Legal Memorandum: ERISA Claim against an Agent for Fraud

Issue: When can a plaintiff submit an ERISA claim against an insurance agent for fraud?

           In Isaac v. Life Investors Ins. Co. of Am., 749 F. Supp. 855 (E.D. Tenn. 1990), the plaintiffs sought compensatory and punitive damages incurred as a result of defendants’ misrepresentation and fraud.  The plaintiffs claimed that the defendants, either individually or through their agents, fraudulently induced them to terminate their prior health insurance, which covered the medical expenses associated with their daughter’s scoliosis, and enroll in a health insurance plan offered to the plaintiffs through Isaac’s employer.  The plaintiffs claimed that the defendants misrepresented that the policy would cover their daughter’s scoliosis.  Instead, the defendants denied their claims, giving the child’s preexisting condition as the reason.  The court remanded the case, stating:

[P]laintiffs’ cause of action is that the fiduciary, and its alleged agents, engaged in fraud and misrepresentation prior to the plaintiffs being participants under the plan.  They would not have a right of action against the defendants under ERISA since the defendants/fiduciary owed them no duty until they have enrolled in the plan.  Therefore, since Congress has not provided a remedy for the alleged wrong, this Court . . . concludes that the plaintiffs’ state claim for fraudulent misrepresentation is not preempted by ERISA.

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