Legal Memorandum: Insurance Code Violation and ERISA Preemption

Issue: Under Texas law, does an insurance code violation prohibit an ERISA preemption?

           Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987) may be cited for the proposition that “[a]ll claims and causes of action regarding such insurance have been pre-preempted by [ERISA]”, but that case does not so hold.  Instead, the court held that Mississippi common law bad faith actions were preempted and not saved because they were laws of general application, not “specifically directed toward that [the insurance] industry.”  481 U.S. at 50.  More important, in the later decision of FMC Corp v. Holliday, 111 S. Ct. 403 (1990) the court reaffirmed the principle that “Congress does not intend to pre-empt areas of traditional state regulation,” and that “if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer’s insurance contracts . . . . ”  Id. at 410, 411.  No recent fifth circuit or Texas decision was found discussing Holliday in the precise context of a state statutory scheme directed at regulating insurance.  Therefore, a brief discussion of the United States Supreme Court’s development of the applicable ERISA statutory language—the preemption, saving and deemer clauses—is necessary.*FN1

First, in Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985), the court considered whether a Massachusetts statute mandating certain health care benefits was preempted by ERISA.  The court adopted a two-step process which first examines whether state law is within ERISA’s preemption clause, 29 U.S.C. § 1144(a) (1988).  This clause provides that ERISA “shall supersede any and all […]