Benefits and Compensation, HR Management & Compliance

State-Law Privacy Lawsuit Preempted by ERISA, Court Rules

A disability plan participant’s state-law privacy lawsuit against the plan’s claims administrator was dismissed by a federal district court, which found it was preempted by the Employee Retirement Income Security Act (ERISA). The case is Addington v. Senior Vice President—Human Res., Consol Energy Inc., No. 17-444 (W.D. Pa., Nov. 28, 2017).


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“Shawn,” an employee of Consol Energy Inc., left employment due to a disability and was approved for long-term disability (LTD) benefits. His benefits were terminated after 4 years, but he appealed the termination and Liberty Life Assurance Co. of Boston, the plan’s designated claims administrator, reinstated them.

In the letter reversing the termination, Liberty Life informed Shawn that the claim had been “returned to [“Heather”], Disability Claim Case Manager, for continued handling.” Later, without informing Shawn, Heather asked “Samuel” of MES Solutions to review his medical file. She provided him with Shawn’s medical records and a release authorization, and instructed him to contact Shawn’s treating physician, “Dan.”

After talking to Dan, Samuel provided a report to Liberty Life in which he opined that Shawn was not disabled. Therefore, Liberty Life again terminated his benefits, and this time denied his appeal.

Privacy Allegations

Shawn sued Consol’s senior vice president for Human Resources, as well as Liberty Life and Heather. His complaint included an ERISA claim for payment of benefits, as well as a Pennsylvania common-law claim of “inducement to breach contract of confidentiality” against Liberty Life and Heather.

“This claim is essentially an invasion of privacy claim and is supported by the following relevant allegations,” according to the court:

[Shawn’s] attorney had advised Liberty Life by letter dated June 2, 2016, that [Shawn] had revoked all releases previously given to Liberty Life to the extent they allowed verbal communication with third parties about [Shawn’s] claim. On June 3, 2016, [Heather] acknowledged in writing receipt of the June 2, 2016, letter. Therefore, [Shawn] alleges that Liberty Life, through [Heather], intentionally instructed [Samuel] to orally communicate with [Dan] without informing him that [Shawn’s] authorization had been partially revoked in order to ultimately induce [Dan] to breach his fiduciary relationship and violate his duty of confidentiality. (Citations omitted.)

Heather asked the court to dismiss the claim for lack of personal jurisdiction, and Liberty Life asked for dismissal on ERISA preemption grounds.

Personal Jurisdiction

First addressing the question of personal jurisdiction over Heather, the court found that it lacked such jurisdiction because Shawn’s claim did not relate to or arise from her contacts with Pennsylvania. Shawn stressed her role administering claims on a Pennsylvania employer’s behalf, but the court found that did not create the requisite connection to the state.

“Her conduct occurred outside of Pennsylvania, involved activity occurring outside of Pennsylvania, and none of her conduct was directed at activity within Pennsylvania,” U.S. Magistrate Judge Maureen Kelly wrote in the court’s opinion. “Accordingly, the Court lacks specific jurisdiction over [Heather].”

ERISA Preemption

Turning to the ERISA preemption issue, the court noted that common-law contract and tort claims generally are preempted if they “relate to” an ERISA plan, and a claim is “conflict preempted” if it duplicates an ERISA claim. Liberty Life and Heather argued that Shawn’s privacy claim was preempted because it was “based on conduct occurring during the course of the administrative review process of [Shawn’s] claim for benefits under the Plan.”

There was no allegation that the information Liberty Life received from Dan, through Samuel, was disclosed to anyone outside the administrative review process, the defendants noted. The state-law claim also would be conflict preempted, they added, “because the only injury alleged by [Shawn] as a result of the invasion of his privacy is the effect that the divulged information, or a limited portion of the information, may have had on the decision to deny him benefits.”

In response, Shawn cited the 9th U.S. Circuit Court of Appeals’ decision in Dishman v. UNUM Life Ins. Co. of Am., 269 F.3d 974 (9th Cir. 2001). In this case, where a disability plan participant alleged invasive tactics by the insurer investigating his claim, the 9th Circuit rejected the insurer’s ERISA preemption argument because the alleged tortious conduct did “not depend on or derive from his claim for benefits in any meaningful way.”

Also citing district court decisions from the 9th Circuit that ERISA did not preempt state privacy claims, Shawn concluded “that preemption of his state law claim is not warranted in this case as it would stand on its own regardless of whether his benefits claim was denied or granted.”

In their reply brief, however, Liberty Life and Heather distinguished these cases on the grounds that they involved “factual circumstances attenuated from the administration of the Plan.” They instead pointed to the 4th Circuit’s ruling in Darcangelo v. Verizon Comm., Inc. In this case, where the plan participant alleged the administrator was gathering information to help the employer fire her, the court found the plan participant’s invasion of privacy claim was not preempted by ERISA because the plaintiff alleged conduct unrelated to the plan administrator’s duties under the plan.

Conversely, the 4th Circuit opined that if the administrator had obtained her medical information “in the course of processing a benefits claim or in the course of performing any of its administrative duties under the plan,” the claim for invasion of privacy would be related to the ERISA plan and would be preempted.

In Shawn’s case, the district court found this reasoning persuasive, given the nature of his complaint. “[Shawn] alleges that due to the unauthorized disclosure [Samuel] only included a summary of [Dan’s] supportive medical opinion in his written report, and that summary was incomplete,” Kelly wrote. “The Court concludes that [Shawn] alleges that the damage he suffered as a result of the unauthorized disclosure is directly related to the decision to deny him benefits,” and that his allegations therefore are essentially a claim for benefits that “relates to” the ERISA plan.

The magistrate judge therefore recommended that Shawn’s claim be dismissed as preempted by ERISA. In a December 13 ruling, District Judge Nora Barry Fischer accepted these recommendations, except that instead of giving Shawn leave to amend the complaint, Fischer dismissed the suit with prejudice.

David Slaughter David A. Slaughter, JD, is a Senior Legal Editor for BLR’s Thompson HR products, focusing on benefits compliance. Before coming to BLR, he served as editor of Thompson Information Services’ (TIS) HIPAA guides, along with other writing and editing duties related to TIS’ HR/benefits offerings. Mr. Slaughter received his law degree from the University of Virginia and his B.A. from Dartmouth College. He is an associate member of the Virginia State Bar.

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