See
practice law on certain
Kidneigh v. UNUM Life Ins. Co. of Am.,
requirements, which
345 F.3d 1182, 1187 (10th Cir. 2003)
substantially affect the
(“[B]ad faith claims, whether common law
p ro d u c t d e l i v e r e d b y
or statutory, merely provide an additional
lawyers to their clients.
remedy for policyholders.”). 42 Pa. C.S. §
Id. at 337-38. The Court concluded the 8371 does not affect the kinds of bargains
Any Willing Provider Law similarly
“‘regulates’ insurance by imposing
conditions on the right to engage in the
reference to “ the r isk pooling”
business of insurance.” Id. at 338. This
arrangement between insurer and insured
case presents a similar situation in which
refers simply to the “insurance”
Pennsylvania’s bad faith statute regulates
arrangement between them. But the Miller
insurers’ conduct by imposing industry-
test is intended to clarify ERISA’s opaque
wide conditions on the insurance business.
statutory language which saves statutes
Accordingly, the first prong of the Miller
that “regulate insurance.” 29 U.S.C. §
test is satisfied.
144(b)(2)(A). The Miller test, we believe,
Under the second prong, however, demands more than
42 Pa. C.S. § 8371 does not “substantially whether a law substantially affects the
affect[] the risk pooling arrangement insurance arrangement between the insurer
between the insurer and insured.” Miller, and insured. The Supreme Court’s precise
538 U.S. at 342.11 In Miller, the Court formulation is wh ether a statute
“substantially affects the risk pooling
arrangement between the insurer and
11
Barber attempts to cast the saving insured.” Miller, 538 U.S. at 342
clause in a broad light by claiming Miller’s (emphasis added).

11
insurers and insureds may make. It Co. v. Pireno, 458 U.S. 119, 128 n.7
provides that whatever the bargain struck, (1982) (internal quotations omitted);
if the insurer acts in bad faith, the insured Hollaway v. UNUM Life Ins. Co. of Am.,
may recover punitive damages. Pilot Life, 89 P.3d 1022, 1029 (Okla. 2003)
481 U.S. at 49-51 (holding “the common (explaining that risk pooling groups “those
law of bad faith does not define the terms with greater and lesser risks together to
of the relationship between the insurer and better acco unt and minim ize the
the insured; it declares only that, whatever unpredictable risk for everyone” and
terms have been agreed upon in the “results in spreading the costs of risk of
insurance contract, a breach of that loss for which an insurer must pay across
contract may in certain circumstances the span of insureds”). Here, the risk
allow the policyholder to obtain punitive pooled, in this case the risk of disability, is
damages.”). 12 reflected in the policy itself. The tort of
bad faith breach of an insurance contract is
Moreover, claims for bad faith
not ordinarily a risk identified in the
insurance breaches bear no relation to the
insurance policy as a risk of loss the
risk pooled—the risk of loss the insurer
insurer agrees to bear for its insured.
agrees to bear on behalf of the insured.
Within the insurance industry, “risk” Our conclusion is buttressed by
means the risk of occurrence of injury or Pireno, 458 U.S. 119.13 In Pireno, a
loss for which the insurer contractually plaintiff brought suit, alleging antitrust
agrees to compensate the insured. With violations by a peer review committee
risk pooling, “a number of risks are used to assess whether chiropractors’ fees
accepted, some of which involve losses,” were reasonable. Id. at 122-24. The Court
and the “losses are spread over all the risks found the use of the peer review played no
so as to enable the insurer to accept each part in the spreading and underwriting of
risk at a slight fraction of the possible insurance risk:
liability upon it.” Union Labor Life Ins.
[ P l a i n t i f f ’ s] a rg u m en t
contains the unspoken
12 premise that the transfer of
We recognize Pilot Life was decided
risk from an insured to his
under the pre-Miller McCarran-Ferguson
insurer actually takes place
standard which asked whether the law at
not when the contract
issue “has the effect of transferring or
between those parties is
spreading a policy holder’s risk.” 481 U.S.
completed, but rather only
at 48 (internal quotations omitted).
Though the Miller Court made a “clean
break” from the McCarran-Ferguson
13
factors, 538 U.S. at 341, we believe the As with Pilot Life, we find the Court’s
Court’s analysis in Pilot Life is nonetheless analysis of insurance risk in the pre-Miller
instructive and still valid on this point. Pireno to still offer guidance.

12
 when the insured’s claim is
settled. This premise is
contrary to the fundamental
principle of insurance that
the insurance policy defines
the scope of risk assumed by
the insurer from the insured.
Id. at 131 (emphasis added). Here, the
transfer of risk occurred when Barber
entered into the insurance contract, not
when his claim was settled. The scope of
the risk pooled is defined by the policy, not
by a claims settlement statute allowing for
bad faith remedies.
Moreover, the threat that punitive
awards may result in increased costs that
could be passed on to the insured is too
attenuated to be deemed to “substantially
affect” the risk pooling arrangement.
Accordingly, under the Miller test,
Pennsylvania’s bad faith statute does not
“regulate insurance” within the meaning of
ERISA’s saving clause and is expressly
preempted by ERISA.
III.
For the foregoing reasons, we will
reverse the judgment of the District Court
and remand with instructions to dismiss
Barber’s bad faith claim.

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