Unum Life Insurance Co. of America v. Ward

Background

An employee with a group long-term disability policy submitted proof of claim late and the insurer denied benefits. The employee sued under federal employee benefits law to recover plan benefits. A federal appeals court relied on California law in two ways: it treated California’s “notice-prejudice” rule as an insurance regulation that could save the employee’s late claim, and it suggested California’s agency rule might let the employee treat his employer as the insurer for notice purposes.

Reasoning

The Court addressed whether California’s notice-prejudice rule is an insurance regulation that survives preemption by federal law, and whether the California agency rule “relates to” employee benefit plans and is therefore preempted. The Justices applied a common-sense test and factors from earlier cases: they concluded the notice-prejudice rule is aimed specifically at insurance, is integral to the insurer–insured relationship, and is limited to the insurance industry, so it is saved from federal preemption. By contrast, treating employers as agents of insurers would change how plans are administered nationwide, so that agency rule “relates to” employee benefit plans and is preempted.

Real world impact

The result means that in California an insurer generally must show actual prejudice before denying a late insurance claim, but courts may not automatically treat employers as insurers for ERISA-governed plans. The case is sent back to the lower court to apply the saved notice-prejudice rule and to proceed consistent with the Court’s rulings.