It is a well-established principle of insurance law that state law claims relating to employee benefits plans covered by ERISA are preempted. An equally-well recognized legal principle, though not often encountered in the area of insurance defense, is the Younger abstention doctrine, which provides that, in certain circumstances, a federal court should abstain from exercising jurisdiction over a matter if there are related, ongoing state proceedings. Younger v. Harris, 401 U.S. 37 (1971). These two principles are pitted against each other in the case of Colonial Life & Accident Ins. Co. v. Massachusetts Comm’n Against Discrimination (MCAD), 584 F.Supp.2d 368 (D. Mass. 2008).

In Colonial Life v. MCAD, the District Court of Massachusetts was faced with the question of whether the Younger doctrine should apply where the ongoing state proceedings involve a state agency investigating whether short-term disability coverage, offered as part of an ERISA employee-benefits plan, failed to comply with state anti-discrimination laws. The facts were as follows: Colonial Life issued a short-term disability policy to Carolyn Calderon, an employee of UMass Memorial Health Care. The policy was offered to and acquired by Ms. Calderon as part of UMass Memorial’s employee benefits package. Ms. Calderon submitted a claim for disability benefits based on a mental disability, which claim was denied on the basis of an express exclusion in the policy for disabilities caused by psychological or psychiatric conditions. Ms. Calderon filed a Charge of Discrimination with the Massachusetts Commission Against Discrimination (MCAD), alleging that Colonial Life and UMass Memorial had violated state disability discrimination laws by virtue of this express exclusion in the policy.

Colonial Life and UMass Memorial filed suit in Federal District Court, seeking to enjoin the MCAD from pursuing its investigation on the grounds that Calderon’s claims were preempted by ERISA. The MCAD responded with a motion to dismiss the case, on grounds of Younger abstention. And so the District Court set to work to determine which of two competing core legal principles – ERISA preemption or Younger abstention – would prevail in this case.

Younger abstention is a judge-made doctrine that arises from the case of Younger v. Harris, decided three years before the enactment of ERISA. In Younger, the defendant was charged with violation of California’s Criminal Syndicalism Act, based upon conduct that allegedly promoted socialism. The defendant had successfully obtained an injunction in the District Court, halting the pending state criminal proceedings on the grounds that his prosecution violated his Constitutional rights under the First and Fourteenth Amendments. The Supreme Court reversed, holding that because the defendant could have raised his Constitutional defense in the state proceedings, he had an adequate remedy and no injunction was necessary. The Supreme Court further held that comity dictated that the federal court permit the state to continue with its prosecution. Summarizing the holding, Younger abstention applies where there are ongoing state proceedings: (1) that are judicial in nature; (2) that implicate important state interests; and (3) that provide an adequate opportunity to raise federal constitutional challenges.

Numerous cases following Younger have attempted to interpret the applicability of the abstention doctrine. In New Orleans Public Service, Inc. v. New Orleans, 491 U.S. 350 (1989) (NOPSI), the Supreme Court identified a limitation on the scope of abstention. NOPSI involved an energy company’s efforts to prevent a local agency from countermanding a requirement of the Federal Energy Regulatory Commission by denying its rate request that would permit it to comply with those requirements. The lower federal courts held that abstention was proper and the case was appealed to the United States Supreme Court. The Supreme Court reversed, holding that the District Court should not have abstained in this matter. Although its ultimate holding was based upon a determination that the proceeding was not judicial in nature, the Court addressed the reach of the abstention doctrine, discussing an exception to abstention where preemption is “facially conclusive.”

In Colonial Life v. MCAD, Colonial Life and UMass Memorial relied upon the facially conclusive preemption exception to the abstention doctrine, which the First Circuit embraced in Chaulk Services, Inc. v. Mass. Comm’n Against Discrimination, 70 F.3d 1361, 1368 (1st Cir. 1995). The court in Chaulk adopted the language of NOPSI, holding that abstention is inappropriate where the claim of preemption is “facially conclusive” or “readily apparent.” The court reasoned, “no significant state interests are served when it is clear that the state tribunal is acting beyond the lawful limits of its authority.”

In light of this exception, the pivotal issue in the case became whether ERISA preemption was “facially conclusive” or “readily apparent.” Answering this question involved not only an analysis of the benefit plan at issue in this case, but also required consideration of whether the Americans with Disabilities Act (ADA) prohibits insurance companies from differentiating between physical and psychological conditions. This is so because, pursuant to its own terms, ERISA does not preempt state laws that are consistent with the mandates of federal law. As such, although Calderon’s claim before the MCAD was that Colonial Life and UMass Memorial had violated state anti-discrimination laws, the Court had to determine whether federal law, specifically in this case the ADA, would prohibit a benefit plan from making such distinctions. The First Circuit, however, had not ruled on this issue. The MCAD argued that because there was no definitive statement from the First Circuit, this was a novel legal question, and therefore preemption could not be “facially conclusive.” The MCAD’s position was that the Younger abstention doctrine prohibited the district court from even reaching the question of whether the ADA prohibits such a provision in an insurance policy, because to do so would be exercising jurisdiction over the matter.

The court declined to adopt the MCAD’s position with respect to facially conclusive preemption, noting that it “must not shirk its responsibility” to decide legal questions “simply because the law is complicated or novel.” The court found that the ADA does not bar entities from offering different benefits for mental disabilities than for physical ones, and therefore found it was facially conclusive that the claims asserted by Ms. Calderon were preempted by ERISA. As such, the court denied the MCAD’s motion to dismiss, and granted Colonial Life and UMass Memorial’s motion for injunctive relief.

This case is presently on appeal to the First Circuit.

Jessica H. Munyon
Mirick O’Connell
Worcester, Massachusetts

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Categories: Employment/Labor Law | ERISA

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The First Circuit has yet to speak to whether the Supreme Court’s decision in Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008), will affect its approach to discovery in ERISA cases, though the Court heard arguments on the issue on December 2, 2008, in the case of Denmark v. Liberty Life Assur. Co.

Several district court opinions within the First Circuit have addressed the issue.  In Christie v. MBNA Group Long Term Disability Plan, 2008 WL 4427192 (D.Me. 2008), for example, the court denied the plaintiff’s motion for discovery, holding that even post-Glenn discovery regarding an ERISA administrator’s conflict of interest is only available upon a showing of good cause.

In that case, the plaintiff sought discovery regarding the insurer’s internal policies and procedures related to incentive programs, and regarding any internal structures used to “wall off” claims handlers.  The court denied the request because Christie had not shown how the discovery would impact the court’s analysis regarding the reasonableness of the underlying decision.  The court stated that the Glenn decision “was not a case about discovery” and did not alter the law in the First Circuit that good cause be shown to pursue discovery in an ERISA action.

The court did note, in dicta, that where a conflicted administrator’s decision is of “dubious quality” or presents only an “evenly balanced picture,” the existence of a structural conflict may be sufficient grounds to order discovery regarding the conflict of interest.  Additionally, the court noted that to the extent an insurer seeks to introduce evidence in its own favor to reduce the weight that is given to the structural conflict factor, the claimant should be permitted to conduct discovery.

Other district court cases within the circuit have similarly found that Glenn does not alter the rule that discovery in ERISA cases is only permitted upon a showing of good cause.  See Achorn v. Prudential Ins. Co. of Amer., 2008 WL 442715 (D.Me. 2008); DuBois v. Unum Life Ins. Co. of Amer., 2008 WL 2783282 (D.Me. 2008).  The question of whether the First Circuit will likewise find that Glenn does not alter the law regarding the availability of discovery should soon be answered, once the court issues its decision in Denmark.

Jessica H. Munyon
Mirick O'Connell


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Categories: Discovery

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