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Media Alerts - Billy E. Prince v. Sears Holding Corporation -- Fourth Circuit
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March 2, 2017
  Billy E. Prince v. Sears Holding Corporation -- Fourth Circuit
Employee Beware--Check Your Mail for Insurability Questionnaires to Avoid ERISA Preemption

Areas of Law: Employee Retirement Income Security Act

Issue Presented: Whether the Employee Retirement Income Security Act ("ERISA") preempts state law claims for misrepresentation, constructive fraud, and infliction of emotional distress.

Brief Summary: Billy E. Prince, an employee of Sears Holding Corporation, brought a suit alleging that Sears improperly administered his late wife's life insurance benefits. Specifically, Mr. Prince brought the suit alleging misrepresentation, constructive fraud, and infliction of emotional distress. The United States Court of Appeals for the Fourth Circuit held that ERISA completely preempted Billy Prince's state law claims under the three prong test articulated in Sonoco Prods. Co. v. Physicians Health Plan, Inc.

Extended Summary: In November 2010, Mr. Prince submitted an application to Sears for $150,000 in life insurance for his wife. Sears administered its life insurance plans through The Prudential Insurance Company of America ("Prudential"). In May 2011, Sears sent Mr. Prince an acknowledgement letter and began withholding premiums from his pay. In late 2011, Mr. Prince's wife learned that she had Stage IV liver cancer. In 2012, Mr. Prince confirmed through his online benefits summary that he had elected to purchase life insurance coverage for his wife in the amount of $150,000. In 2013, however, Sears sent Mr. Prince a letter saying that his wife's coverage never became effective because there was no evidence that Mr. Prince had submitted his insurability questionnaire. According to Sears, Prudential sent Mr. Prince a notice in 2011 stating that if he failed to send in the questionnaire his application for life insurance would be terminated. Mrs. Prince passed away in May 2014.

Mr. Prince filed a complaint against Sears alleging constructive fraud and negligent misrepresentation as well as the intentional and reckless infliction of emotional distress. Concerning the claim of intentional and reckless infliction of emotional distress, Mr. Prince alleged that Sears misrepresented the life insurance policy and that this misrepresentation inflicted harm on him and the late Mrs. Prince. Sears removed the case to the United States District Court for the Northern District of West Virginia and argued that the suit should be dismissed because ERISA completely preempted Mr. Prince's state law claims. The district court agreed.

ERISA's § 502(a) is a broad provision that provides participants and beneficiaries with causes of action for the denial of benefits or rights under an ERISA plan. The Fourth Circuit determined that ERISA can preempt state law causes of action when: (1) a plaintiff has standing under § 502(a) to pursue his claim; (2) the claim falls within the scope of an ERISA provision that ERISA can enforce via § 502(a); and (3) the claim is not capable of resolution without interpreting the ERISA plan. Because Mr. Prince conceded that he had standing, the Fourth Circuit only considered the second and third prongs of the test articulated in Sonoco Products Company v. Physicians Health, Inc.

Under the second prong, Mr. Prince argued that his claims were not preempted because they were dependent upon Sears's actions prior to the denial of benefits when they began deducting premiums from his pay and reported that he had coverage. The court held that regardless of whether Mr. Prince's claims attacked Sears's actions prior to the denial or in issuing the denial, they were preempted because they challenged the administration of the ERISA plan, which is a core §502(a) claim. Additionally, because Mr. Prince's claims addressed only Sears's duties as an ERISA plan administrator, Sears owed Mr. Prince no independent legal duty. Regarding the third prong, Mr. Prince again argued that he was only challenging the actions Sears took prior to the denial of benefits. The court, however, held that the claims of misrepresentation and constructive fraud required an analysis of Sears's "duty" as a plan administrator, which stemmed from the ERISA plan. Similarly, for the claim of emotional distress, determining whether Sears acted in an "outrageous" manner required interpretation of the company's duties and responsibilities under the ERISA plan. Thus, the Fourth Circuit held that ERISA completely preempted Mr. Prince's state law claims, affirmed the judgment of the District Court, and dismissed the complaint.

To read the full opinion, click here.

Panel: Judges Motz, Kennan, and Thacker

Argument Date: 12/06/2016

Date of Issued Opinion: 01/27/2017

Docket Number: No. 16-1075

Decided: Affirmed by published opinion

Case Alert Author: Dena Robinson, Univ. of Maryland Carey School of Law

Counsel: Chad Lewis Taylor, SIMMERMAN LAW OFFICE, PLLC, Clarksburg, West Virginia, for Appellant. Jill E. Hall, BOWLES RICE LLP, Charleston, West Virginia, for Appellee. ON BRIEF: Frank E. Simmerman, Jr., SIMMERMAN LAW OFFICE, PLLC, Clarksburg, West Virginia, for Appellant. Gerard R. Stowers, BOWLES RICE LLP, Charleston, West Virginia, for Appellee.

Author of Opinion: Judge Motz

Case Alert Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 03/02/2017 10:31 AM     4th Circuit  

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