James Barber v. Unum Life Insurance Company of America

PRECEDENTIAL
UNITED STATES
COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 03-4363
JAMES BARBER
v.
UNUM LIFE INSURANCE
COMPANY OF AMERICA,
Appellant
On Appeal from the
United States District Court for the
Eastern District of Pennsylvania
D.C. Civil Action No. 03-cv-03018
(Honorable Clarence C. Newcomer)
Argued May 25, 2004
Before: SCIRICA, Chief Judge,
RENDELL and ALARCÓN*,
Circuit Judges
(Filed September 7, 2004)
E. Thomas Henefer, Esquire (Argued)
Stevens & Lee
111 North Sixth Street
P.O. Box 679
Reading, Pennsylvania 19603
Attorney for Appellant
Joseph F. Roda, Esquire (Argued)
Roda & Nast
801 Estelle Drive
Lancaster, Pennsylvania 17601
Attorney for Appellee
Glen D. Nager, Esquire
Jones Day
51 Louisiana Avenue, N.W.
Washington, D.C. 20001
Attorney for Amicus Curiae-
Appellant, Chamber of
Commerce of the United States
Arnold R. Levinson, Esquire
Pillsbury & Levinson
One Embarcadero Center, Suite 3860
San Francisco, California 94111
Attorney for Amicus Curiae-
Appellee, United Policyholders
OPINION OF THE COURT
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
dismissal of plaintiff’s bad faith claim
based on ERISA preemption. Barber v.
*The Honorable Arthur L. Alarcón,
United States Circuit Judge for the Ninth
Judicial Circuit, sitting by designation.

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

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

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

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II.
A. Conflict Preemption
Under the doctrine of conflict
preemption, a state law may be preempted
“to the extent that it actually conflicts with
federal law,” English v. Gen. Elec. Co.,
496 U.S. 72, 79 (1990), that is, where it
“sta n d s a s a n obstacle to th e
accomplishment and execution of the full
purposes and objectives of Congress.”
Hines v. Davidowitz, 312 U.S. 52, 67
(1941). UNUM contends conflict
preemption applies because 42 Pa. C.S. §
8371 is a separate enforcement scheme
that enlarges the remedies otherwise
available under the detailed civil
enforcement provision of ERISA § 502(a).
Until the Supreme Court’s recent
decision in Aetna Health Inc. v. Davila,
124 S. Ct. 2488 (2004), the debate over
ERISA conflict preemption centered on
two Supreme Court cases—Pilot Life, 481
U.S. 41, and Rush Prudential, 536 U.S.
355. In Pilot Life, an insurance company
terminated an injured employee’s disability
plan. 481 U.S. at 43-44. The employee
brought a common law tort and contract
action asserting improper processing of a
benefits claim. Id. The Court found the
saving clause did not save the bad faith
claim because it did not “regulate
insurance.” Id. at 50. But stating it was
obliged to consider “the role of the saving
clause in ERISA as a whole,” the Court
noted an “understanding of the saving
clause must be informed by the legislative
intent concern ing [ER ISA’s] civil
enforcement provisions,” which, the Court
said, were “intended to be exclusive.” Id.
at 51-52. In ruling that punitive damages
in a bad faith cause of action constituted
an additional remedy, the Court explained:
[The provisions of ERISA]
set forth a comprehensive
civil enforcement scheme
that represents a careful
balancing of the need for
prompt and fair claims
s e t t l e m e n t p r o c e d u r e s
against the public interest in
encouraging the formation
of employee benefit plans.
The policy choices reflected
in the inclusion of certain
remedies and the exclusion
of others under the federal
s c h e m e w o u l d b e
completely undermined if
ERISA-p lan participants
and beneficiaries were free
to obtain remedies under
1347, 1352 (3d Cir. 2002). Because this is
an appeal of a Fed. R. Civ. P. 12(b)(6)
motion, we accept all factual allegations in
the complaint and all reasonable inferences
to be drawn therefrom in the light most
favorable to the plaintiffs. Rossman v.
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.

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

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7
The parties here have focused on
whether the Supreme Court treatment of
conflict preemption in Pilot Life and Rush
Prudential is dicta, noting Rosenbaum II
found it to be “dicta” that was
“unpersuasive.” Rosenbaum II, 2003 U.S.
Dist. LEXIS 15652, at *20-21.7 Whatever
the outcome of that debate, it is no longer
material because in Aetna Health, 124 S.
Ct. 2488,8 the Court confirmed that state
ERISA.”); Mass. Mutual, 473 U.S. at 146
(ERISA § 502(a)’s “carefully integrated
civil enforcement provisions . . . provide
strong evidence that Congress did not
intend to authorize other remedies that it
simply forgot to incorporate expressly.”).
7Even 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 d i s m i s s t h e s e
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
Cir. 2003) (quoting McDonald v. Master
Fin., Inc. (In re McDonald), 205 F.3d 606,
612-13 (3d Cir. 2000)).
8The District Court decided this case
before the decision in Aetna Health, 124 S.

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laws that supplement ERISA’s civil
enforcement scheme conflict with
Congress’ intent to make the ERISA
remedy exclusive. Id. at 2495.
In Aetna Health, the Court held the
plaintiffs’ claims under the Texas
Healthcare Liability Act, which imposed a
duty of ordinary care in the handling of
coverage decisions, were completely
preempted by ERISA and therefore
removable to federal court. Id. at 2492-93,
2498. Noting that ERISA’s “integrated
enforcement mechanism, ERISA §
502(a),” is “essential to accomplish
Congress’ purp ose o f creating a
comprehensive statute for the regulation of
employee benefit plans,” the Court held
“any state-law cause of action that
duplicates, supplements, or supplants the
ERISA civil enforcement remedy conflicts
with the clear congressional intent to make
the ERISA remedy exclusive and is
therefore pre-empted.” Id. at 2495 (citing
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
remedy to those provided by the ERISA
civil enforcement mechanism” because
such a cause of action “conflicts with
Congress’ clear intent to make the ERISA
mechanism exclusive.” Id. at 2498 n.4.
R eading Pilot L ife, Rush
Prudential, and Aetna Health together, a
state statute is preempted by ERISA if it
provides “a form of ultimate relief in a
judicial forum that added to the judicial
remedies provided by ERISA,” Rush
Prudential, 536 U.S. at 379, or stated
another way, if it “duplicates, supplements,
or supplants the ERISA civil enforcement
remedy.” Aetna Health, 124 S. Ct. at 2495
(citing Pilot Life, 481 U.S. at 54-56). 42
Pa. C.S. § 8371 is such a statute because it
is a state remedy that allows an ERISA-
plan participant to recover punitive
damages for bad faith conduct by insurers,
supplementing the scope of relief granted
by ERISA. Accordingly, 42 Pa. C.S. §
8371 is subject to conflict preemption.
Ct. 2488. Because Aetna Health was
issued after oral argument, we requested
briefing from the parties.

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

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

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

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

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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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