STATE BAD FAITH ACTION UNDER CONVERSION PLAN NOT PREEMPTED BY ERISA
In Waks v. Empire Blue Cross/Blue Shield (01 CDOS 7218), the Ninth Circuit held that a bad faith action arising out of the denial of benefits under an individual conversion plan was not preempted by ERISA.
In Waks, a subscriber converted her health care coverage from an ERISA group plan to an individual plan after her employer went out of business. The conversion plan refused to provide benefits and the subscriber sued the plan for bad faith.
The Ninth Circuit held that her conversion plan was not an ERISA plan because it covered the subscriber as an individual and not as an employee, and that the subscriber's claims were not related to an ERISA plan because her conversion plan was a contract directly between the plan and the subscriber, it was independent of the defunct ERISA plan, did not place any burdens on the administrator for the defunct plan, and there were no relevant administrative actions by her employer.
The Ninth Circuit noted that its previous decisions concerning conversion coverage did not actually involve conversion plans. It said that Peterson v. American Life & Health did not involve a conversion plan, but instead involved an ERISA plan that continued to provide coverage for a partner of the business after its sole employee had left the company. The Court noted that Qualls v. Blue Cross of Cal. did not involve a conversion plan, but Involved an employee who left the company but continued to be covered under the company's ERISA plan by paying his own dues for coverage.
In Tingey v. Pixley-Richards West, an insurer refused to allow an insured to convert to an individual plan after losing his job. The Court held that the action was preempted because the right to convert was provided by the ERISA plan, not the individual conversion plan. Similarly, in Greany v. W. Farm Bureau Life, an employer was sued for negligently failing to provide a terminated employee with the correct date of termination so that he could obtain a conversion plan. The Court held that the right to a conversion plan, not the conversion plan itself, was subject to ERISA.
