Rescission in the Modern Age

Posted on March 16, 2016 08:15 by Gary L. Howard

Although the equitable remedy of rescission dates back to the common law of Great Britain, it remains an effective tool for insurers.  I look forward to presenting the topic of Rescission in the Modern Age: Overlooked Tool or Obsolete Relic? at the upcoming annual DRI Life, Health, Disability and ERISA Seminar.  

The notion that both parties to an agreement must operate in good faith is a historical tenet of contract law.  Further, insurance policies are considered to be contracts of utmost good faith.  For this reason, and because parties to insurance contracts could be more vulnerable to misrepresentation or concealment of material fact than other contracting parties, rescission has been applied to insurance policies to allow an insurer to void a contract. 

Today, state laws vary as to the requirements an insurance company must meet to employ the remedy of rescission to void an insurance contract.  Some states merely require a material misrepresentation in the policy application to rescind the contract.  In this context, a material misrepresentation generally occurs when the insured makes an untrue statement that would have changed the rate at which insurance would have been provided or which would have changed the insurer’s decision to issue the contract.  Typically, the burden is on the insurer to show that there is a material misrepresentation.  In these states, the insurer must simply show that it would not have issued the policy had it known the true facts that were misrepresented.  At the other end of the spectrum, some states may require that intent to deceive be proven in order to rescind the contract.  Additionally, some states have specific standards for rescission of life, health, and disability insurance policies that differ from other types of insurance.  Finally, another wrinkle in the availability of rescission has been the Affordable Care Act.  Under the ACA, rescission is illegal except in cases of fraud or intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage.  If a plan or health insurance issuer wants to rescind coverage, the ACA requires thirty days’ written notice and proof that an insured intentionally put false or incomplete information in his or her application.

In addition to the varying laws affecting an insurer’s access to rescission, we will cover incontestability clauses, arguments against rescission that an insurer is likely to encounter and relay some practical pointers on rescission.

As always, I look forward seeing you all in Chicago!


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On April 16, 2013, the U.S. Supreme Court issued its decision in US Airways, Inc. v. McCutchen (No. 11–1285), deciding the issue of whether equitable defenses, such as the principle of unjust enrichment, can override the reimbursement provision of a health benefits plan established under the Employee Retirement Income Security Act (ERISA). Specifically at issue in the case was §502(a)(3) of ERISA, which authorizes health-plan fiduciaries to bring a civil action to obtain appropriate equitable relief to enforce the terms of a plan. The Court held that such equitable defenses cannot override the clear terms of a plan.

The case arose from a dispute over a health benefit plan provision that required participants to reimburse the plan for medical expenses where the expenses were incurred as a result of the fault of a third party and the participant was able to obtain a recovery from the third party. After a participant in the health plan suffered injuries in a car accident, the plan paid medical expenses in the amount of $66,866. The participant then sued the driver and recovered $110,000 ($40,000 of which went to attorney’s fees). The employer, as a fiduciary of the health plan, then sued the participant under §502(a)(3) seeking reimbursement. In response, the employee asserted various equitable defenses to reduce the plan’s recovery, including unjust enrichment, and also argued that the plan was required to share in the attorney’s fees and costs incurred in obtaining the tort recovery.

The case eventually reached the Third Circuit Court of Appeals, which ruled that in a §502(a)(3) suit and regardless of the terms of an ERISA plan, a court must apply any “equitable doctrines and defenses” that traditionally limited the relief requested. The Third Circuit held that “the principle of unjust enrichment,” for example, overrides a plan’s reimbursement clause if and when they come into conflict. The court also held that the plan was required to share in the participant’s attorney’s fees and costs under the common fund doctrine.

The U.S. Supreme Court held that equitable defenses cannot override the clear terms of an ERISA plan. According to the Court, attempting to enforce the employer’s plan— “the modern-day equivalent of an ‘equitable lien by agreement’”—“means holding the parties to their mutual promises” and “declining to apply rules…at odds with the parties’ expressed commitments.” Because the health plan effectively disclaimed the application of unjust enrichment or other equitable defenses, the Court ruled that the participant could not rely on equitable defenses to defeat “the plan’s clear terms” and thereby reduce the plan’s recovery. However, the Court went on to find that the health plan was silent on the issue of whether it was obligated to share in the attorney’s fees and costs incurred in obtaining the tort recovery. As a result of this silence, the Court held that the common fund doctrine would provide the default rule, requiring the plan to reduce its reimbursement recovery by a pro rata share of the fees and costs incurred in the tort action. 

The McCutchen decision reinforces the importance of ERISA plan documents and the fact that plan terms override otherwise applicable equitable principles. It provides important guidance not only for those who litigate these types of cases, but also for those who draft the plans in the first place.
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It is not uncommon for plaintiffs to argue - and for some defense lawyers to agree - that individual life, health, or disability insurance policies cannot be part of an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. Section 1001, et seq. ("ERISA"). Not so. ERISA broadly provides that an employee welfare benefit plan can be funded "through the purchase of insurance or otherwise," 29 U.S.C. §1002(1), and makes no distinction between individual insurance and group insurance. Thus, benefits under an ERISA-compliant plan can be funded by one or more group or individual insurance policies, or a combination of group and individual insurance policies.

In the past year, there have been several federal district court decisions holding that programs involving individual disability insurance policies are governed by ERISA, even in some instances where the actual structure of the ERISA program expired before an insured filed a claim for benefits under the policy. This article will discuss two of those decisions - both in California - as illustrations of the types of arrangements involving individual insurance policies that courts have found to be regulated by ERISA.

Indicia of an ERISA Plan

The ultimate question in determining whether any insurance policy - individual or group - is regulated by ERISA, is whether the policy is part of an employment relationship. That necessarily requires the establishment of an employer-employee relationship, i.e., there must be an employer and at least one covered employee/participant. See, e.g., 29 C.F.R. §2510.3-3(b) and (c) (every ERISA plan must cover at least one common law employee). It also requires evidence that the insurance policy is part of the employment relationship.

In a typical group insurance arrangement, a group insurance policy is issued to an employer who determines that it will provide coverage to a select group of employees. The employer also typically contributes at least part of the cost of the employee's coverage and/or performs other functions or actions indicating that the employer endorses the program and/or has adopted the policies as part of its overall employee benefit program.

A typical program involving individual policies of insurance is not so different. Examples of some of the common practices involving individual insurance policies can include the following:

  • A multi-life program, sometimes exhibited in a written agreement between an employer and an insurer.
  • The employer selects the broker, the insurer, and sometimes the types of policies that will make up the program.
  • The employer may agree to accept certain responsibilities for establishing and/or maintaining the program, such as payment of all or a portion of the premiums.
  • Premiums are subject to a discount as a result of the agreement between the employer and the insurer.
  • There may be other benefits such as abbreviated underwriting procedures or higher coverage limits.
  • Billings are made directly to the employer, sometimes referred to as a "list bill."
  • Individual policies are issued to a select group of employees, many times including one or more owner/employees of the employing entity (frequently a professional corporation).
  • The employer maintains ongoing communication with the insurer, including administrative tasks such as informing the insurer when new employees are hired or existing employees are terminated.
  • The employer facilitates payment of the premiums. The actual financial responsibility for the premiums may occur in a number of ways, e.g., the employer may absorb the cost, the employer may pass on some or all of the cost to the employees (such as through payroll deductions or via a flexible benefits program), the employer may ask the employees to pay the premiums directly and may reimburse the employees through a bonus program, or the cost of the premiums may be deducted from various expense accounts available to the employees. Many times the purpose of passing on the costs to the employees is to ensure that any benefits would not be subject to income taxes.

Structure of an ERISA Plan

The structure of an ERISA welfare benefit plan is statutory and requires five elements: (a) a plan, fund, or program; (b) established or maintained; (c) by an employer (or an employee organization); (d) for the purpose of providing statutory benefits (including life, health, and disability insurance); (e) to participants and beneficiaries. 29 U.S.C. §1002(1). In the context of group or group-type insurance programs, courts also look to whether the program falls within the "safe harbor" regulation, which excludes any program from ERISA where the employer is a mere advertiser of the program. In order to satisfy the regulatory safe harbor, a plan must satisfy several elements. Two of these elements are most often in dispute when one is attempting to determine whether a plan is exempt from ERISA: (a) whether the employer contributes to the program; and (b) whether the employer has endorsed the program. Satisfaction of either of these elements removes a plan from the safe harbor exemption. 29 C.F.R. §2510.3-1(j).

Case Study: Zide v. Provident Life & Acc. Ins.

The employer in Zide v. Provident Life & Acc. Ins. Co., 2011 U.S. Dist. LEXIS 153777 (C.D. Cal. Apr. 9, 2011) signed a salary allotment agreement with Provident Life & Accident Insurance Company whereby the employer represented that it would pay the entire premium cost in consideration for Provident to issue individual disability policies to select employees of a medical corporation, some of whom were also shareholders of the corporation. The salary allotment agreement was in effect for many years. During that time, various doctors were covered under the plan. Some of the doctors were employees when first covered, but later became shareholders. Premiums were billed via periodic list bills sent to the corporation and the corporation paid the premiums. The corporation then charged the premiums back to the various doctors. There was a substantial premium discount as well as other benefits which continued even if a doctor left the corporation and continued to pay the policy premiums. By the time Dr. Zide filed a claim for benefits under his policy, he was the only insured left at the corporation and he was the sole owner of the corporation. When Provident terminated Dr. Zide's benefits, he sued under California state law and alleged bad faith, seeking compensatory and punitive damages. Provident alleged, among other things, that Dr. Zide's policy was governed by ERISA and that his bad faith claim was preempted.

The district court granted judgment to Provident, ruling that the insurance program was an ERISA plan and that Dr. Zide's state law claims were preempted. Applying the statutory five-factor test, the district court concluded:

  • Although there was no formal plan document apart from the insurance policy, there was an established plan, fund, or program in that the plan was a reality and not a mere promise of future potential coverage.
  • The program was established and maintained by the employer corporation: premiums were paid initially by the employer; the employer performed other ongoing administrative services, including maintaining contact with the insurer over a period of years; and the employees received a substantial discount and other benefits from the arrangement.
  • The corporation was an employer and was identified as such in the salary allotment agreement with the insurer.
  • The program provided statutory benefits (benefits in the event of disability).
  • There were participants in the program in that the program covered at least one non-owner employee of the corporation at least some point during the program's existence.

The district court also concluded that the program fell outside of the safe harbor exemption. Even though the employees bore the ultimate cost of the premiums, the availability of a discount through the efforts and commitment of the employer and which was in existence solely by virtue of the employment relationship, constituted an employer contribution to the program. Finally, the court ruled that even though the program might not satisfy all of the ERISA requirements at the time Dr. Zide filed his benefit claim -- because it no longer covered at least one non-owner employee -- the fact that the program had at one time been governed by ERISA meant that Dr. Zide's policy continued to be governed by ERISA as he continued to reap the various benefits (discounted premiums and higher levels of coverage) made available to him by the employment relationship and the employer's commitments to the insurer.

Case Study: Masteler v. Paul Revere Life Ins.

Another recent example of an individual disability insurance policy being governed by ERISA is the case of Masteler v. Paul Revere Life Ins. Co., 2012 U.S. Dist. LEXIS 21725 (S.D. Cal. Feb. 22, 2012). In that case, a large national employer entered into an "employee security program" with Paul Revere whereby the insurer agreed to issue individual disability income policies to a select group of executive employees with favorable coverage options and substantial premium discounts, in exchange for the employer's promise to pay the premiums. The program was in effect for several years and multiple policies were issued to executive employees of the employer during that time. When the plaintiff applied for his policy, he represented to the insurer that his employer would pay the entire premium cost. The evidence indicated that the employer did pay the first annual premium for his policy, but several months after the policy was issued, the plaintiff left his employment. He continued the policy, agreeing to pay future premiums himself.

The plaintiff became disabled due to a heart condition and was paid benefits for several years. When benefits were about to reach the maximum pay period under the policy, the plaintiff argued that his heart condition was an injury rather than a sickness, triggering the lifetime benefit clause of the policy. The insurer disagreed, benefits were terminated, and the plaintiff sued under California state law, alleging bad faith and seeking compensatory and punitive damages. Among other things, Paul Revere argued that the policy was governed by ERISA and that the plaintiff's state law claims were preempted.

The district court agreed with Paul Revere and dismissed the plaintiff's state law complaint. The court held that where an employer enters into an agreement with an insurer to make individual disability policies available to employees at discounted premiums and higher coverage levels and pays the premiums, the employer has established an ERISA plan. The court ruled that the regulatory safe harbor did not apply because the employer paid the premium cost. Finally, the court ruled that where the employee elected to continue his coverage under the same policy and under the same terms after he left his employment, the fact that the plaintiff took over the premium payments did not remove the policy from ERISA. The plaintiff's claim was governed exclusively by ERISA and his state law claims were preempted.


The Zide and Masteler decisions are just a couple of examples of situations where individual insurance policies were held to be governed by ERISA. These decisions dispel the myth that only group insurance policies can be part of an ERISA plan and that individual insurance is invariably subject to state law. Of course, in order for ERISA to apply, there must be a nexus to an employment relationship, but once that nexus is established, many fact scenarios may bring individual policy coverage under ERISA and outside of state law.

Mark E. Schmidtke

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

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CMS Announcements on Fixed Percentage Option for Settlements of $5,000 or less, $300 Threshold Limit for Reimbursement, and Identification of Contractor for Medicare Secondary Payer Recovery

The Centers for Medicare and Medicaid Services (“CMS”) announced an option which will allow for payment of a simple fixed percentage on small dollar liability insurance or self-insurance settlements for physical trauma-based injuries. Effective November 7, 2011, in cases where the settlement is $5,000 or less, a Medicare beneficiary may opt to resolve Medicare’s recovery claim by paying Medicare 25% of the total settlement instead of using the standard recovery process.

The benefit of this option is that parties will be able to calculate the amount of reimbursement due to Medicare immediately during settlement negotiations, without waiting for the plaintiff/claimant to obtain a Final Demand Letter from CMS. 

This fixed percentage option is not applicable -- 
to claims involving ingestion, exposure or medical implants 
if Medicare has already issued a Final Demand Letter or other request for reimbursement 
if plaintiff/claimant will receive other settlements, judgments, or payments related to the injury 

In addition, CMS announced that Medicare will not seek to recover in cases where the plaintiff/claimant received a lump sum settlement of $300 or less.  The $300 threshold is not applicable – 
to claims involving ingestion, exposure or medical implants 
if plaintiff/claimant will receive additional settlements on the same injury 

Finally, effective October 1, 2011, CMS has contracted with Group Health Incorporated to perform the Medicare Secondary Payer recovery activities while a full and open competition for this work is being conducted. The current phone numbers and mailing addresses for these activities remain unchanged.

For more information, see the Medicare Secondary Payer Recovery Contractor website, at, or the CMS website at
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DRI’s Life Health, Disability and ERISA Claims Seminar returns to Chicago and offers practical guidance for claims and legal professionals. This seminar provides unparalleled presentations by distinguished inside and outside counsel, as well as a member of the judiciary and medical experts. The expert faculty will focus on practical pointers, checklists and best practices that can be utilized daily. The 2010 seminar offers more continuing legal education than ever before. The first day of this program includes three parallel tracks of focused programming (Life, Health and ERISA). Attendees may choose to attend one track or move between them at one-hour increments. Networking opportunities will abound. Join colleagues for dine-arounds led by in-house counsel and committee leadership in some of Chicago’s finest restaurants. Nine insurance companies plan to hold invitation-only counsel meetings in conjunction with this seminar. Meet the chief counsel for the Illinois Department of Insurance, who will speak at a breakfast meeting for inside counsel. Walk away having attended the preeminent seminar for the life, health and disability industry.

Click here for brochure:


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What is all the talk about the Medicare Secondary Payer Statute and the Medicare, Medicaid and SCHIP Extension Act (MMSEA)?  Do you and your clients know what is required of you?  DRI has established a Task Force which is putting together educational and practical tools for DRI members to help make sure that you and your clients are prepared to comply with the requirements imposed by this statute and the regulations. 
As a first step, DRI has put together three part webcast to educate you about the statute and regulations, their impact on litigating personal injury claims, the data reporting elements and requirements mandated in the MMSEA, and a final comprehensive educational overview of the statute and the challenges the regulations present.  Each webcast will address a different topic.  They are scheduled for August 26, September 10 and September 17, 2009.  You can register for these webcasts at
The Task Force is also preparing a presentation and materials to be made available for SLDOs to use to educate their members, a Best Practices Guide, and working with the Medicare Advocacy Recovery Coalition (MARC) on the national legislative level to try and modify some of the requirements to allow for a more reasonable approach to determining lien payments. 
Two articles addressing the statute and regulations have been published in the May and June, 2009 FTD and you should look for more to come.
If you would like more information about the DRI MSP Task Force, please contact

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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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DRI's annual Life, Health, Disability and ERISA Claims Seminar law program will be in New York next week. It is not too late to sign-up. I have the honor of being Vice-Chairing the program which is loaded with a star-studded faculty. Topics from agent misconduct to annuity class actions will be covered. 7 companies are having counsel meetings, inlcuding Hartford and Aegeon. The networking opportunities are bar none with a luncheon Thursday and dine-arounds that night. There will be a special guest from at the coporate counsel breakfast - Marty Schwatzman, Head of the NYS Dept of Insurance Life Bureau will provide a few comments. I hope to see you there.

Daniel W. Gerber

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Jury Runs Roughshod over FDA Regulations

Posted on March 31, 2009 03:28 by Kevin M. Cox

Preemption (pree-emp-Shen), n. The principle (derivedfrom the Supremacy Clause) that a federal law can supersede or supplant anyinconsistent state law or regulation.

In a very recent 6-3 decision, turning on federal preemption of state law, theSupreme Court held in Wyeth v. Levine that state law consumer safety tortclaims are not preempted by the Federal Drug Administration’s approval of awarning label for the drug and regulations prohibiting changing the label toconform with state law.

In Wyeth, a Vermont jury found that the petitioner, Wyeth, the manufacturer ofthe drug Phenergan, had failed to provide an adequate warning of the riskinjecting the drug via “I.V.-push method” and awarded damages to Diana Levineto compensate her for the infection, and subsequent amputation of her arm. Thejury determined that Levine’s injury would not have occurred if Phenergan’slabel included an adequate warning. Notably, the label clearly warnedpractitioners to use "extreme care" when injecting the drug andexplaining that resultant gangrene requiring amputation are likely” to occurwith the IV-push method.

Wyeth’s attorney’s argued that Levine’s failure-to-warn claims were preemptedby federal law. Phenergan’s labeling had been approved by the FDA. The SupremeCourt rejected Wyeth’s arguments, holding that the agency’s “changes beingeffected” (CBE) regulation permits certain pre-approval labeling changes thatadd or strengthen a warning to improve drug safety, and there was no evidenceto suggest the FDA would have denied Wyeth's request to include a strongerwarning label. The Court also held that requiring Wyeth to comply with astate-law duty to provide a stronger warning does not interfere with Congress’purpose of entrusting an expert agency with drug labeling decisions because thehistory of the FDCA shows that Congress did not intend to preempt state lawfailure-to-warn actions.

In his dissent, Justice Alito noted, “This case illustrates that tragic factsmake bad law.” The jury was presented with the injury to the Plaintiff and notthe benefits to the untold numbers of individuals helped by the drug. Accordingto Justice Alito, “the real issue is whether a state tort jury can countermandthe FDA’s considered judgment that Phenergan’s FDA-mandated warning labelrenders its intravenous (IV) use ‘safe.’” Justice Alito’s dissent urged thatthis case represents, at most, a medical-malpractice claim, and should not be a“’frontal assault’ on the FDA’s regulatory regime for drug labeling” upsetting“the well-settled meaning of the Supremacy Clause and conflict pre-emptionjurisprudence.”

Some see this case as representing a potential increase in products liabilitycases against drug manufacturers. Whereas previously manufacturers could sell adrug with FDA approval under the assumption that the approval provided themsome liability protection, this case has the effect of nullifying thisprotection. Others see this case as a “strategic loss” for the drug companies .However, a ruling by the Supreme Court giving drug companies federal immunityfrom suits under state laws could have provoked a drastic, and worse, responsefrom the Democrat-controlled Congress. 

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Golden Gate Association v. City and County of San Francisco (Case No. 07-17372, 9th Cir. March 9, 2009) involves a challenge on ERISA preemption grounds to a San Francisco law requiring all employers in the City to make mandatory contributions toward employee healthcare costs. The 9th Circuit reversed a District Court ruling that the law is preempted by ERISA. In denying Golden Gate's en banc rehearing petition eight Circuit Court Judges dissented from the court's decision not to rehear this matter en banc and issued a long opinion discussing why the majority is wrong. There's also a concurring opinion defending the majority's decision not to rehear the case. This decision creates a circuit split with the 4th Circuit's decision in Retail Industry Leaders v. Fielder case preemption issue holding that a Maryland state law imposing a similar employer mandate (albeit, only on employers of 10,000 or more employees in the state) was preempted by ERISA. Now that the Circuit Court denied rehearing, the matter is ripe for a petition for certiorari to the U.S Supreme Court.


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