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Montana Appellate Court Finds Non-ERISA Compensatory and Punitive Damages are Preempted by ERISA’s Private Enforcement Provision

Stephanie Elliot, a paralegal, obtained long-term disability (“LTD”) insurance through her employer. Her LTD insurance policy contained language that restricted coverage for pre-existing conditions.

Prior to starting her job, Elliott had undergone extensive breast cancer treatment. When she began her paralegal position and obtained LTD coverage, she had been cancer-free for almost two years, but she was taking medication and visiting doctors to prevent her cancer from returning.

Just shy of a year of working at the law firm, Elliott was diagnosed with brain and bone cancer, which reviewing doctors claimed stemmed from her previous cancer diagnosis. She stopped work due to her terminal illness and total disability. She applied for STD and LTD benefits. Her STD was paid in full, but her LTD benefits denied under the condition that her cancer was pre-existing.

She initially sued Fortis Benefits Insurance Company (“Fortis”) on two causes of action, (1) under ERISA for policy benefits, attorneys fees and costs (2) under Montana’s Unfair Trade Practices Act (UPTA) for non-ERISA compensatory and punitive damages. In the lower court, she won on the first (ERISA) cause of action, but lost on the second, state law cause of action.

The Court’s Decision regarding damages under UPTA:

The court held that Elliot was “pre-empted” or prevented from obtaining non-ERISA compensatory and punitive damages under Montana law because of two parts of the ERISA statute prevented her recovery:

  1. ERISA § 514, 29 U.S.C. § 1144
    • This law preempts “any and all state laws insofar as they may . . . relate to any employee benefit plan” in favor of federal regulation under ERISA.
    • The Elliot court held that while ERISA may save some state laws that regulate “insurance, banking, or securities” from being pre-empted, Montana’s UPTA was not saved. Therefore, Elliott could not recover under these laws.
  2. ERISA §502(a), 29 U.S.C. § 1132(a)
    • This law has been interpreted by courts to mean that “state laws . . . may be preempted simply because they provide individuals with a private cause of action that is not available to them under ERISA”
    • After going through the different tests and interpretations of previous courts, this Montana court held seeking “damages for what are essentially claim processing causes of action, clearly falls under the § 1132 preemption”

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