ERISA Preemption

Preemption is a word that is often heard in connection with lawsuits involving employee benefits. Basically, preemption means that any claim asserted under state law which relates to matters governed by the federal statute, known as ERISA, are made ineffective as to that particular claim. Federal laws that relate to interstate commerce or tax matters are supreme, or “trump” the state laws.

Congress found that the protection of employee benefit rights was a matter that affected interstate commerce as well as the federal taxing power, and so Congress made the ERISA statute supreme as far as matters relating to employee benefit plans. Under state law, an insurance contract in Alabama is also subject to bad faith law. When a claim for bad faith is established, it may give rise to claims for mental anguish damages and punitive damages. However, as to insurance policy providing, for example, long-term disability benefits through an employer, ERISA will “trump" state law. Only the remedies found in ERISA will be allowed if there is a breach or claim. These remedies do not include claims for mental anguish damages or punitive damages. The only exception to this is the fact that the U.S. Supreme Court has left open the possibility that in some breach of fiduciary claims, punitive damages may be part of a form of equitable relief. However, for typical benefit claims, only explicitly noted ERISA damages are recoverable, which does not include mental anguish damages and (most of the time) punitive damages.