On April 20, 1999, the Supreme Court held that California's notice-prejudice rule is a "law...which regulates insurance," and is therefore saved from preemption by ERISA. The Court also ruled, however, that ERISA does preempt California decisional law that any employer who participates in the administration of a group insurance policy could be deemed an agent of the insurer. The Court reasoned that deeming the employer an agent of the insurer would force the employer to assume a role with attendant legal duties and consequences that it has not undertaken voluntarily.UNUM issued a disability policy to Ward's employer that required proofs of claim to be furnished no later than one year and 180 days after the onset of the disability. Ward became permanently disabled and less than one year later, he became eligible for state disability benefits and informed his employer of his disability. When his employer informed him that the plan covered his condition, he filled out the application, gave it to his employer, who forwarded it to UNUM. UNUM denied the claim as untimely. Ward argued that the employer was an agent of the insurance company so notice to his employer sufficed to supply timely notice to UNUM.
The Court's decision that an employer is not an agent of the insurance company may prevent a flood of new claims, but the employer remains exposed to liability for a denial of a claim if it delayed the submission of the claim and the insurance company can show that it was prejudiced by the delay. The decision in this case may lead to further ERISA litigation over the definition of regulating insurance.
Oral argument was held on February 24, 1999.