ERISA Preemption of State Laws Clause Explained: What You Can Do if Your Life Insurance Claim Is Affected

When a life insurance claim is denied and the beneficiary files an appeal or a lawsuit, the law that governs the case depends on how the insured obtained the coverage. If they bought an individual policy on their own, the case falls under state law. On the other hand, if they obtained their life insurance through work, a federal law called ERISA (the Employee Retirement Income Security Act of 1974) applies.

ERISA is a complex law meant to protect participants of employer-sponsored life insurance plans against unfair practices of life insurance companies and employers. ERISA is a federal law and it preempts – or trumps – conflicting state laws. In this article our ERISA lawyers explain what ERISA preemption is and how it can affect beneficiaries of a group life insurance plan who appealed or filed a lawsuit for a denied claim. 

If you think your claim might have been unfairly denied, call us at (888) 510-2212 for a free case evaluation.

Definition: What Is ERISA Preemption?

The ERISA preemption provision states that ERISA has priority over any state insurance law related to the employee benefit plan that might otherwise apply to the case. While the clause does help plan participants and their beneficiaries, in some cases this preemption strips them of critical state-provided protections they would need to avoid a life insurance claim denial

Does ERISA Preempt All State Laws?

Under Section 514 of the Act, ERISA broadly preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” The issue of whether ERISA preempts all state laws relating to an employee benefit plan is very complex and is subject to frequent litigation. The U.S. Supreme Court has discussed ERISA preemption of state laws many times.

what is erisa preemption clause

Common Life Insurance Issues Arising from ERISA Preemption 

If you are the beneficiary of a life insurance policy under ERISA, you need to be aware that ERISA preemption can cause some issues when the time comes for you to file an ERISA claim. If you are facing any of the situations below, do not hesitate to contact a life insurance lawyer.

Bad Faith Claims

Insurance companies are known for finding reasons to deny life insurance claims, often completely unfair. Sometimes, they even intentionally engage in bad faith tactics in an attempt to protect their financial interests. In this situation, if the policy is governed by state law, the life insurance beneficiary has the right to file a bad faith lawsuit. However, if the policy is controlled by ERISA, bad faith state law claims are not available. ERISA provides no bad faith claims for policyholders, therefore, you cannot file a bad faith claim if you suspect your death benefit was wrongfully denied.

Breach of Contract Claims

A beneficiary whose life insurance claim was denied in breach of the policy language may usually bring a breach of contract claim in court. With ERISA policies, however, such claims may not be available due to the preemption clause. Read more about breach of life insurance contract.

Community Property State Law

In community property states, the surviving spouse has the right to half of the life insurance death benefit even if he or she is not designated as the beneficiary. In other words, community property law overrides the beneficiary designation on a life insurance policy. This does not apply if the policyholder was part of an employee benefit plan, which is, in most cases, governed by ERISA. 

ERISA preempts community property state law which means that the life insurance payout the surviving spouse was entitled to goes to the beneficiary named on the policy in accordance with the terms of the plan. The only exceptions are if the spouse can prove that the beneficiary waived his or her rights to the proceeds or that the insured either lacked the mental capacity to make the designation or was unduly influenced to do so.

You can read more about how community property laws affect the distribution of the death benefit in our article about life insurance beneficiary rules for spouse

State Divorce Decree

There is no universal rule as to who receives life insurance after divorce but whether they are governed by state law or federal law plays an important role. Many states have laws that automatically revoke an ex-spouse’s rights to life insurance even though he or she was the listed beneficiary. This does not apply to group life insurance policies subject to ERISA. 

The automatic revocation law is preempted by the ERISA preemption clause, therefore the ex-spouse is still entitled to the death benefit if he or she is the designated beneficiary.

Read more about ex-spousal rights and life insurance beneficiaries after divorce.

What Are Your Legal Remedies Under ERISA?

ERISA also outlines the remedies available to plan participants and beneficiaries. For example, if a participant or beneficiary prevails in a denial of benefits claim under Section 502(a)(1)(B), he or she may recover the benefits owed under the terms of the plan. For breach of fiduciary duties claims, the beneficiary may recover the denied benefit and also attorney’s fees. 

What Remedies Does ERISA Preempt?

Section 502(a) of ERISA states that ERISA completely preempts any state laws conflicting with, duplicating, or superseding ERISA’s remedies. State law bad faith damages, breach of contract damages, fraud and other state law damages may not be available in ERISA litigation

What to Do if Your Claim Might Be Preempted by ERISA

If you suspect that your claim is wrongfully denied, it is best to consult with an ERISA attorney. You want to act immediately so that you do not allow the appeal deadline to pass or the statute of limitations to expire. 

At our law firm, our ERISA life insurance attorneys have vast experience in recovering proceeds from unfairly denied claims, whether they filed a claim under ERISA law or state law. They know how to handle the complex intersection between state and federal laws and will help you protect your life insurance beneficiary rights.

Contact us at (888) 510-2212 for a free consultation to determine whether you are entitled to the group life insurance policy death benefit.

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About the author

Attorney Tatiana Kadetskaya has over 10 years of experience in life insurance law representing beneficiaries and policy owners. She is best known for successfully collecting denied and delayed claims and settling complex beneficiary disputes and interpleader lawsuits.

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