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In a recent decision, the Ninth Circuit Court of Appeals ruled that ERISA does not preempt causes of action

based on unfair insurance practice claims brought under Montanas Unfair Trade Practices Act. However, the

Court did find that Montanas so-called little HIPAA was preempted by federal HIPAA, which is part of ERISA.

In Fossen v. Blue Cross and Blue Shield, __ F.3d __ (9th Cir. October 18, 2011), the Court considered an appeal

from a District Court ruling that entered summary judgment in favor of Blue Cross on two causes of action.

Plaintiffs which consisted of three brothers, their corporations and a partnership of the three corporations

sued Blue Cross after the health insurer increased their premiums by over 40%. The lawsuit, filed in state

court, alleged two causes of action: violation of Montana Code Annotated 33-22-526(a) (also known as

Montanas little HIPAA statute) and violation of Montana Code Annotated 33-18-101 (also known as

Montanas Unfair Trade Practices Act). Plaintiffs alleged that premium increase violated little HIPAAsprohibition against imposing a premium or contribution that is greater than the premium or contribution for

a similarly situated individual on account of "any health status-related factor of the individual and the Unfair

Trade Practices Acts prohibition against unfair discrimination between individuals of the same class and of

essentially the same hazard in the amount of premium, policy fees, or rates charged. The action, filed in state

court, was removed to the District Court, which eventually granted Blue Cross motion for summary judgment

as to all causes of action.

On appeal, the Ninth Circuit first considered whether ERISA and federal HIPAA preempted state law causes of

action based on Montanas little HIPAA statute and conferred federal jurisdiction over the claim. Applying the

two-part test detailed inAetna Health Inc. v. Davila, 542 U.S. 200 (2004), the Ninth Circuit determined the

little HIPAA claim was preempted because the same claim could have been brought under the federal HIPAAstatute and there was no other independent duty implicated by Blue Cross actions. Specifically, the Ninth

Circuit advised that:

Because the Fossens' state HIPAA cause of action could have been brought under ERISA 502(a), and because that cause of action is identical to and expressly dependent upon ERISA,the district court properly denied the Fossens' motion to remand and exercised jurisdiction overthis case.

Next, the Ninth Circuit evaluated whether ERISA preempts the plaintiffs statutory unfair insurance practice

claim, considering both express preemption under ERISA 514 (29 U.S.C. 1144) and conflict preemption

under ERISA 502 (29 U.S.C. 1132). With respect to express preemption, the court applied the two-part testdetailed in Kentucky Association of Health Plans v. Miller, 538 U.S. 329 (2003) and determined that because

statute is both specifically directly toward entities engaged in insurance and substantially affect[s] the risk

pooling arrangement between the insurer and the insured it is exempt from express preemption.

As to conflict preemption, the court again applied Davila, and determined that the unfair insurance practice

claim was not preempted by ERISA because it sought relief (i.e., restitution) that was consistent with ERISAs

enforcement scheme, but that no provision of ERISA expressly guarantees the same rights as the statute.

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Cause of Action Asserted Against Blue Cross for Violation of Montanas Unfair Trade Practices Act is Not Preempted by ERISA

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Also, the unfair insurance practices statute creates a right that is separate from and could notpossibly be remedied under ERISA. Whereas HIPAA (both the state and federal versions)prohibits plans and their insurers from charging different premiums on account of "health status-related factor[s]," 29 U.S.C. 1182(b)(1); Mont. Code Ann. 33-22-526(2)(a), the unfairinsurance practices statute applies more broadly to bar "any unfair discrimination" with respectto premiums, Mont. Code Ann. 33-18-206(2) (emphasis added); see, e.g., McCarter v. GlacierGen. Assurance Co., 546 P.2d 249, 251 (Mont. 1976). Because these statutes are not identicalin scope (as is the case with the state and federal HIPAA provisions), they are not conflictpreempted.

Accordingly, the Ninth Circuit reversed the district courts grant of summary judgment and remanded this

claim for further consideration of the plaintiffs allegations that Blue Cross violated Montanas Unfair Trade

Practices Act.

By: Scott E. Calvert

Associate

McKennon|Schindler LLP

20321 SW Birch St, Suite 200

Newport Beach, California 92660

877-MSLAW20

(877) 675-2920